Reliance Jio:

1. Impact on spectrum sales of Jios entry- aggressive launch of Jio will

pressure on existing telcos that already have over-leveraged balance
sheets, disincentivising them to purchase spectrum. AS it is excess
amount of spectrum is on offer and government thinks that it may have to
do it in 2 rounds
RCom-Aircel merger:
Overview (Announced details):
http://www.livemint.com/Industry/Yl9skYOEDfXVjiIBCcLhhJ/RelianceCommunications-Aircel-to-merge-mobile-business.html

Rcom to merge the wireless business with smaller rival Aircel Ltd to create
Indias third largest telecom operator by users
New entity with a new brand name to be created
RCom also said that the merged entity shall be the largest private sector
company owning an asset base of Rs65,000 crore and having net worth of
Rs35,000 crore.
combined entity will have 187.64 million subscribers, narrowing the gap
with market leaders Bharti Airtel Ltd (255.7 million) and Vodafone India Ltd
(199.4 million)
Both Reliance Communications and Maxis Communications will hold 50%
each in the merged entity and have equal representation on the board and
committees
RCom will retain all the non-wireless business
The merged entity will have the second largest spectrum portfolio among
all telecom operators in the country in bands such as 850MHz, 900MHz,
1800MHz and 2100MHz
Rcom also buying local unit of Russias Sistema JSFC
new entity will also have capital expenditure and operational expenditure
synergies with a net present value (NPV) of Rs20,000 crore
merged companys subscribers will have access to nationwide 4G LTE
services in the sub-1GHz band, under Reliance Communicationss existing
nationwide spectrum sharing and intra-circle roaming arrangements with
Reliance Jio Infocomm Ltd
RCom will reduce its debt by Rs20,000 crore, or roughly 48% of the
Rs41,362.1 crore outstanding as of 31 March. Aircel, owned by Maxis
Communications Bhd, will see its debt reduce by Rs4,000 crore, upon
completion of the transaction in 2017. How? Equity infusion? Isnt that for
capex?
Equity infusion, plus they are transferring debt into this merged entity,
reducing it from their own personal co books

Investors are not very happy/most analysts are bearish on the merger:
http://www.livemint.com/Money/ewViysTyeVy1LlDCRiPtAI/RCom-Aircel-announcemerger-the-devil-is-in-details.html

No answer on how much equity exactly will be infused into the system for
funding future growth plans, enhancing financial flexibility
Co. says that they are already in talks with investors to raise equity and
that the details will be provided post consummation of the merger
Issue of getting funds is very important as otherwise the future is pretty
bleak given that the other top 3+Jio will continue to invest. both RCom and
Aircel were at the bottom of the pack in the previous auction in March
2015. In the past year, RComs revenue market share has fallen
significantly
Details on spectrum sharing and intra circle roaming arrangements with
JIO are not known and it isnt clear how profitable operations will be under
them
Debt effectively same- It seems safe to assume that bringing two debtladen companies will result in a larger debt-laden company
JIOs entry will lead to flush out of smaller companies as they wont have
economies of scale and will find difficult to stay afloat unlike the larger
companies
Synergies: Rcom statement: The combined entity will enjoy substantial
benefits of scale driving significant revenue growth, and capex and opex
synergies with an NPV (net present value) of around Rs. 20,000 crore ($3
billion),
Historically cost synergies are hardly ever realised, investors should really
discount it.
unless the company clears the air about the debt that will sit in the new
entity and how it plans to infuse equity, there is little reason for investors
to get excited about the merger announcement
Debt situation: First, the company disclosed that the combined entity will
have total debt of Rs.35,000 crore, including Rs.7,000 crore in the form of
deferred spectrum payment liabilities. Based on earlier news reports, most
investors had assumed that the debt in the new entity will be restricted to
Rs.28,000 crore. According to an analyst with a domestic institutional
brokerage firm, this is clearly a negative surprise, as the combined entity
may end up with a net debt/Ebitda (earnings before interest, taxes,
depreciation, and amortization) ratio of around five times even under a
best-case scenario. This includes rosy assumptions that revenues remain
at current levels and that the combined entitys margins settle around
30%
A high level of indebtedness will put constraints on the new entity to fund
expansion and improve the quality of its network.
the merger would necessitate further payouts to the government in the
form of spectrum liberalization charges
RCom also said on the call that it plans to cut debt in the retained (nonwireless) business by selling its tower infrastructure business. Again, the
recent change in the dynamics of the industry would affect the valuations
this asset receives. More importantly, investors are now tired of hearing
about the tower asset sale; they are unlikely to get excited by just hearing
that a deal is in the pipeline
A subscriber base that generates low average revenue per user of Rs100,
slow growth rate and weak operations along with the fact that the entity

will have to establish a new brand and will carry a huge debt burden are
the challenges before the combined company, analysts at IDFC said