Anil Ambani-led Reliance Communications today said it is in talks to buy Russian firm Sistema's Indian telecom arm to create the nation's fourth largest private firm in the sector.
RCom will offer shares in the company to Sistema Shyam Teleservices in return for acquiring spectrum and customers in nine telecom circles or service zones.
"Reliance Communications and AFK Sistema have entered into exclusive discussions on a potential merger between the Indian telecom business of Sistema Shyam TeleServices Ltd (SSTL) and RCOM through a stock swap," RCom said in a statement.
Reacting to the announcement made by RCom, SSTL spokesperson said "SSTL concurs with the statement released by Rcom."
According to industry sources involved in the deal, SSTL is pushing to have about 10 per cent stake in the resultant entity while RCom wants to settle it at around 7-8 per cent.
When contacted, spokesperson of both the companies declined to comment on share holding pattern. "The discussions are indicative and non-binding in nature, and remain subject to due diligence, definitive documentation and approvals, as may be necessary.
There is no certainty that any transaction will result," RCom said. SSTL operates in nine telecom circles -- Delhi, Kolkata, Rajasthan, Gujarat, Karnataka, Tamil Nadu, Uttar Pradesh (West), Kerala and West Bengal.
Its licence in Rajasthan service area will come up for renewal in 2017-18. The company did not participate in March spectrum auction to buy additional spectrum for future growth.
This made SSTL heavily dependent on its competitors to chalk out growth path that too if government issues favourable spectrum sharing and trading guidelines. RCom in March auction won CDMA spectrum across 11 service area which include Gujarat, Kolkata, West Bengal and UP West as common service area of operations with SSTL.
Post merger, the resultant entity will have liberalised CDMA or 800 Mhz band spectrum across 15 telecom circle. The 800 Mhz band is considered to most efficient spectrum range for 4G services at present. RCom holds highest amount of 800 Mhz spectrum across India.
Most of the RCom's CDMA spectrum holding is due for renewal in 2022-23. Mukesh Ambani led Reliance Jio Infocomm too purchased spectrum in 800 Mhz band in last auction across 11 circles to give edge to its planned 4G services.
RCom had 10.94 crore and Sistema Shyam 88 lakh customers in March. RCom stock closed at Rs 58.85, up by 0.6 per cent, on the BSE.