Reliance, Aircel merger talks fall out

The transaction was due to complete this year

epa02465977 An Aircel advertising board seen at a busy street in New Delhi, India on 25 November 2010. The Indian 2G phone services scam controversy, that led to the resignation of A. Raja as the telecom minister, has forced India's telecom watchdog to recommend the scrapping of 69 of the 130 licenses given for 2G phone services since December 2006. 'The roll-out of services on these licenses has failed to comply with the set norms. Six companies had been given these 69 licenses,' a senior official of the Telecom Regulatory Authority of India (TRAI) said. Of the 69 licenses, 20 have been issued to Loop Telecom, 15 to Etisalat DB, 11 to Sistema-Shyam, 10 to Videocon, eight to Uninor and five to Aircel.  EPA/ANINDITO MUKHERJEE *** Local Caption ***  02465977.jpg
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The proposed merger of billionaires Anil Ambani and T Ananda Krishnan's mobile-phone businesses in India collapsed, in a blow to the companies' plans to pare debt and gain scale to better take on bigger rivals.
Mr Ambani's Reliance Communications and Mr Krishnan's Aircel were due to complete the transaction this year amid an intensifying price war that had worsened with the entry of Ambani's older brother, India's richest person, into the wireless phone services market a year ago.
Legal and regulatory uncertainties and intense competition -- along with policies adversely impacting bank financing for telecom companies -- have affected industry dynamics, Reliance Communications said in an exchange filing yesterday.
Consequently, the merger has "lapsed with mutual consent," it said.
The deal would have created India's fourth-largest carrier and given the companies more room to pay down combined debt that soared to about 600 billion rupees as of the end of last year. Aircel was one of several deals that Ambani was pushing as a way to reduce Reliance's debt.
Reliance Communications will consider an alternate plan to cut debt, which includes sharing and trading of its airwaves valued at about 190bn rupees, the company said in the statement. It will also consider plans to monetize its real estate, tower and fiber businesses.

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Under the terms of the proposed merger with Aircel, Reliance would have transfered more than 40 per cent of its debt, or 200bn rupees, to a new joint venture. Aircel, which is controlled by Maxis Communications, would have offloaded 40bn rupees of debt to the venture.
For Mr Krishnan, Malaysia's third-richest person, a deal with Reliance would have helped him hedge some of the risk of vying for subscribers in India's fragmented mobile phone services market. Last year, an Indian court issued an arrest warrant for Mr Krishnan over his alleged role in a years-old bribery scandal involving the purchase of mobile-phone airwaves -- allegations that the tycoon has denied. Behind the proposed merger were the rising difficulties of making money in a market that has some of the lowest phone rates in the world. One company responsible for escalating the rivalry is the market's newest entrant, Jio, which is controlled by Mr Ambani's older brother Mukesh.