The merger of the wireless business of Reliance Communications (RCom) with Aircel (Aircel), is a key milestone in the ongoing consolidation in the telecom sector, says India Ratings and Research (Ind-Ra).

Ind-Ra believes that the merger will enable the new entity RCom-Aircel to give strong competition to its peers in the backdrop of the disruption that the launch of operations by Reliance Jio Infocomm (RJio) has caused.

The combined entity RCom- Aircel will now be the third largest telecom entity in India by subscriber base, thus moving ahead of Idea Cellular Limited (Idea). This development coupled with RJio's penetration strategy will spur competition and in turn push tariffs lower.

Ind-Ra believes that the spectrum acquisition strategy, particularly around 4G, is an important driver for the consolidation in the telecom sector. This deal provides RCom access to the superior 800MHz band in eight circles with extended validity till 2033, as its own spectrum is scheduled to expire in 2021-2022. The merged entity will have 448MHz spectrum, which is about 17% of the total spectrum held,is the third largest spectrum holding, following 770MHz of Bharti and 596MHz of RJio.

The merged entity will offer strong competition to both Vodafone India (Vodafone) and Idea which are weaker placed, as far as 4G operations are concerned. Ind-Ra believes that the sector will now have five meaningful players namely, Bharti Airtel (Bharti), Vodafone, RJio, Idea and the merged RCom -Aircel- Sistema (with a new brand) as the industry moves towards data driven revenues.   

Shares of the company gained Rs 0.45, or 0.9%, to trade at  Rs 50.25.  The total volume of shares traded  was  904,123 at the BSE (10.19 a.m., Friday).