Hutch buyout will push Rel Comm to top slot

Reliance Communications will become the largest telecom player in the country if it succeeds in taking over Hutchison Essar, the GSM mobile service company in India, as its mobile services market share would swell to over 36.3 per cent (GSM and CDMA combined) from 20 per cent.

The Ambani company will overtake Bharti "" currently the largest player in the market with over 22 per cent and a subscriber base of 30.3 million "" by a large gap. But Reliance's subscriber base will dramatically go up from 28.6 million to over 46 million if it acquires Hutch.

The deal also falls neatly in Ambani's strategy to move away from CDMA to GSM (it has GSM operations in nine circles) by giving the company immediate entry into 16 GSM circles across the country.

According to Macquaire Research, Hutch is market leader(CDMA and GSM combined) in two of the 16 circles that it operates, the number two operator in four circles, the third biggest operator in three circles and fourth biggest operator in two circles. If the acquisition comes through, the combine will become market leader in 13 out of the 16 circles, in which Hutch operates.

The only overlap would be in two circles, West Bengal and Kolkata, where both Hutch as well as Reliance operate GSM services.

From the financial angle equity, analysts say the deal has major pluses, for Reliance-Hutch has the second highest ARPU (Rs 351) in the business after Bharti (Rs 372). But Reliance whose ARPUs are as low as Rs 287-could see consolidation helping in pulling up these numbers substantially.

Two, Hutch generates the best average revenue per minute and Reliance one of the lowest. Three, being either an incumbent or buying an original incumbent in 12 of the circles its cost of network operations would be lower than other competitors.

Four, Macquaire Research points out that the combined revenues of Reliance-Hutch would overtake Bharti's revenue growth. In January-June 2006, Bharti rustled up revenues of Rs 7270 crore, which was over 17 per cent higher than Reliance's revenues in the same period. But if one combines it with Hutch the revenue increase is over Rs 1,000 crore in the same period.

Buying Hutch could turn Malaysian giant Maxis into a pan India player in no time. Maxis, a latecomer in the Indian mobile game, last year bought Aircel Cellular, a GSM operator which runs operations in seven circles with the bulk of its 4.23 million customers coming from Chennai and Tamil Nadu.

But if it buys Hutch, its subscriber base will go up to a mind boggling 26 million customers. But the company has recently received licences to operate GSM mobile services in 16 new circles but hopes to get spectrum allocation in mid-2007.