Reliance Communications Said in Talks to Buy Sistema India Unit

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Russian Tycoon Vladimir Evtushenkov
Vladimir Evtushenkov, the Russian tycoon who controls Sistema, met Ambani in recent weeks to discuss combining their wireless operations in the country, the people said. Photographer: Andrey Rudakov/Bloomberg

Billionaire Anil Ambani’s Reliance Communications Ltd. is in talks to acquire AFK Sistema’s Indian wireless business, people with knowledge of the matter said.

Vladimir Evtushenkov, the Russian tycoon who controls Sistema, met Ambani in recent weeks to discuss combining their wireless operations in the country, the people said. The deal structure being discussed would involve a share swap with no cash changing hands, though details are subject to change, two of the people said, asking not to be identified as the information is private.

A deal could mark the start of consolidation in the world’s second-largest wireless market, where tariffs have fallen to among the lowest globally as 12 carriers compete for customers. Sistema, India’s No. 9 operator with 8.9 million subscribers at the end of March, has seen its market share decline over the past two years.

The two companies haven’t yet agreed on pricing, and the talks may not result in a deal, two of the people said. Sergey Kopytov, a Moscow-based spokesman for Sistema, declined to comment.

“The query is completely speculative and incorrect, and we strongly deny any such move,” Reliance Communications said in an e-mailed statement.

Spectrum Payments

Reliance Communications is India’s fourth-largest carrier, with its 109 million customers accounting for 11.3 percent of the market at the end of March, according to figures from the Indian telecommunications regulator. Sistema Shyam TeleServices Ltd., which offers services under the MTS brand, had 0.9 percent.

Sales at Sistema’s local unit increased 10 percent in 2014 to 13.47 billion rupees ($212 million). It reported a net loss of 16.38 billion rupees, down from a 26.9 billion loss the previous year.

The buyer of an Indian carrier needs to pay the government for any increase in the market value of airwaves the target acquired before 2010, according to guidelines published by the Department of Telecom last year. Most of Sistema’s spectrum was purchased after that year, company filings show, meaning a takeover wouldn’t trigger burdensome payments for a buyer. India’s telecom ministry has formed a panel to look into the ease of doing business and said in November it will review the merger rules if necessary.

Sistema bought 36.4 billion rupees of wireless airwaves in 2013, giving it coverage in eight Indian regions including Kolkata and the capital of New Delhi. Many Indian mobile phone licenses held by Sistema and other companies were canceled the year before, after the Supreme Court found permits given in 2008 earlier had been corrupted by “money power” and some buyers’ “ability to manipulate the system.”

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