Russian wins India’s mobile war

Vladimir Yevtushenkov has chosen wisely. Rather than risk becoming cannon fodder in India’s great mobile war of 2016, the Russian tycoon is joining what is likely to be the winning side.

That may be a helpful way to unpack the decision by Yevtushenkov’s AFK Sistema to sell its Indian cellular carrier, Sistema Shyam Teleservices, to billionaire Anil Ambani’s Reliance Communications. The all-stock deal, announced Monday, will see Sistema Shyam first repay its existing $500 million debt and then fold its 8.5 million subscribers into the Ambani enterprise.

Reliance Communications, India’s fourth-biggest carrier, has almost 110 million customers, and the transaction will make it the largest holder of the 800/850 megahertz band for wireless fourth-generation services.

The Russian’s prize will be a 10 percent stake in the combined operations. An even bigger attraction for Yevtushenkov is that his hard-won spectrum, which he had to buy again in a 2013 auction after the original 2008 award was abruptly canceled by Indian courts, could become part of the infrastructure that Anil’s brother Mukesh covets.

Analysts reckon Mukesh will be gunning for at least 100 million users within 12 months. That’s an ambitious 10 percent share of the existing market of 988 million users, who already have 12 debt-laden service providers vying for their business.

Bit players like Sistema Shyam, the ninth-largest operator, probably wouldn’t have stood a chance. Reliance Jio has deep pockets and an unstated but widely understood resolve to upend the industry with ultra-cheap services. If it doesn’t reach its targets quickly, the ensuing price war may be brutal.

Just how bad it could get is something Yevtushenkov doesn’t want to find out. He lost a substantial chunk of his fortune last year after the Russian government confiscated Sistema’s controlling stake in oil producer OAO Bashneft. Lucky for him, the once-feuding Ambani siblings are looking to join forces to conquer 4G, assisted by a recent regulatory change that allows operators to trade and share airwaves.

Reliance Communications shares rose 6.3 percent in Mumbai on Monday and as much as 3 percent Tuesday, bringing their gain since the Aug. 24 low for the year to 61 percent. After eight bruising years in India’s telecom sector, Yevtushenkov can perhaps look forward to a consolation prize. At a minimum, his strategic withdrawal means he survives the battle.

*The author is a Bloomberg Gadfly columnist covering industrial companies and financial services.

by Andy Mukherjee