Chart of the Day | Why RCom and Aircel had to merge

The merger of Reliance Communications and Aircel, announced yesterday, is a union of two telecom companies who have been struggling to keep pace in a hyper-competitive sector. This is also a sector embarking on a fresh round of consolidation that will leave it with, the prevailing wisdom says, 4-6 players of significance.

The Reliance-Aircel merger is the first of those consolidation moves. In the last five years, both companies have struggled to contend with the big three: Bharti, Vodafone and Idea. Each has had its own challenges. In 2012 and 2013, Reliance bore the brunt of the directive from the telecom regulator to weed out inactive subscribers, and saw its subscriber base plummet; even otherwise, it has struggled to add subscribers. Aircel has added subscribers, but legal troubles around the company have robbed it of the capital and entrepreneurial ballast needed to stay competitive in Indian telecom.

The fourth-largest telecom company by subscribers (Reliance Communications, owned by Anil Ambani) and sixth-largest (Aircel) have joined to create the third-largest telecom company. For how long is anybody’s guess. Unless the two companies decisively and effectively address the issues that have hobbled them, it’s probably only a matter of time before the merged company is either overtaken by current number four (Idea) or swallowed by another (Reliance Jio, owned by Anil’s brother, Mukesh).

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