Our Bureau

Chennai , June 25

HUTCHISON Essar on Friday announced that it has acquired the cellular operations of Aircel from Sterling Infotech Ltd. A company release did not disclose the price of the acquisition.

Market sources put the figure at Rs 1,600 crore, making it the largest single telecom deal in the country. It was an all-cash deal. However, some reliable sources said that the price was Rs 1,200 crore.

Sterling Infotech owns Aircel Ltd, which operates in Tamil Nadu circle, and Aircel Cellular Ltd, which operates in Chennai circle.

Sterling acquired the Chennai operations - then named RPG Cellular Services Ltd - from the RPG group in December 2003.

Aircel had a combined subscriber base of 1,123,314 - 343,839 in Chennai and 779,475 in Tamil Nadu - at the end of May. Hutchison Essar had 196,065 subscribers in Chennai.

Announcing the deal, a Hutchison release said that the acquisition was subject to approvals from the relevant authorities.

Hutchison Essar operates a GSM 1800 licence in Chennai and the parties are in the process of making the necessary application to seek approval from the Department of Telecom.

This will be the first intra-circle merger transaction since the announcement of the intra circle merger guidelines, it said.

Hutchison hopes to integrate the two networks in Chennai as one (Aircel) operates on the 900 MHz frequency and the other (Hutchison Essar) on the 1,800 MHz frequency.

Company officials said that this will not pose any problems as Hutch has experience in operating dual band services. Network integration will happen once all the formalities are completed.

Sources close to the deal said that Sterling Infotech will retain the Aircel brand name.

They expect the approvals to be obtained and other formalities to be completed in 45 days.

According to the sources, this acquisition will help Hutch consolidate its operations in Chennai and also enter the Tamil Nadu circle.

Hutch believes that both these circles are important to its long-term growth.

At the end of May, Hutch had a total subscriber base of 5.6 million and this acquisition will make it the largest operator in both the Tamil Nadu and Chennai circles.

The Hutch release quoted Mr Ravi Ruia, Vice-Chairman, Essar group, as saying: "Our joint venture with Hutchison goes back over four years. We have found it a highly professional relationship and are delighted to extend it to a larger footprint."

Mr Dennis Lui, Group Managing Director, Hutchison Telecom, was quoted as saying that the acquisition marked a continuation of the company's commitment to the Indian telecom market.

The release quoted Mr C. Sivasankaran of the Sterling Infotech group, as saying that after the deal, Sterling Infotech will continue with its focus on various wireless business initiatives including GSM businesses in the North and the East with specific thrust on penetrating rural markets.

The group was advised by ING Vysya Investment Bank, and Hutchison by Kotak Investment Banking and Enam Financial Consultants.

According to reliable sources, it made sense for Sterling Infotech to sell its operations in both the circles as the company had reached a stage where it would need to make investments that could be made only by the bigger players.

Sterling Infotech's strategy, therefore, was to consolidate, book profits and exit.

It will now add value to the new operations that it proposes to undertake in the North and the East, where mobile penetration is low, the sources said.

The Sterling group has applied for mobile licences in Madhya Pradesh, Uttar Pradesh East and West, Bihar, Orissa, Jammu & Kashmir, Himachal Pradesh, Assam and the North-East.

Of these, it has signed for licences in all areas except Uttar Pradesh East and West and Madhya Pradesh, the sources said.

Sterling Infotech would invest about Rs 2,000 crore in its operations in these new circles.

The services would be started either under the Dishnet name as the licences had been acquired by Dishnet Wireless Ltd or the Aircel brand name.

Hutchison has applied to the Foreign Investment Promotion Board (FIPB) to consolidate its operations under a single entity. The company plans to have a single brand all over the country - Hutch.

Once the consolidation is completed, Hutchison's (belonging to Hutchison Whampoa of Hong Kong) share of the equity is expected to be 49 per cent and the rest will be held by various Indian partners - Essar group, Kotak Mahindra group, Hinduja group and Max India.

There is also talk of an initial public offering from the consolidated entity.

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