India’s fourth largest operator Reliance Communications (RCom) will acquire smaller rival Sistema Shyam Teleservices (SSTL) through a stock swap, billed by one of the participants as “a milestone event”.

Thanks to the deal, RCom will get an additional 9 million customers and INR15 billion ($229 million) in annual revenue.

Meanwhile, SSTL will receive a 10 per cent equity stake in RCom, which is valued at about $290 million.

The whole deal is thought to be worth approximately $690 million which, RCom said, makes it the largest holder of 800/850 MHz spectrum for 4G.

The RCom-SSTL linkup is thought to be a first step in an ambitious strategy which could create India’s third-largest operator.

RCom will “acquire SSTL’s most valuable and superior 800/850 MHz band spectrum, ideally suited for 4G LTE services, to complement its own nationwide footprint of minimum 5 MHz contiguous 800/850 MHz spectrum aggregating 148.75 MHz,” it said in a statement.

“This will extend the validity of Rcom’s spectrum in 800/850 MHz band in 8 regions (Delhi, Gujarat, Tamil Nadu, Karnataka, Kerala, Kolkata, UP (west) and West Bengal) by a period of twelve years from 2021 till 2033,” it added.

The operator will pay INR3.92 billion per annum for SSTL’s broadband spectrum for the next 10 years to the country’s department of telecommunications

Prior to closing of the transaction, SSTL intends to pay off its existing debt.

Gurdeep Singh, president & CEO, consumer business at RCom, said, “the combination of our wireless businesses, through the demerger of SSTL wireless business into RCom for stock consideration, will generate significant capex and opex synergies for mutual benefit.”

He believes the Indian data market is seeing “explosive” growth, and SSTL’s strengths in that space will enhance the operator’s ability to deliver a “superior experience” to its customers.

Mikhail Shamolin, president and CEO of Sistema, said “The merger of SSTL and RCom’s telecom businesses is a milestone event. Despite the numerous challenges the sector faced in recent years, the combination of two leading data service providers is a clear sign of progress for the Indian telecom industry.

The growth of LTE technology in India will be fast tracked thanks to the deal, he added.

The closing of the transaction, expected in the second quarter of 2016, is subject to “customary conditions precedent, including inter alia applicable corporate, regulatory and other approvals.”

According to GSMA Intelligence, RCom had 110.6 million mobile connections in Q3 2015, while number three operator Idea Cellular had 166 million.

Last month it was reported that RCom was in talks with not just SSTL but also Aircel, over an ambitious three-way merger which could create India’s third largest operator.

Sistema’s acquisition is thought to be the first phase of the merger. The second phase could involve a deal with Aircel.