Vodafone and Idea To Merge Amid Growing Pressure From Reliance Jio, May Trigger Fresh Telecom Wars

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In the ongoing turbulence in the Indian telecom market, two giants, Vodafone and Idea, have confirmed merger talks in a move which could see India’s biggest telecom company being created. Vodafone Group Plc is in discussions to merge its Indian unit with that of Idea Cellular Ltd. The news comes in the wake of the ever-growing threat posed by Reliance Jio in terms of numbers of customers and Revenue Market Share or RMS. The BSE Telecom index closed nearly 6 per cent up at 1,250.57 on Monday. This will mark a major consolidation in the $26-billion Indian telecom industry, sources said.

Vodafone and Idea are to merge their telecom businesses

The Economic Times stated that this merger will create an entity with a subscriber base of more than 400 million customers and will emerge as the largest player in India, thereby replacing the current dominant player Bharti Airtel which is said to have 260 million users on its network. We had earlier reported of the threat posed to both Vodafone India and the Aditya Birla Group-owned Idea Cellular Ltd and of possible merger talks. The response to this merger was positive: the share price of Idea Cellular surged nearly 30 percent intraday on Monday, bringing the company’s market value above $5 billion. Vodafone gained as much as 4.1 percent.

Britain-based Vodafone might consider splitting off its Indian business into a separate entity, Vodafone stated today. The Aditya Birla Group and Vodafone would have equal rights in the new company, Idea Cellular said. The all-stock deal would also help in reducing Vodafone’s exposure to its troubled Indian business after the global carrier was forced to pump more than $7 billion into the unit and was also forced to write down its value by more than $5 billion, says Mint. Vodafone said that the deal wouldn’t include its 42 percent stake in Indus Towers.

Indian Telecom Industry: Consolidation The Way Forward?

The entire telco arena in the country has been changed after the entry of Reliance Jio. With the might and the financial prowess of the Mukesh Ambani-owned Reliance Industries backing it, R-Jio has been offering maximum data and voice usage at minimal costs. TRAI has been accused of inaction while Reliance Jio itself has been accused of predatory pricing and monopolistic business practices. Vodafone’s Indian unit is the No. 2 carrier in the country and Idea is the No. 3. A merger would create an operator with a solid  36 percent market share and airwaves for faster 4G services spanning the entire country. Vodafone itself would get listed on Indian stock, a move in the making since 2011.

Prior to Reliance Jio’s entry, Airtel, Idea and Vodafone occupied the top three positions in terms of market share and consumer numbers. The consolidation of Idea Cellular and Vodafone India would create an environment ripe for future acquisitions in the Indian market. Every telecom company in India has to adapt in order to survive and this latest merger is an indication of that realisation dawning upon major players. The merger, however, could see future troubles as the laws and technicalities binding M&As in Indian telecom industry are notoriously difficult to overcome.

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