British Telecom giant Vodafone confirmed that it was in talks to merge its Indian unit with Idea Cellular. “Vodafone confirms that it is in discussion with the Aditya Birla Group about an all share merger of Vodafone India and Idea”, Vodafone said in a statement.
‘Any merger would be affected through the issue of new shares in Idea to Vodafone and would result in Vodafone de-consolidate Vodafone India’, the statement added.
The official statement also read that there is no certainty that any transaction will be agreed, nor as to the terms or timing of any transaction.
A merger between the two Telecom giants will take their combined entity to top position in terms of subscribers. It will also add on to the revenue market share of the Vodafone-Idea combo.
Global brokerage firm CLSA, said in a report that, ‘The merger would help Vodafone India to improve its positioning in the mass market while Idea Cellular would gain from Vodafone’s strength into metro circles.’
‘Not only would the combine entity become the industry leader but also a strong competitor in the data market with 3G spectrum across India and the highest 4G spectrum in the 1800 Mhz band, enabling sufficient capacity spectrum’, the report added.
Tough competition to Bharti Airtel and Reliance Jio
The merger of Vodafone and Idea will pose a threat to the position of Bharti Airtel and Reliance Jio in the telecom industry. The current No.1 telecom operator in India, Bharti Airtel may be replaced as a result of this merger.
The combined subscriber count of the merged entity would be nearly 375 million which is way higher that Airtel’s 260 million and Reliance Jio’s 72 million.
Vodafone-Idea combo will have a 43 per cent revenue market share, according to an estimate. The market share revenue is currently led by Bharti Airtel with 33 per cent revenue.
The telecom market was in turmoil with the arrival of Reliance Jio that made an immediate impact with the launch of free calls and cut-price data forcing the three biggest telecom operators in India- Bharti Airtel, Vodafone and Idea Cellular- to slash prices and accept lower profits.
Challenges in merger
There are regulatory challenges in that can come in the way of merging process. M&A norms mandate that revenue market share of the merged entity should not exceed 50 per cent in any circles. Also, the rules state that spectrum holding should not exceed 25 per cent across all bands and 50 per cent in each individual band.
Experts see a spectrum cap breach in at least five circles in 900 Mhz band. Besides, revenue market share of the merged identity will overshoot the 50 per cent threshold in six circles.