The much sought after merger of Vodafone with Idea…..
The British cellular giant and India’s second largest mobile network operator, Vodafone had recently announced their plans to finalise a merger with India’s third largest mobile network Idea Cellular. The merger after finalization will prove to be a boon for Idea cellular. The announcement of the merger, has acted as a game changer for the indebted Idea and to improve their unprofitability as the stock prices of Idea cellular started soaring high after the news came out. After the merger takes shape, the joint venture will become the largest telecom operator in India and one of the largest network of the world with over 395 million users. The Joint venture will have about 40 % of the market share in telecommunication sector in India.
The proposed merger will have revenue of about Rs. 77,500 to Rs. 80,000 Crores. The Idea has Spectrum permits in two circles and Vodafone in seven circles total amounting to Rs. 12000 Crores which are not shared with each other, thus there can be spectral synergies between the two and a hold over all the seven circles. The Idea cellular have their holdings in rural areas while the Vodafone is deep rooted in cities. The symphony between the two will help move forward to the top slot, giving a tough competition to the present top player, Bharti Airtel.
As a consequence of the merger, the total subscriber share of the venture will go up and this may create a problem in the actualization of the plan by the two companies. Since it appears that the merger will not comply with the guidelines of TRAI (Telecom Regulatory Authority of India). For a merger under the telecom industry, a company cannot hold a subscriber share of more than 50%, revenue share of not more than 50% and not more than 50% of the spectrum share in each band (excluding 800 Mhz) in each circle.
These limits decide by the TRAI appear to be a major roadblock in finalizing the merger as the Joint venture between the two will have a subscriber base between 50-60% in six circles while in one circle i.e. Kerala, the subscriber base will become as high as 60%
Further the Spectrum share will also be higher than the limits permissible by TRAI.
This may lead to a negotiation with a third party such as Airtel which may be invited to buy some stake which is other than the permissible limits.
The competition in telecommunication sector in India has increased to such an extent that many mergers are being planned to capture the maximum market share and profitability. The major start to the competition was given by the trump card played by Reliance Jio by announcing free data and services for few months. As a result, Reliance is trying to capture Sistema’s operations and also to share the wireless business with Aircel. Further Bharti Airtel is in talks with Telenor. And soon after the Vodafone- Idea marriage was announced, the talk of Reliance Jio’s consolidation with Tata telecom Services started taking the rounds.
The Vodafone- Idea alliance will be headed by Marten Pieters who earlier headed the Indian wing of Vodafone. It has become a race among the telecommunication giants in India to win the maximum subscriber base and capture the maximum market share. Lets see, who finally wins the show.
