RJio Effect: Is Vodafone Seeking A Possible Merger?

by CXOtoday News Desk    Jan 09, 2017

vodafone

Vodafone India is considering a possible merger with one of the existing rivals, according to several media reports. While Vodafone would go for a merger or a buyout is still under scrutiny, according to a report by The Telegraph, the company is looking for a tie-up with one of the local players including Reliance Jio and Idea Cellular.

Needless to say, the latest move by Vodafone in India is the result of the ‘Reliance Jio effect’ – after the telco has taken the Indian telecom market by storm post its launch last year, followed by its aggressively priced data plans, app subscriptions and unlimited free voice calls. RJio has already crossed 50 million subscribers, and is believed to be hitting 100 million by March-end. Following Jio’s commercial launch, rival telecom operators are under immense pressure to match the competition.

Read more: Will RJio Put Telcos Under ‘Tariff’ Pressure In 2017?

Even though the likes of Airtel, Vodafone, and Idea Cellular, also top three telcos in India, are announcing aggressive plans to retain their subscribers, they still don’t really come close to the offers provided by RJio.

In recent weeks, Vodafone had launched several tariffs to beat competition from Airtel and Jio. In September Vodafone also invested Rs 47,700 crore in India, the largest ever in the country. Sunil Sood, MD and CEO, Vodafone India told IANS that the amount will enable them to continue its investments in spectrum and expansion of networks across various technology layers delivering the best of experience to our hundreds of million customers. [Read the full story here]

The telecom service provider has around 200 million customers in the country. Over half of its customers (over 100 million) come from rural India. The company has around 22.5 per cent revenue market share. However, under the growing and intense competition it is reportedly seeking a merger or perhaps a buyout with either Reliance Jio or another local telco.

The Telegraph reports, “The company has been caught in the crossfire of a sibling rivalry that has triggered a price war and put the brakes on a planned stock market flotation of Vodafone India. The problems have weighed on the FTSE-100 giant’s shares in the last year, overshadowing improvements in its core European markets.” [Read the full story here]

Telecom to see more consolidation

With more than 1 billion mobile phone subscriptions, India’s telecom market is the world’s second-biggest behind China.Intensifying competition in the telecom space is driving consolidation in this sector, as analysts believe India’s telecom sector may see some more consolidation in the coming months. The latest and the biggest example of course is Anil Ambani-led Reliance Communications that announced merger of its wireless business with smaller rival Aircel to create the nation’s third-biggest mobile phone network operator in terms of subscribers.

Read more: RCom, Aircel Merge To Form India’s Third-Largest Telco

Meanwhile rival Bharti Airtel too launched a number of schemes in recent times and is reportedly in discussion to buy Telenor’s India business in a deal that will involve taking on debt of Rs 1,500 crore to take on Reliance Jio. Telenor operates in six of the 22 telecom circles in India and offers 2G services to its 45 million users. According to the industry experts, the merger between Vodafone and the other telco will also create waves in the telecom market. 

Read on: Airtel To Educate Customers On Digital Payments

Prashant Singhal, Global Telecom Leader, EY said, “In a fragmented telecom market, the much awaited consolidation was imminent. India is the only telecoms market in the world sustaining over six players with a market size of USD40 billion. Given the financial situation and spate of developments the sector has witnessed in past 12 months;  consolidation will help telcos leverage on the synergies and drive profitability. We expect further consolidation in the market.”

Experts opine that the industry is prepared for a major consolidation with smaller companies likely to be bought over and middle-level companies seeking mergers. This will eventually leave space for some 3-4 players in the telecom space.

CXOtoday has reached out to Vodafone, Reliance Jio and Idea Cellular for comments on the report. Keep watching this space.