To Counter RJio, Vodafone-Idea Cellular in Merger Talks

by CXOtoday News Desk    Jan 30, 2017

vodafone

Earlier in January, there were speculations that Vodafone India was considering a possible merger with one of the existing players in the telecom industry. Now the company has confirmed, it is in talks to merge its Indian operations with rival Idea Cellular in an all-share deal that “would create a new market leader better able to cope with the brutal price war convulsing the industry.” [Read the full story here]

India’s three leading mobile operators, Bharti Airtel, Vodafone and Idea, have all been hammered by the arrival of Jio Infocomm, a new operator owned by the billionaire Mukesh Ambani which has shaken up the market by offering free voice and data to customers.

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.

While Bharti and other local rivals, including Vodafone’s India unit, have slashed prepaid tariffs and unveiled cheaper data plans to compete against Jio, but they still don’t really come close to the offers provided by RJio. And this was one obvious reason for Vodafone merger to Idea Cellular.

Analysts warn that the strategy will extract a cost, with Vodafone forced into a $5 billion writedown of its India business last year because of competition in the country.

Amresh Nandan, Research Director, Gartner on Vodafone confirming merger talks with Idea Cellular said, “Consolidation seen during 2015-2016 was expected to continue in 2017, so if this happens it would not be surprising. Both Vodafone India and Idea have to figure out their long term business strategy and merger could well be the path, given current industry competitiveness and dynamics.

If they decide to do so, one can hope for a long term strategy behind it and not just gaining market share and subscriber share. It would be very important for the merging entities to realize the transformation required in their operations. At this point in time in communication industry, transforming themselves while they consolidate will be a necessary step, even though not an easy one.”

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

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. 

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.

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.”