NEW DELHI: UK telecom major Vodafone Plc UK has begun talks with Aditya Birla Group’s Idea Cellular Ltd for a merger of its Indian arm Vodafone India. The move could trigger a merger and acquisition season in the telecom sector, with consumers hoping to get better service and a choice of quality operators in India.
If concluded, the deal will push the merged entity as the leading telecom operators in India with 43 per cent market share, leaving behind the current leader Bharti Airtel that has 33 per cent market share. “It is inevitable now with high cost of managing telecom network,” says Rajan Mathews, director general, Cellular Operators Association of India (COAI).
Vodafone Plc confirmed in a statement that it is in talks but clarified that, “There is no certainty that any transaction will be agreed, nor as to the terms or timing of any transaction.” Idea cellular also acknowledged the talks of merger, but refused to give further details.
With the deal underway, the consumers can now hope for limited players in the market. Mathews feels there is an opportunity of a merger of Reliance Communications with Aircel and the merged entity merging with Reliance Jio and BSNL merging with MTNL. Soon, the customers would get to choose preferred service from four telecom companies—Rjio, Bharti Airtel, BSNL and Vodafone.
“The telecom industry will become stronger in a couple of years from now with M&As and that should result in better investment into the network and quality service to the consumers…good things can happen in telecom sector now,” said T.V Ramchandran, telecom expert and first DG of COAI.
The challenge however for Voadfone-Idea cellular will not be regulatory but proper alignment of their strengths and weakness. “Both companies have expertise on regulation…this deal is not going to fall out on issues of regulation,” said Sanjay Kapoor, former MD and CEO of Airtel.
However, Kapoor says, the issues that needs to be closely watched are—two different management styles—Vodafone with more professionals and Idea Cellular more family managed, the investments made on infrastructure and market- Vodafone is an urban brand while Idea has done well in tier 2-3 markets . “If they fail to align properly on any one…it could be a problem,” said Kapoor.
Industry observers opine that the recent move by Vodafone is a reflection of Reliance Jio’s entry into the market. “The data market is emerging and voice is significant part of the incumbent leader Airtel, the merged entity is looking at that space, hence we can expect stiff competition where all operators will invest in networks to offer enhanced customer service,” says Jaijit Bhattacharya Telecom expert KPMG.