MUMBAI/NEW DELHI : Ending months of speculation, Vodafone Group and Idea Cellular on Monday announced plans to merge their Indian operations.
The combined entity, valued at a staggering $23.2 billion, would morph into the country’s biggest telecom powerhouse, toppling Airtel in just one deft stroke. The Vodafone-Idea deal, dubbed as a ‘perfect match,’ would have almost 400 million customers, about 40 per cent of revenue share and 25 per cent of the spectrum share in the world’s second-largest telecom market by users.
The proposed deal, subject to regulatory clearances, has to overcome several challenges like meeting the spectrum cap, without which it would walk straight into a buzzsaw. If all goes well, the deal could conclude in a year, but for the deal-makers, that’s when the challenge begins - devising healthy average revenue per user.
Currently, telcos offer products with fierce discounting to attract consumers, even hurting profit margins. Poor financial health compelled some players to fold up, and from 13 operators a decade ago, the industry is left with five -- Vodafone-Idea, Airtel, RJio, RCom-Aircel-Sistema, BSNL-MTNL.
Consumers already have the world’s cheapest tariffs, but the finishing line is nowhere in sight, considering the recent rate war triggered by Reliance Jio Infocomm. “Consumers will benefit as the telecos’ strategy will now pivot on innovation to offer value in terms of quality of service and content,” said Prashant Singhal, Global Telecom Leader, EY. For Idea, the deal threw up not just a survival opportunity but gives an equal partnership in the combined entity. Both Vodafone and Idea aren’t in good shape.
While the latter booked losses in the December quarter, the former took a Euro 5 billion impairment charge in September, 2016 besides shelving off IPO plans.
According to Vittorio Colao, CEO, Vodafone, Idea is strong where Vodafone is weak and vice versa and that the deal will help Vodafone cut its net debt by about $8.2 billion. The British firm earlier locked horns with Indian authorities over $2 billion tax dues, but Colao said those proceedings won’t affect the deal.
“This is the best salvage that could have happened for Idea, which on its own strength, would not have survived competition. For Vodafone, given the organic growth, they would have found it difficult,” Sanjay Kapoor, Former CEO and MD, Airtel told Express.
Rivals Airtel and RJio, could capitalize by capturing more subscribers and offering innovative data products and services. Interestingly, both have the 4G network advantage and could kick-start pan-India 4G LTE services to have an edge.