The following article is based on my own interpretation of the said events and/ or publicly available information. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.
VIJENDHAR KADIPIKONDA, MBA 2016-18, Vinod Gupta School of Management, IIT Kharagpur.
Consolidation is not new in the Indian telecom sector. Two companies might come together to fight the competition, to sustain the markets or because of some other reasons. This time however, the country’s largest telecom company is originating as a result of the merger going through. On Monday, Vodafone said it was in initial stages of discussions with Aditya Birla Group’s Idea Cellular for a cashless deal to merge their operations. This merger will help them fight their biggest competitors Airtel and Reliance Jio.
The telecom industry in India is already reduced to four players. With Airtel being the current leader the next positions are occupied by Idea, Vodafone and Reliance Jio. The merger will obtain the merged entity a 43% market share of the revenue thereby creating the biggest telecom company in India. Currently, Airtel holds 33% of market share and Jio would hold 13% by the end of the year. The merger if happens could create some major changes in the telecom industry. This merger is more beneficial to Vodafone when compared to Idea. It can strengthen its position in India. Vodafone India, which had planned to raise about $3 billion through an IPO can raise it now by issuing the new shares of already listed Idea Cellular.
The emergence of the big merged entity might upset all present calculations. Reliance Jio has started a price war by announcing cheapest tariffs for data and free voice calls and is continuing its aggression to capture the market. If Reliance continues its innovation, it will hit Airtel more than the consolidated entity which would have the benefits of market share as well as spectrum holdings. The Indian telecom industry has already gone through two rounds of price wars. The entrance of Jio started the third one and the merger talks of Vodafone and Idea could take it further.