Impact of Vodafone-Idea Merger

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 Any material borrowed from published and unpublished sources has been appropriately referenced.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.

Divyam Jain, MBA 2016-18, Vinod Gupta School of Management, IIT Kharagpur

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With the growing competition from Reliance Jio Infocomm and the existing one from Bharti Airtel, the second and third largest mobile operator, i.e., Vodafone (India) and Idea Cellular may go from a merger and become the largest in the country. Together, this entity will have a market share of 43%, leaving Airtel behind with 33% market share. As this is proposed to be a reverse merger, Vodafone India will not have go for an IPO which adds to the benefits.

But nothing comes without a price and nor will this merger. As per the merger and acquisition rules on 3G and 4G spectrum, each operators must own less than 25% of the overall spectrum allocated in a particular circle and less than 50% in a specific band. Post this merger, these limits will be breached in Kerala, Gujarat, Haryana, Maharashtra and UP West.As far as the RMS is concerned, it should not be more than 50% for a single operator and this condition is breached in Haryana, UP West, Maharashtra and Kerala. But the RMS problem will be resolved once Reliance Jio starts charging gaining revenue by charging its subscribers. The Spectrum breach, however, will force Vodafone and Idea to surrender a part of their spectrum bands in the respective circles. On a bright side, this merger will give strong balance sheets to both the operators and the merged entity will have more firepower to take on giants like Airtel and Jio.

With all the pros and cons in sight, to expect this merger to be a solution for the common problem of Vodafone and Idea would be a bit too much. Having said that, it is no secret that both the firms do not have much to time lose as they are already lagging in terms of investment and their broadband infrastructure. How quickly and well these companies adapt to the new structure, will define the success of this deal.

 

References

http://www.financialexpress.com/industry/idea-cellular-vodafone-india-may-merge-set-to-create-indias-largest-telco-beat-bharti-airtel/530102/

http://www.livemint.com/Money/ZL7jov9xOFIyVndDXEMN7K/A-Vodafone-and-Idea-merger-is-no-panacea-for-the-telecom-sec.html

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