Telecom consolidation is the way forward

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 Any material borrowed from published and unpublished sources has been appropriately referenced.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

Arnab Surai, MBA 2016-18, Vinod Gupta School of Management, IIT Kharagpur

________________________________________________________________________________

Hugely threatened by Jio, the new kid on the block, offering services at almost free of cost and a host of other freebies, the telecom sector saw a proposal of marriage between two of largest entities, Britain’s Vodafone India division and the homegrown Idea cellular of the Aditya Birla Group. The merger can create a telecom behemoth with a combined subscriber base of about 395 million and a revenue market share of around 40 percent in the country’s telecom sector, although divestments would be needed in certain regions to comply with competition rules. This has the potential to create a market leader in the presently overcrowded and hyper-competitive telecoms sector, forcing smaller players either to merge or exit altogether.

This synergy would complement each other as Idea is stronger in rural areas and Vodafone in cities, and they would be able to cut costs mainly through reduced capital spending and network operating costs. The new giant would be a cause of a lot of worry for current market leader Bharti Airtel and Reliance Jio, that has promised free voice and data until the end of March. Intensifying competition would raise the stakes for India’s smaller wireless providers, forcing them to walk the path of consolidation to allow them to better compete against the top three players. The stakes would be especially high for small players such as Telenor, Tata Teleservices and Videocon Telecom, which are already in the process of exiting.Meanwhile, Bharti Airtel is in talks to acquire Telenor’s Indian operations, local media has widely reported.

But there is a catch, mergers won’t guarantee success in India’s telecoms sector. India remains a capital-intensive market. Spectrum costs are high and big investments in network are needed to cover a vast geography. At the same time margins are wafer-thin, as carriers offer one of the world’s cheapest data and voice prices. If it eventually becomes a market of three or four big players, good for them and the industry as a whole, all could make money.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s