Idea-Vodafone Merger Talks Underway



Financial Year 2016-17 will surely be remembered in the telecom history of India. Some of the most happening industry events have succeeded in keeping both telecom giants and their customers on their feet, looking forward to more benefits.

The introduction of newer, better, more updated smartphones continues to bring cheer to users but it is the launch of Reliance Jio that comes as a real game changer. Free unlimited voice calls across the country by itself would have won the hearts of mobile users, and add to it the inexpensive 4G data packages. The average mobile customer sat up and took notice. Not much later came the Reliance Communications – Aircel merger. This consolidation stood out as the largest merger that the telecom industry of India has witnessed. The newly created (merged) company would have an asset portfolio worth some Rs 65,000 crore, news reports said.

Vodafone Idea Merger Talks

Another great telecom merger seems to be on the cards this fiscal year. On January 30, 2017, Vodafone, the London-based telecom giant with extensive operations in India, confirmed that it is holding talks with Idea Cellular, the Aditya Birla owned telecom operator, which may lead up to an acquisition.

While Vodafone said that they are only in the initial round of talks, rumours and speculations of such a merger have been doing the rounds in Indian markets for months now. It is also said the Birlas are looking forward to holding a 50 percent stake in the merged entity while Vodafone is seeking a minority stake.

This is one difference that Vodafone and Idea will have to iron out before a deal is struck.

Aiming For Top Slot

India is the second largest (by number of users) and one of the most important markets in the world when it comes to mobile telephony. As of end October 2016, Airtel India ruled the roost with over 262.2 million subscribers. Close at heels is Vodafone India with some 201.9 million subscribers. Vodafone’s greatest strength is in the metro circles where it has a strong user base.

The third slot goes to Idea Cellular, owned jointly by Aditya Birla Group, Axiata Group Berhad, and Providence Equity. Idea, with 185.15 million subscribers, is stronger in the rural circles and interiors of India. Reliance Jio was at the 7th position (end October 2016) but has ambitious plans and aims at acquiring 100 million subscribers by March 2017. The merger between the number 2 and 3 companies is thus likely to create a very powerful entity. The merged company could well stake its claim at the first position and challenge both Airtel and Reliance Jio.

What To Expect

A potential merger between Vodafone and Idea will create an entity that is likely to hold over 50 percent of the revenue market share. This will need to go down soon according to current guidelines. This means that the new company will lead the market in over 6 circles, in others Airtel and Jio will still hold a competitive edge.

The merger is highly unlikely to trigger another price war, though. it may lead to much consolidation by way of more investment in technology and improvement of services in all circles served by Bharti Airtel, Vodafone, Idea, and Jio.

The customer will certainly benefit from a Vodafone-Idea synergy and the resultant reactions from other competitors. Another challenge that the merger will face is the fact that the combined entity will overshoot the 50 percent spectrum cap currently in vogue. In five of the circles a merger will lead the new entity to hold more than 50 percent of the 900 MHz band and in two circles it will hold more than the allocated spectrum in the 2500 MHz band. These are details that both Idea and Vodafone will need to work on before announcing a merger.

Stock Market Reacts

Idea Cellular stock prices have been climbing steadily ever since Vodafone confirmed holding talks of a merger with former. The price of Idea’s stock has surged over 56 percent. The scrip that was trading at a low of Rs 66 on January 13, 2017 closed 31 January’s trading session at 110.30 (BSE).

Shares of Bharti Infratel, on the other hand, tanked over 14 percent as news of the possible Vodafone-Idea merger spread. Bharti Infratel owns more than 38,500 mobile network towers in 11 circles of India. Bharti Airtel shares on the other hand registered a sharp rally and closed January 31 at 349.15. While it is tempting to go ahead and buy Idea Cellular in a upward moving market, we must keep in mind that the talks are (according to the companies involved) still in their preliminary stages.

In case of a failure to reach any outcome, the scrip might plunge more than it has gained in the recent trading sessions. Even if the merger does come through, the telecom market in India will continue to remain competitive and Reliance Jio is likely to be very aggressive in its stance as well. It is best to hold any Idea Cellular stocks you may already own and to watch the markets carefully before you decide to invest further.