The merger of Idea Cellular with the telecom giant Vodafone is likely to bring more competition in the industry. Morgan Stanley reports suggest that the merger will essentially remove competition from the top. It says that an imminent merger of two of the top three operators may enable telecom operators to reconstruct costs for future spectrum and CapEx.
Idea and Vodafone are in initial talks that could result in a possible merger. This move could result in a merged entity that has the potential of dislodging Bharti Airtel off From its market leadership.
It is said that the two companies are analyzing the possibilities of this kind of a merger and challenges and opportunities that it can bring (nothing but a SWOT analysis). The reason for such a comprehensive analysis is that such a deal may face an issue with clearance from the Competition Commission of India.
This combined entity will surely breach the 50 percent market share in a few segments, thus disregarding the anti-trust norms. Upon being asked about the merger, Idea responded by saying that such speculations are baseless and “preposterous”. Vodafone, on a similar page, refused to make any comments on the speculations.
There is another hidden advantage for Vodafone if this deal goes through. It will eliminate the need for Vodafone India to have its initial public offering (IPO) process. As per the TRAI data, in April, Airtel had 25.22 cr. subscribers in India, Vodafone had 19.79 crores and Idea had 17.46 crore whereas the fourth and fifth positions were occupied by Reliance Communication and Aircel who had 10.25 cr. and 8.76 cr., respectively.
In the FY16, Airtel, Vodafone, and Idea amassed revenues worth about Rs 62,000 crore, Rs 45,000 crore and Rs 35,000 crore, respectively. Idea has a market capital worth of around Rs 36,000 crore while Vodafone is said to be eyeing a valuation of about Rs 73,500 crore but, a merged entity could attract a total valuation north of Rs 1 lakh crore.
This kind of off the field business battles, are a result of the changes that the telecom industry is going through in the country. The ongoing Reliance Jio measures and controversies have the potential to eliminate or at least inflict a severe blow to competitors like Vodafone Airtel and Idea. The ‘idea’ of this particular deal could be to fend off any such threats.