Vodafone confirms merger discussions with Idea

Vodafone LTE networkVodafone Group Plc has confirmed that it’s in discussions with the Aditya Birla Group about an all share merger of Vodafone India and Idea Cellular.

If materialized, the merger between Vodafone and Idea Cellular will be the largest telecom deal in India. This will force Mukesh Ambani, the promoter of Reliance Jio and the richest Indian, to look for buying telecom assets in India. Jio is targeting 100 million customer base by March 2017.

India mobile subscribers in December 2016

Bharti Airtel 265.85 million
Vodafone India 204.69 million
Idea Cellular 190.52 million

“Any merger would be effected through the issue of new shares in Idea to Vodafone and would result in Vodafone de-consolidating Vodafone India. There is no certainty that any transaction will be agreed, nor as to the terms or timing of any transaction,” said Vodafone Group in a statement issued on Monday.

Amresh Nandan, research director at Gartner, said: “Vodafone India and Idea will have to figure out their business strategy and merger could well be the path, given current industry competitiveness and dynamics.”

“It would be very important for the merging entities to realize the transformation required in their operations. At this point in time in communication industry, transforming themselves while they consolidate will be a necessary step, even though not an easy one,” Amresh Nandan said.

Vodafone India is the 100 percent subsidiary of Vodafone Group of the UK. Vodafone said its 42 percent stake in Indus Towers, a telecom tower company, will not be part of the merger of the wireless business.

Vodafone to grow further with Idea

The possible combination between Vodafone, which has 18.72 percent share in Indian mobile services market, and Idea Cellular wit 17.17 percent, will make the combined entity to become the largest telecom operator in India with nearly 36 percent share. Bharti Airtel has 24.32 percent share in the Indian telecom market, according to TRAI data for October 2016.

Reliance Communications with 7.99 percent share is merging its wireless unit with Aircel which has 8.38 percent share. MTS or Sistema’s India unit with 0.6 percent is also part of the combined entity of Reliance Communications and Aircel.

Vodafone was earlier in discussion with Telenor to buy its India business. Telenor has 4.94 percent share in India. The merger with Idea Cellular will assist Vodafone to avoid the listing of its shares in India.

The merger will create a telecom entity with a subscriber base of more than 390 million wireless subscribers.

Bharti Airtel, the current dominant player, currently has over 260 million users on its network in India.

Vodafone India has over 200 million subscribers in all the 22 circles. It intends to have 4G services in 17 circles, covering 2,400 towns, by the end of this fiscal.

Idea Cellular has nearly 186 million subscribers in all the 22 circles. It aims to expand 4G services to 20 circles by March 2017.

Will Jio buy Airtel or Reliance Communications

The free voice and data offer from Reliance Jio, an all-India 4G operator, has started impacting the revenue of both Vodafone and Idea Cellular.

“This could unlock more than $9 billion in potential synergies and offer an elegant route to deconsolidating India, thereby helping focus (Vodafone’s) attention back onto a rebounding European equity story,” said investment banker JP Morgan earlier.

Idea due to the migration towards free voice regime may be the most vulnerable. Idea has a higher of rural and semi-urban subscribers, who are not as data-hungry as the creamy users in metros and cities, where it has a relatively limited presence.

Reliance Jio does not have too many options to grow its subscriber base. Mukesh Ambani could look at Reliance Communications or Bharti Airtel to grow further. Reliance Jio, in any case, would need to test the Indian telecom market, when it starts charging its subscribers from April 2017.

Both Vodafone and Idea are prominent brand names in the Indian telecom market. After the combination of the two business entities, there is a possibility that one brand will not exist in the long term.

Baburajan K
editor@telecomlead.com

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