The second largest telecommunication service provider in India Vodafone has confirmed that it is in talks for an all-share merger with the third largest operating Idea Cellular, in the first unification move in the Indian telecom industry shaky under the pressure of intense competition from Reliance Jio’s free service offers.
Vodafone in India is a unit of the UK-based Vodafone Group Plc, will subscribe to new shares issued in the Birla Group Company Idea Cellular to effect the merger, Said the UK company. To prevent one telecommunication company from buying over 20% equity stakes in a rival telecommunication company.
The Reliance Jio’s entry in the world of telecommunication has forced the traditional players to drastically cut down their tariffs as much as by 67% in order to retain their customers and has also put the entire industry under pressure of choosing between protecting margins and retaining users. Reliance Jio has recently extended its inaugural free voice calling and data plan till March 31, 2017. The biggest threat to the rivals like Airtel and Vodafone.
To give a better and a strong competition to Reliance Jio, Vodafone and Idea have come up with a great idea to merge and compete against Reliance Jio together. Bharti Airtel the largest telecommunication company will also be surpassed by the possible Vodafone-Idea combination. Although Bharti Airtel has the largest customer base of 39 crores far ahead of Reliance Jio’s 7.2 crores.
Bystanders have long believed that Indian telecommunication sector bound to see such unifications as the weaker players of the game and them also believe that such unifications proved to be difficult to manage with the severe competition and heavy pressure on margins. Sanjay Kapoor a profile consultant and former Bharti airtel CEO said that any blend would be a welcome move for the telecommunication industry. The telecom industry is no longer for the mid-sized balance sheet companies, Reliance Jio is a real competition for the other companies in the telecom industry said, Kapoor.
Reliance has emerged as a magnetic field which is attracting its customers at a rapid speed and becoming the largest company in no time, which is why the Reliance has decided to continue its free voice call and data service till March 31, 2017. The telecommunication industry is moving towards a position where there will be only two or three money-making companies will remain in the market.
The Idea-Vodafone merger will be a good news for the customers said the Director General of Industry body Cellular Operators Association of India (COAI) Rajan S Mathews. However, both Vodafone and Idea will have to consider the combined range they hold in order to avoid breaching the regulatory limits. Each telecom company has a set limit of radio waves bandwidth in each of the country’s 22 service areas as per the Indian telecom rules.
Idea-Vodafone combine may breach those set limits in certain service areas which will result in shedding some of the spheres. The combined entity would have to account for over 25% of the allocated range, added Mathews. The range holding would be a major concern in the merger talks on the regulatory front.