Vodafone-Idea merger: India's largest telecom operator in the making

Shares of Idea Cellular jumped as much as 29 percent after Vodafone Group confirmed that it's in merger discussions with India's third largest telecom operator.

"The merger will help Vodafone India improve its position in the mass market, while Idea Cellular would gain from Vodafone's strength in the metro circles", CLSA said in the January 19 note.

Idea Cellular shares soared 25.6 percent after Vodafone confirmed it was in merger talks with the company to take on new entrant Reliance Jio.

"There is no certainty that any transaction will be agreed, nor as to the terms or timing of any transaction", the statement read.

However, the premise of the discussion is both Vodafone and Aditya Birla Group should have equal rights in the entity. Gopal Vittal, CEO of Airtel says, "We welcome the news of the proposed alliance between Vodafone and Idea Cellular".

Just yesterday, Idea Cellular hosted an event in Mumbai where it announced "Digital Idea" app suite to offer its customers with rich multimedia content - including music, movies and games.

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Vodafone entered the Indian market in 2007 and since then, it has seen it all.

Reliance Jio's disruptive entry into the Indian telecom market was perceived as the biggest change in the industry in years, but it looks like there are some tough times ahead.

Reliance Jio has said it has been adding 600,000 new users per day had already added 72.4 million customers as on December 31 on its network since launch in a hyper competitive market.

Vodafone and Idea Cellular could make ideal partners. Idea is a listed entity, and gives Vodafone an opportunity to list its business without going through the process of an IPO. The move comes amid intense competition in India's mobile market. Further, the combined entity would have 43% of the revenue market share and 40% of the active subscriber base, research firm CLSA said. "This will help both companies improve their competitiveness", Mahesh Uppal, Director, telecom consultancy firm Com First, said.

Jio has had an immediate impact on the profits of its Indian rivals, with Bharti Airtel reporting its lowest profit for four years in the final three months of 2016.

"With current level of wafer-thin margins it is uneconomical to invest more in acquiring contiguous territories, spectrum or upgrade into 4G or LTE technology".

  • Ronnie Bowen