Welcome merger of Vodafone and Idea

Within last six months, India’s telecom market riding on an explosive growth of mobile data, has seen two landmark events of great consequence for the industry and consumers. The biggest disruption in the market with over one billion telephone subscribers, was unleashed by Mukesh Ambani-controlled Reliance Jio Infocomm September last. The Reliance firm, having invested over $20 billion, has so far been offering free voice calls with rock bottom prices for the data. This led to a never seen-before competition among the top players such as Bharti Airtel, Vodafone and Idea for retention of their customer base without yielding too much on acquiring new subscribers, whose appetite  for data packages is growing manifold due to digitisation of the economy and e-governance becoming part and parcel of an average citizen. While Reliance group’s aggressive market pitch remained unabated despite the existing players contesting the Jio’s freebies with the Telecom Regulatory Authority of India (Trai) sustaining the price war was always going to be a tall order, given the bleeding balance sheets of almost all the existing players. Pressure to accumulate spectrum for expansion, especially for data, coupled with inability to raise prices, has made it difficult for the operators to service their huge debt pile.

So, the merger of Vodafone India and Idea Cellular into the country’s largest telecom entity with a combined subscriber base of 400 million and 41% market share, was a pressing compulsion for boards of the two companies, owned by the British parent Vodafone and Kumar Mangalam Birla, respectively. Birla has rightly attributed the $23 billion deal to a “business logic” even as Vodafone India CEO Vittorio Colao takes comfort in being “more sustainable”. With annual savings of Rs 14,000 crore, the debt burden of the combined entity would be Rs 1.08 lakh crore which it should be able to service out of a tidy operating profit of Rs 24,400 crore annually.

The key question is, whether or not the deal is good not only for 400 million Vodafone-Idea consumers but also across the entire market spectrum?
Even after the big merger, the market would have at least three major players including Reliance Jio and Bharati Airtel besides the government-owned BSNL-MTNL combine. There is no threat to the competition which is always good for the market. The merger also augurs well for the sustainability of the industry which is battling huge debt and high cost of spectrum and other infrastructure for the market which has rightly become demanding in terms of quality of service. For now, Vodafone-Idea rings well for the industry and consumers.