Vodafone Plc, India's second largest mobile services provider, confirmed market rumours on Monday as it said it was talks to merge smaller rival Idea Cellular Ltd. with itself. Idea soared 28 per cent on the news which has been doing rounds since at least the past fortnight.
It is not immediately clear how the financials will work out. Unlisted Vodafone said it will get fresh shares from Idea Cellular from the company's diversified parent, the Aditya Birla group. A potential merger to catapult the combined entity at the top slot in the booming sector. This deal will also result in the potential listing of Vodafone's Indian operations on the exchanges, subject to regulatory approvals.
India's telecom sector, the world's most inexpensive market for calls, has traditionally been intensely competitive. The bar was raised further by the entry of Reliance JiO is September which promised free calls and high speed internet access for 3 months to bag new subscribers in a market estimated at 110 crore users. Bharti Airtel Ltd. is the largest mobile services provider in India and competes with networks run by Reliance, Vodafone, Bharat Sanchar Nigam, Idea Cellular and Reliance Communications. Other small players, too, have been talking to each other to merge in a bid to cut down on costs and back breaking advertising costs.
Shares of Idea Cellular, which recently hit a 5-year low, surged 29 per cent post Vodafone's announcement. The stock has surged nearly 50 per cent since January 19 when it was quoting at 67 rupees. Hyper competition had seen the stock collapse from a high of 203 rupees in April 2015.
A Vodafone-Idea Cellular combine will control 43 per cent revenue market share compared with 33 per cent share that sector leader Bharti Airtel enjoys now. Such a deal will improve the merged entity's operating income by 25 per cent thanks to lower network costs and savings on expenses such as salaries and advertising.