Vodafone-Idea merger not easy, say analysts
Rumours of a merger between Idea Cellular and Vodafone India have created a flutter among analysts, who said it would not be easy and was unlikely soon.
Speculation about the merger started after a news report earlier this week. If the merger materialises, it will create the country’s largest telecom player with a market share of 42 per cent.
Analysts said the companies would have to wait till spectrum auctions later this year because the government had suspended mergers and acquisitions till then. This apart, caps on spectrum and market share will act as hurdles. A merged telecom entity cannot have more than 50 per cent market share in any circle. Also, the merged entity cannot hold more than 25 per cent of the total spectrum in any circle. If these limits are breached, the companies need to reduce subscribers within a year.
M&A rules in telecom also specify spectrum holding limits that require the combined entity to have less than 50 per cent of spectrum in each band individually in addition to having less than 25 per cent of the spectrum allocated to all operators in all bands in each circle.
In case of a merger between Vodafone and Idea, their combined spectrum share would exceed limits in 12 circles and their combined market share would breach 50 per cent in seven circles, Credit Suisse said.
According to a report by Goldman Sachs, “The 3G/4G spectrum portfolio would largely be complementary and the combined entity would have 3G/4G presence in 21/14 circles, respectively. However, in three circles, the combined entity would breach the 25 per cent overall spectrum cap.”
Analysts said breach of limits in these circles would require the merged entity to let go of some market share, probably by hiking tariffs, and give up some spectrum to the government. Morgan Stanley expected the combined entity to breach the spectrum cap by 2.8 MHz in five circles in the 900 MHz band. “Here we believe they could sell excess spectrum,” it said.
“While any consolidation in the sector is a positive, the Idea-Vodafone merger will not be an easy one, given that there is significant overlap between the two,” the Credit Suisse report said.
The combined entity could emerge as a strong competitor to Bharti and Reliance Jio while reducing competition for smaller players.