Voda, Idea Merger Plan No Big Worry for Airtel
Market leader sees enough opportunity to grow market share, says top official
New Delhi: Market leader Bharti Airtel is confident of weathering the impact of the creation of a larger competitor through the proposed Idea Cellular-Vodafone merger, with a top company official saying it should be able to bridge or narrow the revenue gap within a year to 18 months.
“The merger is a great thing to happen for the industry and as far as Airtel is concerned, the com- pany sees enough opportunity in the next three to four quarters to accelerate its market share through aggression in the marketplace via differentiated offerings as well as pricing, among others,” the executive told ET.
Gopal Vittal, CEO for Airtel in India and South Asia, welcomed the proposed alliance, although he noted that it was a “forced” one, created by offering an “unfair playing field” to a company while completely destroying the viability of the others.
In a statement on Tuesday, Vittal said forced mergers would not only hurt the sector, customers and employees, but would also adversely impact the investment climate and revenues for the government.
Although Vittal didn’t identify the company, it’s clear he was referring to Reliance Jio Infocomm, ET ARCHIVES which started services in September. Jio’s introductory free voice and data services, which both Airtel and Idea have termed predatory, have eroded profitability for telecom companies. Airtel reported a 55% drop in third-quarter net profit last week and Idea is expected to post its first net loss on February 11.
While the proposed merger is expected to bring a semblance of rationality to an industry bloodied by the Jio-induced price war, Bharti Airtel will need to get used to being the No. 2 telco in India.
The combined entity will have about 390 million subscribers compared with about 266 million for Airtel and a larger revenue share — about 43% compared with 33%. “Airtel will obviously try very hard to bounce back and make the most of any opportunity any player in the market will give us to increase our market share,” a second executive told ET. Both executives noted that the estimated revenue share gap could actually be less than 10 percentage points. “The two companies (VodafoneIdea) will forgo interconnect usage charges as they become one entity and this automatically means they will shed a few percentage points from their market share,” one executive said. Secondly, the combined company would breach the 50% market share cap in some circles, which would have to be adjusted within a year. “In some of the markets such as Haryana, Gujarat, Karnataka, UP (West) and Maharashtra, the entity would hold as much as over 60% market share and they will need to shed these points,” the executive said, adding that these two factors would lower its market share to less than 38% and make the job easier for Airtel.
Airtel stock, which rose 7.5% on Monday, closed little changed at ₹ 347.90 on the BSE on Tuesday. US investment research and management firm Sanford C. Bernstein & Co. said a merger between Vodafone and Idea would infringe regulatory limitations in several circles. “The spectrum limit breach is not significant; the main issues would be revenue share in six of the circles,” Bernstein said.
Bharti Airtel is likely to gain some market share in the difficult two-three year period it takes Vodafone and Idea to merge their operations, clarify their brand, and unify their network, Bernstein’s report added.
GOPAL VITTAL CEO-India & South Asia, Airtel Forced mergers would not only hurt the sector, customers and employees, but would also adversely impact the investment climate...