Voda, Idea Merger Plan No Big Worry for Air­tel

Mar­ket leader sees enough op­por­tu­nity to grow mar­ket share, says top of­fi­cial

The Economic Times - - The Telecom Files - Anan­dita.Manko­tia @times­group.com

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...

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