Voda-Idea Merger May Not Be Easy, Say Ex­perts

TOUGH CALLS Con­sol­i­da­tion of ecosys­tem part­ners in­evitable, they say

The Economic Times - - Companies & Economy - Kalyan.Par­bat@ times­group.com

Kolkata: Idea and Voda­fone In­dia plan to shortly kick off op­er­a­tional in­te­gra­tion of their net­works fol­low­ing the go-ahead by the com­pe­ti­tion reg­u­la­tor. But the ex­er­cise is likely to be fraught with chal­lenges, pos­si­bly re­quir­ing tough and costly calls lead­ing to con­sol­i­da­tion of their ecosys­tem part­ners, ex­perts said. The Idea man­age­ment, at an earn­ings call last week, said the com­pany can “now plan the in­te­gra­tion as­pects” with ap­provals in place from the Com­pe­ti­tion Com­mis­sion of In­dia (CCI) for its merger with Voda­fone In­dia. Bro­ker­age house HSBC said “prompt CCI approval is a pos­i­tive”, but the in­te­gra­tion of Idea and Voda­fone In­dia’s oper­a­tions will have to “be seam­lessly ex­e­cuted” to en­sure the merged en­tity is able to con­test mar­ket dis­rup­tion by Re­liance Jio In­fo­comm that is ex­pected to con­tinue for sev­eral quar­ters. Ra­jiv Sharma, HSBC di­rec­tor and tele­com an­a­lyst, said the IdeaVoda­fone oper­a­tions in­te­gra­tion “may not be easy as the two or­gan­i­sa­tions dif­fer sig­nif­i­cantly in terms of billing sys­tems, net­work ven­dors and cul­ture”. For­mer Bharti Air­tel CEO San­jay Kapoor backed the view, say­ing an Idea-Voda­fone merger would in­duce the need to make sev­eral tough choices around tech­nol­ogy ven­dors, IT part­ners, CRM part­ners (such as third-party con­tact cen­tres), and should nat­u­rally lead to re­align­ment of ex­ist­ing agree­ments and con­tracts with their re­spec­tive part­ners.

“Since the ob­jec­tive would be to build syn­ergy and avoid du­pli­ca­tion of net­work, sys­tems, peo­ple re­sources and part­ners on a cir­cleby-cir­cle ba­sis, the con­sol­i­da­tion at the ecosys­tem part­ners level is in­evitable,” he said.

Nitin Soni, di­rec­tor at rat­ings agency, Fitch, said he ex­pected the in­te­gra­tion to be com­plex and cost- ly. “Coun­try­wide net­work in­te­gra­tion could prove costly as both tel­cos might have to ter­mi­nate some long-term con­tracts with part­ner tower com­pa­nies pre­ma­turely, for which they could end up shelling out hefty penal­ties,” he said.


Voda­fone In­dia and Idea Cel­lu­lar’s ven­dors for tow­ers, net­work equip­ment, man­aged ser­vices and IT in­clude more than half a dozen com­pa­nies. In­dus Tow­ers, Bharti In­fratel, Amer­i­can Tower Corp and GTL In­fra­struc­ture pro­vide tow­ers while Huawei, Eric­s­son and Nokia pro­vide tele­com gear and some also do man­aged ser­vices. IT ven­dors in­clude pri­mar­ily IBM, Tech Mahin­dra and Ac­cen­ture.

The car­ri­ers will have to choose be­tween ven­dors run­ning par­al­lel ser­vice and sup­ply con­tracts, so as to keep one net­work. They may even re­dis­tribute mar­kets be­tween sup­pli­ers. Bro­ker­age Gold­man Sachs has said that Voda­fone and Idea would have a sig­nif­i­cant “tower over­lap”.

Queries sent by ET to Idea Cel­lu­lar and Voda­fone In­dia did not elicit any re­sponse till late evening on Friday. Voda­fone and Idea are in the process of form­ing an equal rights joint ven­ture that will cre­ate In­dia’s largest phone com­pany by sub­scribers and rev­enue mar­ket share, which will be bet­ter placed to take on the com­pe­ti­tion posed by Re­liance Jio In­fo­comm.

With approval for the merger coming in from the an­titrust body, both tel­cos are await­ing reg­u­la­tory ap­provals from stock mar­ket reg­u­la­tor Sebi and stock ex­changes, ap­pli­ca­tions for which have been filed, be­sides the tele­com depart­ment.

An­other chal­lenge, Soni said, is in­te­grat­ing Voda­fone and Idea’s mar­ket­ing teams, which would hinge on whether the com­bined en­tity de­cides to carry two corporate brands or just one. “Car­ry­ing two brands can prove very ex­pen­sive for the IdeaVoda­fone com­bined en­tity as it would re­quire ded­i­cated mar­ket­ing teams to sup­port each brand, which might not be a great idea,” said Soni.

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