Consolidation may not reduce competition in medium term

EVEN THOUGH the Vodafone India-idea Cellular merger could result into just five telecom players remaining in the country, compared with 10 firms in the sector barely a year ago, experts believe that a spur in consolidation might not immediately relieve the operators of the intense competition. “We do not expect any reduction in the competition in the medium term as the large telcos would continue to keep the intensity high. However, in the long term this consolidation is expected to be positive, as it would restore some pricing power and give better bargaining terms with vendors/suppliers,” said Harsh Jagnani, Vp-sector Head, ICRA.

Also, notwithstanding the pricingpowerthatvodafone-idea wouldhave,theconsolidationbetween the two could also lead to higher pressure on their balance sheet, considering competitive tariffs test their revenues and realisations. “The ARPMS (average realisation per minute) have largely remained flat and as pricing pressures intensify which is eminent from new plans/packs announced, it shall have a further bearing on the topline as it gets adjusted for revenues with lesser pack prices and having a consequent effect on the EBITDA margins along with probable contraction on the bottom line,” said Mayuresh Joshi of Angel Broking.

“In the quarter gone by what was even more evident was the fall in data realisation prices per MB. Bharti was close to 17.8/18 paise per MB and Idea close to 16.2-16.4 paise per MB which is significantly lower compared to what they generated a few quarters back. The accentuated fall in data prices were not necessarily and adequately offset by increase in data volumes,” Joshi added.

In such a situation, Vodafone and Idea could benefit from operational synergies. “...(the merger) willallowit(thecombinedentity) to curtail some expenses such as co-location rentals and energy costs, customer acquisitions and support teams and reduced expense on branding and advertising,” Jagnani said. However, the merged entity is also expected to have debt of around Rs 1,07,900 crore,andanalystshavesuggested that it would be necessary for the firms“toinorganicallydeleverage to rein in the debt”. Vodafone said that prior to completion of the transaction,vodafoneandideaintend to sell their standalone tower assets, and Idea’s 11.15 per cent stake in Indus Towers to reduce the combined company’s leverage.

The consolidation comes as a goodnewsfortheconsumer,who is expected to see more competitive tariffs, especially for data. “The consolidation in the telecom industry through the Idea Vodafone merger, acquisition of spectrum from other operators by Bharti Airtel and market share gains by Jio would ensure competitive and demanding times for telecom operators but the consumer is having the last laugh at their expense, at the current juncture,” Joshi said.

The consolidation comes as a good news for the consumer, who is expected to see more competitive tariffs, especially for data