Con­sol­i­da­tion is the an­swer to loom­ing price war

The Star Early Edition - - COMPANIES - Ka­belo Khu­malo

MA­JOR con­sol­i­da­tion in the mo­bile in­dus­try is on the cards in In­dia af­ter Voda­fone said yes­ter­day that it was in talks to merge with In­dia’s third largest mo­bile com­pany Idea Cel­lu­lar as the two com­pa­nies seek to stay afloat from a bru­tal price war that has en­gulfed In­dia tele­coms in­dus­try.

The deal would see the two com­pa­nies hav­ing 43 per­cent of the multi-bil­lion dol­lar In­dia’s tele­coms mar­ket.

Voda­fone owns roughly 65 per­cent of South African com­pany, Vo­da­com.

Bharti Air­tel is cur­rently In­dia’s largest mo­bile op­er­a­tor with a mar­ket share of 33 per­cent. Should the deal go ahead, it would cre­ate a com­pany with more than 370 mil­lion sub­scribers in In­dia.

The UK-based mo­bile giant said it cur­rently has 200 mil­lion cus­tomers in the coun­try, mak­ing it the coun­try’s sec­ond big­gest mo­bile player.

“Voda­fone con­firms that it is in dis­cus­sions with the Aditya Birla Group about an all share merger of Voda­fone In­dia (ex­clud­ing Voda­fone’s 42 per­cent stake in In­dus Tow­ers) and Idea. Any merger would be ef­fected through the is­sue of new shares in Idea to Voda­fone and would re­sult in Voda­fone de­con­sol­i­dat­ing Voda­fone In­dia” the com­pany said.

Neil Wil­son, a se­nior mar­ket an­a­lyst at ETX Cap­i­tal, said con­sol­i­da­tion in the In­dian cell­phone mar­ket was bound to hap­pen to off­set a vi­cious price war.

“A merger could help the com­bined group main­tain higher prices and take on the likes of Re­liance Jio.

“Some­thing had to be done and this merger might be the way to strengthen Voda­fone’s hand in the In­dian price war,” Wil­son said.

Voda­fone and other In­dian mo­bile com­pa­nies faced un­re­lent­ing pres­sure last year when In­dia’s rich­est man, Mukesh Am­bani, en­tered the fray with his com­pany Re­liance Jio.

The com­pany turned the 1 bil­lion sub­scriber mar­ket on its head when it in­tro­duced free un­lim­ited 4G mo­bile broad­band ser­vice till the end of last year and free voice calls to cus­tomers. Jio then quickly lured 70 mil­lion cus­tomers by the end of last year.

This forced Voda­fone and other op­er­a­tors to slash pre­paid tar­iffs and in­tro­duce cheaper data plans to counter Jio’s of­fer­ings. In Novem­ber Voda­fone posted a mas­sive €5 bil­lion (R71.81bn) write­down in In­dia.

Wil­son said the huge write down meant Voda­fone was set to re­port its first op­er­at­ing loss in ten years this year.

Voda­fone said it was still early days to pre­dict the out­come of the dis­cus­sions. “There is no cer­tainty that any trans­ac­tion will be agreed, nor as to the terms or tim­ing of any trans­ac­tion,” the com­pany said.


A man casts a sil­hou­ette on to an elec­tronic screen dis­play­ing a logo of Voda­fone In­dia. Voda­fone is in dis­cus­sions with the Aditya Birla Group about an all share merger of Voda­fone In­dia and Idea.

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