Consolidation is the answer to looming price war
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.