Vodafone and Idea have begun merger talks to create India’s largest telecom company

Hey Idea, are you listening?
Hey Idea, are you listening?
Image: Reuters/Babu
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Vodafone India, the British telecommunication multinational’s domestic arm, has begun talks for a potential merger with rival Idea Cellular to create the country’s largest telecom company by subscriber base.

“Vodafone confirms that it is in discussions with the Aditya Birla Group about an all share merger of Vodafone India (excluding Vodafone’s 42% 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. There is no certainty that any transaction will be agreed, nor as to the terms or timing of any transaction,” Vodafone said in a statement to the London Stock Exchange on Jan. 30.

If the merger goes through, their combined subscriber base will stand at 390 million, at least 100 million more than that of the country’s largest telecom provider, Bharti Airtel. Vodafone is India’s second-largest telecom company with 202 million subscribers while Idea Cellular, the third-largest, has 187 million.

“The potential merger between Vodafone India with Idea Cellular would change the industry order,” brokerage firm CLSA said in a report on Jan. 17. ”The combined entity would have 43% revenue share in the market by FY19 against 33% of Bharti Airtel and 13% for Reliance Jio.”

Idea’s shares are up 24% since 1:30 PM when Vodafone confirmed the merger talks.

The discussions come at a time when India’s $50-billion telecom sector is undergoing a radical change with the entry of Mukesh Ambani’s Jio. His company offers the cheapest internet data in the world, Ambani said in September. Jio had rattled telecom operators in India, with many scrambling to cut rates and offer attractive discounts to retain subscribers.

With billions of dollars—$28 billion (Rs1.9 lakh crore) to be exact—being invested in Jio until now, the company will need to revisit its strategy if the Vodafone-Idea merger does take shape. Jio is striving to cover 90% of the country’s population by 2020. Just five months after its September 2016 launch, it already has a subscriber base of 72 million.

Referring to the merger talks, the CLSA report said, “Such a merger will help Vodafone India improve its position in the mass market, while Idea Cellular would gain from Vodafone’s strength in the metro circles… Finally, the merger would create a new leader in the mobile/data industry, challenging both Bharti Airtel and Reliance Jio and further intensify the competition.”

The battle intensifies.