Vodafone has confirmed that it is negotiating a potential merger of its Indian unit with Idea Cellular, in a move which would dramatically shake up the market.
The market number two confirmed that it was holding talks with Aditya Birla Group, which owns number three Idea Cellular, following prolonged rumours. The combined unit would surpass current market leader Bharti Airtel and steel the players against new competition from Reliance Jio Infocomm.
Vodafone stressed that a deal had not been agreed and was not certain to take place. The only details revealed were that the discussions centred on an all share merger from which Vodafone’s 42% stake in Indus Towers would be exempt. In addition, any agreement would see Idea issuing new shares to Vodafone.
The deal negotiations can be seen as a reaction to the market entry of Reliance Jio Infocomm – owned by billionaire Mukesh Ambani - which has challenged India’s Big Three directly by offering free voice and very cheap data to new subscribers. This has essentially fomented a price war, forcing the market leaders to reassess their offerings. Bharti attributed a 3%year-on-year revenue drop in the third quarter to the price war.
While Vodafone and Idea’s potential merger seems to be an attempt to tackle Jio’s entry into the market, the upstart operator had in fact previously been mooted as a potential candidate for a merger with both Vodafone and Idea.
To allow its Indian operation to bid in the country’s massive spectrum auction last year, Vodafone had injected $7 billion into the unit – a move which also halved the operator’s debt. As a result, Vodafone India was able to spend INR203 billion on 4G spectrum, making it the biggest spender in the auction. The firm has stated that it may spin off the Indian unit if the market becomes more amenable.
Meanwhile market leader Airtel is also pursuing consolidation, having reportedly made a move to acquire the Indian unit of Norwegian firm Telenor. By the end of Q1 2017, Airtel is forecast to have 267 million subscribers, while Vodafone India will have over 209 million and Idea more than 188 million.