The second and third largest operators in India look set to close a merger within weeks, in a deal that would see the resulting entity become the country’s market leader.
In late January, Vodafone India and Idea Cellular confirmed that they have been negotiating the terms of an agreement that would see them combine to obtain a 38% market share, allowing them to overtake current market leader Bharti Airtel. The operators are reportedly close to announcing a final agreement.
Former Vodafone India boss Marten Pieters was put on negotiation duties for the deal, with group CEO Vittorio Colao expected to hold a conference call addressing the merger with the company’s business heads next week.
Vodafone India and Idea Cellular have both been adversely affected by the entry to Reliance Jio into the Indian market in September last year, with Idea registering its first ever quarterly net loss in the third quarter. Jio’s free voice & data offer has forced the hands of rivals, with Idea lowering rates by 10.6% in the fourth quarter as well as slashing its mobile data rates by 15.2%.
In fact, Jio’s impact on the market has arguably prompted the wave of consolidation now sweeping India, with RCom merging with Aircel as well as acquiring MTS and Tata Teleservices. Telenor meanwhile has been mooted for an acquisition by Bharti Airtel or the RCom-Aircel entity.
The Vodafone-Idea merger would result in an operator with almost 400 million mobile subscribers, putting it well ahead of current market leader Bharti Airtel, which takes a 25% share of the market with 264 million. At the end of 2016, Vodafone had a 19% share with 203 million subscribers, while Idea was at 18% with 189 million. Jio meanwhile has accrued 100 million subscribers in just five months.
Although Vodafone and Idea largely hold spectrum in different service areas, there are five telecom circles where the merged Vodafone-Idea entity would be in violation of caps on subscribers, spectrum and revenue share.
India has strict regulations on M&A that prevent operators from holding more than 25% of the total available spectrum in any one service area, and more than 50% of the spectrum in any particular band in a service area. In addition, any one operator cannot have a share of more than 50% by either revenue or subscribers in a specific region.