On Monday, two of India’s largest telecom operators merged, making the enlarged outfit India’s biggest service provider in the sector. The amalgamation of the UK-based Vodafone and Idea Cellular, currently two and three in the Indian market, will have wide-ranging implications for the industry, consumers and regulatory authorities. The company will have nearly 400 million subscribers, almost 130 million more than now second-placed Bharti Airtel.
But it’s Reliance Jio, with about 100 million subscribers, that has set the pace, in recent times, for the telecom industry and created conditions that precipitated the Vodafone-Idea merger. While it showed that data delivery is the way forward for telecom outfits in the world’s second-largest mobile market, Reliance Jio created market uncertainty and triggered a price war in an already competitive industry. The Vodafone-Idea merger will lead to pooling of resources, such as spectrum and mobile towers, of the two companies.
By all accounts, for Vodafone customers, the amalgamation could mean better network and data accessibility in semi-urban and rural areas where Idea has a strong presence. Idea customers will similarly benefit from Vodafone’s reach in big cities. The new company is expected to make substantial savings on operating costs and capital investments. In a competitive market, it is expected that the telcom outfit will pass on the benefits — a part, at least — to the customer. More competitiveness could also result in the introduction of better technologies. On the flip side, the merger could lead to regulatory challenges.
The merger and acquisition rules for the telecom sector specify that an entity should not have more than 25 per cent share of the spectrum in a telecom circle. Research by the brokerage analysis outfit CLSA shows that the enlarged company will breach this cap in five circles. It remains to be seen how the Telecom Regulatory Authority (TRAI) arranges for the surrender of the excess spectrum.
The amalgamation could give a fillip to more merger moves in the telecom sector. While consolidation is likely to improve the quality of services, it could lead to a few companies dominating India’s telecom market in the long run. It’s up to the TRAI to ensure that this does not affect the customer.