VODAFONE-IDEA MERGER AFFECTS JIO
Britain’s Vodafone Group officially agreed to merge its India operation with Idea Cellular. It is a $23 billion (Rs. 1,55,000 crore) blockbuster deal to create largest telecom company in India in terms of subscriber and revenue. There will be 400 million customers in the bucket of combined company. Currently, Airtel has the highest customer base which is 270 million while Reliance Jio has 100+ million users. After the entry of Reliance Jio, Indian telecom sector has seen a massive transformation especially prices of services.
VODAFONE-IDEA MERGER DEAL
In the merger deal, Vodafone India and Idea Cellular valued at Rs. 82,200 Crore and Rs. 72,200 Crore respectively.
Under the deal, Idea Cellular will pay Rs. 3874 Crore to Vodafone to increase the stake by 4.9 percent in combined company to compensate the deal.
Vodafone will own a 45.1 percent stake in the new entity, and Aditya Birla group along with Idea promoters will own a 26 percent stake, and the shareholders will hold rest of 28.9 percent.
According to the deal, Aditya Birla group will have a right to buy 9.5 percent from Vodafone at a price of Rs. 130 to increase holding in a new entity. Vodafone will gradually reduce its share in the new company to equalize the holding by both the company.
Vodafone-Idea merger deal excludes 42 percent share of Vodafone in Indus Tower Limited. (Indus Tower is independently managed joint venture whose promoters are Bharti Airtel, Vodafone India, and Idea Cellular. The prime objective of the company is to build and share the telecom infrastructure.)
The merger will not be affected by the ongoing disputes of Vodafone with the Government of India.
Kumar Mangalam Birla will be the CEO of the new company while Vodafone will appoint the CFO of the enterprise.
The mega-merger will be closed at the end of 2018. Until the completion of the deal, both the company operate separately.
AFTER COMPLETION OF VODAFONE-IDEA MERGER DEAL
The Combined company will become the World’s second largest and India’s largest telecom company. Vodafone has 205 million users while Idea has 192 million subscribers so new entity would have 400 million connections which are 35 percent of market share.
The revenue of both the company together is about 80,000 crores which are 41% of total revenue of telecom industry.
Vodafone and Idea are the perfect matches because the significant presence of both the company is at different places. Vodafone has a strong presence in urban localities while Idea has a presence in rural areas.
Due to having a capital-intensive sector, combined operation and infrastructure sharing will save millions of bucks for the new operator while it would further utilize to improve the quality of the services and combat the price war.
However, KM Birla is optimistic regarding the layoff, the experts predict up to 10 percent workforce layoff from the merger of both the company.
The merged entity hold the 40 percent market which makes a leader in the industry. So, we would see the reaction of the competitors immediate after the action of the merged entity.
INCREASE THE COMPETITION IN THE TELECOM INDUSTRY
All the players are the victim of disruptive entry of the Reliance Jio. Due to had a fine tune between the companies, each operator enjoyed its space in the oligopoly market. When Jio officially enters the market, operators are not acquiring the customer by prices. So, there was no threat on profit of the company. The freebies proposition of the Jio was so good that no one could refuse it and destruct every policy of the existing telecom operators. There was an extensive downturn in revenue and profit of the operators. Operators could not see any price correction of telecom services in the short term.
It is tough for small players to cope with the ongoing adverse state of the telecom industry. They do not have any alternative except the consolidation with the bigger player of the industry. In short, Big fish eats small fish.
JIO BOOST CONSOLIDATIONS IN TELECOM INDUSTRY
- Idea Cellular and Vodafone India Merger
- Reliance Communication (RCom) is going to acquire the MTS India and consolidate its operation with the Aircel. The deals will strengthen the RCom.
- Tata Teleservices is in talks with RCom to join its operation with merged RCom-Aircel and MTS entity.
- The deal of the Bharti Airtel is in final stage regarding the acquisition of Telenor’s India operation.
- Bharti Airtel acquires 4G Airwave of Trikona Digital.
If all the deals will successfully be accomplished, there would be limited players in the telecom industry.
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HOW THE CONSOLIDATION WILL AFFECTS THE RELIANCE JIO
The price war is going to end very soon because Reliance Jio will stop its freebies from next month. Now, almost every telecom operator follows the Jio’s prime offer and giving 1GB data per day and free calling nearly at the same prices. The consolidation deals between the tele-companies would not affect much to Jio because the long-term objective of Jio is to create is to make available a high-speed internet for entertainment and commercial purpose. Jio has adopted the holistic approach to acquire and sustain the market share. But there are certain challenges lies in front of the Reliance Jio.
ALSO READ: Reliance Jio-A Game Changer
- After the completion of major consolidations, all the companies would have the pan-India 4G presence like Jio.
- Most of the customer are using Jio as a secondary sim. So, the foremost challenge in front of the company is to increase subscriber base who will give the first priority to Jio. It will be crucial for Jio to acquire the loyal customer of Vodafone, Idea, and Airtel because they have already a strong presence in a market.
- After the consolidation, infrastructure will be shared along with the spectrum which will increase the efficiency of the companies and reduces the overall cost of the services. It will prove advantageous for other companies to compete with Jio.
- Due to having a cutthroat competition in the telecom sector, the next battlefield for companies will certainly be an advertisement. Jio is ahead than the competitors because Shahrukh Khan and Amitabha Bachchan are their brand ambassador.
FUTURE DECIDES THE FATE OF TELECOM OPERATORS
The fuel of the consolidation in telecom sector was injected by Reliance Jio. The market always looking for the betterment and the same thing happened in the telecom market, apart from Jio, all the companies played a vital role in merger and acquisition for the betterment. Now there are only five players Reliance Jio, Airtel, Vodafone-Idea and Reliance communication and BSNL in the market. The market will take a time to let us know the fate of the company.