Here's why the telecom sector may witness more mergers and acquisitions

Vodafone will hold 45 percent in the combined entity while Idea promoters will hold 26 percent share. The rest will be held by the public

Clearing his stand on mergers and acqusitions in the telecom sector, GSM group Cellular Operators Association of India (COAI) has said that the poor financial health of the sector is leading to mergers and acquisitions in the sector.

Here's why the telecom sector may witness more mergers and acquisition

Rajan S Mathews, Director General, COAI said, "Earlier, there were 13 operators, as opposed to the present no's of four to five operators. Due to the poor financial health of the sector, we are witnessing mergers, acquisition and combinations of companies like Idea and Vodafone, Aircel and RComm and MTS. Other companies like Videocon and Etisalat have already left the industry because of this hyper-competitive pressure."

He said, "this trend of mergers and consolidation, will, however, remain a positive development, benefiting customers, operators, and Government in the long run on global lines. The need of the hour however is, a predictable, stable, long term, regulatory and policy environment, to ensure the financial health of TSPs and a conducive environment for continued investments for a fully connected and digitally empowered India."

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"There is currently a tariff war in the market which may not be sustainable for long. This has also severely impacted the revenue stream of operators not just in terms of an increase in cost but also in terms of a marked decline in the revenue stream. All these have put the financial condition of this industry at risk and increased the debt to Rs. 4.3 Lakh crore, also leading to a severe decline in government revenues from the industry." Mathews added.

Vodafone and Idea Cellular have recently announced that they have reached an agreement to combine their operations in India (excluding Vodafone's 42% stake in Indus Towers).

The combined company would become the leading communications provider in India with almost 400 million customers, 35 percent customer market share and 41 percent revenue market share.

Here's why the telecom sector may witness more mergers and acquisition

Post the amalgamation, Vodafone will hold 45 percent in the combined entity while Idea promoters will hold 26 percent share. The rest will be held by the public.

Arpita Pal AgrawalALSO: Airtel's Ookla speed test claims are misleading, says JIO, Partner and Leader - Telecom, PwC also welcomes the development and says that "Consolidation is a much anticipated and very welcome development in this beleaguered Telecom sector. It will help bring in operational efficiencies and improved quality of service to customers. The regulatory regime will have to ensure that benefits of effective competition continue to be availed by customers."

Mathews added that this amalgamation will create the country's biggest telecom services provider with a customer base of over 394 million.

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