Vodafone and Idea merger will be favourable, says India Ratings

The intense competition from Reliance Jio’s freebees will continue to pressurise telecom companies' (telcos) financials

    The proposed merger of Vodafone India and Idea Cellular Ltd (Idea) will be positive step for the telecom industry as it eliminates duplication of spectrum and infrastructure capex according to India Ratings.

    Vodafone and Idea merger to improve industry dynamics

    The agency said the merger will be favourable for both operators and subscribers, resulting in better pricing discipline in the long term. It also estimates the return on capital employed for the industry to be around 3 per cent by financial year 19 , while the total capital deployed will also rise by 90 per cent.

    SEE ALSO:Idea Cellular launches USSD-based transaction system for users

    However, in the near term India Ratings believes that the intense competition from Reliance Jio's freebees will continue to pressurise telecom companies' (telcos) financials, it said.

    It further said that the combined entity will be much larger in size, with a subscriber base of over 380 million (37 per cent market share) compared to Bharti Airtel Limited's (Bharti) 262 million subscribers and the revenue market share will be around 40 per cent, while Bharti's stands at 30 per cent.

    Agency also notes that the spectrum of Vodafone India (in seven circles) and Idea (in two circles) which are expiring in financial year 22 are not in common circles, and there could be potential spectrum capex synergies so the cumulative worth of spectrum in these nine circles is over Rs 12000 crore, based on the latest auction prices in those circles.

    SEE ALSO: Idea Cellular launches USSD-based transaction system for users

    India Ratings expects the combined entity will breach the spectrum holding limit in five circles under the 900 MHz band, one circle under the 1,800MHz band and two circles under the 2,500MHz band with the cumulative worth of around Rs 9,000 crore based on the last auctioned prices but the merger, will also require regulatory clearances, including the ones related to spectrum holding share, subscriber market share and revenue market share in some of the circles where the combined holding will cross the prescribed threshold limits.

    "The key challenge for the merger will also be operational and management control of the merged entity, along with the outstanding tax matter of Vodafone India," it added.

    "The merger will complement the circle presence of both the entities - Idea has strong presence in rural areas and Vodafone India in urban localities. It will also improve the competitiveness of the resultant entity compared to other telecom leaders in around 60 per cent of circles," the statement further said.

    The war between telecom players are not new but it got aggravated ever since Reliance Jio announced its 4G plan for the country.

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