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Vodafone Idea Merger: What Analysts Say It Means for the Telecom Industry

Vodafone-Idea Merger: What Analysts Say It Means for the Telecom Industry

By Gadgets 360 Staff | Updated: 20 March 2017 12:41 IST

Highlights

The Vodafone-Idea merger is now official
This will take two years to complete
Experts say more consolidation will follow

On Monday, Idea confirmed that Vodafone India and Idea Cellular will be merging within two years - Vodafone will own 45.1 percent of the merged entity, and Idea will have the sole right to appoint the chairman.

This news first broke in January, and the result of this merger is the largest telco in India. Clearly, this is something that's going to have a large impact on customers in India, not just directly for the customers of the companies but also in how it will impact the telecom industry here.

"When it comes to customers - it's too early to say," explains Amresh Nandan, Research Director, Gartner. "It depends on how well they merge, that would define the impact on customers. In my opinion it is too early to say that. Principally, what they have done is good."

"Now with the entire focus on data - almost every telco, not just in the Indian market - needs to transform," he adds. "Data networks are far more complicated, and need to be handled on technology, operations, and go to market fronts."

When it launched in September, Reliance Jio offered free voice calls to all users, forever, charging only for data. This completely changed the terms under which people were using their phones - and whether they like it or not, every other telco has also had to change itself to focus on affordable Internet access.

"In order to survive in the data space, all these telcos need to transform themselves, which is not possible to do for everybody," says Nandan. "Those who can't - for whatever reason - need to get out. The ones who can strengthen their portfolio, by acquiring others, should do that. So principally this is good and will help them to make changes that otherwise appear to be cumbersome."

He also makes the argument that over the next two years, as the two organisations merge, it will also be easier to make the necessary changes to how they work, which would have been harder to do on their own for either company.

Vodafone, Idea Merger Talks - Full of Opportunities and Challenges

"If your organisation is running and you try to change, it becomes a bit difficult, and comes with quite a bit of resistance," says Nandan. "When you are merging, you are anyway going to make changes, and you have relatively less resistance to transform. So it would be a good thing. That would define how well they compete with Airtel and Reliance Jio and others."

Beyond that, this kind of consolidation is going to continue, and we'll see other companies look at such options as well, suggests Rishi Tejpal, Principal Analyst, Gartner.

"Consolidation in the Indian telecom industry is imminent and with Reliance Jio coming in with an aggressive go to market strategy, this got fueled further," says Tejpal. "The industry is going through a tough pricing regime and consolidation of such scale will help incumbents to stabilise their financial situation and compete more effectively."

Speaking specifically of the Idea-Vodafone merger, Tejpal also points out to some other benefits for the two companies in coming together.

"Mostly, both Vodafone and Idea complement in many ways, like in terms of geographic coverage, spectrum holdings and rural/ urban subscriber mix (with few exceptions in some circles)," he points out. "Now that this is announced the key benefits the combined entity needs to exploit are synergies across operational costs."

Beyond that though, he also cautions that a price war with Jio would be bad for the companies and also bad for the overall ecosystem.

"From competition perspective, this will help the combined entity to leverage the synergies and offer value in terms of quality and content," says Tejpal. "Playing only on the price front will be detrimental for the industry."

Idea Takes on Reliance Jio With ‘Digital Idea’ Movies, Music, Gaming Apps

Parv Sharma, Research Associate at Counterpoint Research makes a similar point, as he says that Jio caused a shakedown in pricing, and now the telcos will have to turn to content to differentiate their offerings.

"Voda-Idea merger has let to consolidation of telecom in India and now they have highest subscriber base of 36 percent in India," he says. "The game starts from here as Jio now officially started business after introducing plans for new customers and have extended promotions for existing customers with Jio Prime."

"To counter Jio, rival operators will offer data plans at par with Jio," he adds. "The only weakness Jio has that it is 4G LTE network with no fall back on 3G/ 2G, operators can use this against Jio but Jio is planning to increase its coverage to over 90 percent, so operators will have to bundle data and content offers to users so that they do not port to Jio."

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