The Department of Telecom (DoT) is in the final process of evaluating the multi-billion merger between Idea Cellular and Vodafone for giving approval.
India will soon have three 3G mobile operators (Airtel, Vodafone-Idea and BSNL), three 4G operators (Bharti Airtel, Vodafone-Idea and Reliance Jio) and three 2G operators (Bharti Airtel, Vodadone-Idea and BSNL) – post merger.
The concern among Indian mobile phone consumers will be about the lack of competition among Bharti Airtel, Vodafone-Idea and Reliance Jio in the long-run. Lack of rivalry will boost wireless tariffs and stability of the telecom business.
During the consolidation, Vodafone-Idea will emerge as the dominant telecom operator in terms of mobile revenue and subscriber market share.
Amid the integration efforts by Idea Cellular and Vodafone, rival telecom operators such as Bharti Airtel, Reliance Jio and BSNL will be looking for adding an additional 14 million mobile phone customers when the Vodafone-Idea merger completes.
At present, Airtel has 304.191 million subscribers on its 2G, 3G and 4G networks in India. Airtel continues to its dominance in the Indian telecom market. Reliance Jio has 186.560 million wireless subscribers on its 4G network in the country. Jio has started operations in September 2016.
The state-run BSNL has 111.679 million wireless subscribers in all states excluding Mumbai and Delhi metros.
Idea Cellular and Vodafone will try to shed the extra 14 million subscribers in six circles to meet the DoT guidelines within 12 months of completing the merger. If the telecom user base of the India grows substantially, Idea Cellular will have a chance to keep this 14 million extra subscriber base with them as well.
At present, Idea and Vodafone are in the process of integrating their business to become more cost effective in running the operations.
Department of Telecommunications (DoT) guidelines do not allow the combined Idea-Vodafone entity to enjoy more than 50 percent share of India’s wireless subscribers and revenue, The Hindu reported.
The DoT guidelines will also enable BSNL, Reliance Jio and Airtel to grab an additional Rs 2,000 crore revenue in three telecom circles as the merged entity will breach the Department of Telecommunications (DoT)-prescribed 50 percent cap on revenue in the states.
Vodafone-Idea, India’s largest telecom operator with 423 million subscribers, breaches the DoT prescribed cap of 50 percent for subscriber market share in six circles of Gujarat, Haryana, Kerala, Madhya Pradesh, Maharashtra and Uttar Pradesh (West).
As per DoT’s merger and acquisition (M&A) guidelines notified in 2014, the combined entity has to reduce its subscriber share to below 50 percent, in circles where such cap is breached, within a year from the effective date of licence transfer.
Vodafone-Idea will have to reduce the number of its subscribers by about 6.9 million in these six states. The combined entity, which will command 37 percent of the RMS at Rs 63,000 crore, breaches the DoT-prescribed cap of 50 percent for Revenue Market Share (RMS) in three circles of Gujarat, Kerala and Madhya Pradesh.
To comply with the RMS cap of 50 percent, the combined telecom entity would be required to reduce the annual revenues in these three telecom circles by more than Rs 2,000 crore, representing 3.3 percent of the revenues post merger.
To achieve this, the combined telecom entity will have to further reduce the number of its subscribers by 7.2 million to avoid the RMS breach in three states.
“This would create the ideal platform for poaching by competition like Reliance Jio and Bharti Airtel to bolster market share in these large telecom circles,” Paras Bothra, head of equities, Ashika Stock Broking.
DoT is supporting the merger
Aruna Sundararajan, chairman, Telecom Commission and secretary of DoT, has not shared any concerns on the possible impact of the merger on Indian mobile phone customers. The immediate impact after the merger will be the reduction of 2G and 3G operators into just two (excluding BSNL) — Airtel and Vodafone-Idea.
In all the recent media interactions, Aruna Sundararajan said that the telecom department is discussing the merger details.
The other officials of DoT have also not shared any views against the merger between Idea Cellular and Vodafone, the #3 and #2 telecom operators in India.
In the US, the proposed merger between T-Mobile and Sprint, the #3 and #4 wireless operators, is facing scrutiny from several authorities. US regulator will assess whether their wireless service providers – after any merger — will grab any influence on the price of voice and data prices or MVNOs.
The 50 percent revenue and subscriber cap prescribed by DoT in India has the potential to enjoy a near monopoly in the wireless market. Already, India’s 1 billion plus mobile phone customers do not enjoy vast difference in the price offered by established operator and the new comer Jio.
The present 50 percent cap is capable of ensuring that just two mobile operators can dominate the second largest telecom market unless judiciary steps in and monitor the dominance of some operators.