Telecom consolidation politics paves way for Airtel, Idea, Vodafone to gain

Telecom minister Kapil Sibal missed a chance to block the dominance of Bharti Airtel, Idea Cellular and Vodafone when the Empowered Group of Ministers (EGoM) cleared merger and acquisitions (M&A) policy for mobile operators with an enhanced subscriber market share of 50 percent for a merged entity, raising the ceiling from 35 percent.

If the government considered revenue market share of Indian mobile operators as the main benchmark for M&A, Bharti Airtel, Idea Cellular and Vodafone India would not be able to merge themselves and emerge stronger. These three operators have a combined revenue market share 70.5 percent against subscriber share of 55 percent – 5 percent above the guidelines.

If these three top GSM operators — Bharti Airtel, Idea Cellular and Vodafone —  are planning a merger they can easily reduce unwanted or less significant mobile users to maintain the 50 percent subscriber status for a merged entity. But they cannot afford to miss the revenue market share.

The revenue market share of Airtel is 30.9 percent against Vodafone’s 23.4 percent and Idea Cellular’s 16.2 percent. The subscriber market share of Airtel is 22 percent, Vodafone 18 percent and Idea Cellular 15 percent. Both revenue share and subscriber share of their competitors is meagre Dual technology player Reliance Communications has 7.6 percent revenue share and 13 percent subscriber market share.

Consolidation

The consolidation drive will gain momentum soon. If Bharti Airtel, Idea Cellular and Vodafone India decide to merge, it will affect the fortunes of smaller players. Except, Reliance Communications and Tata Teleservices, all private players are really small.

Telecom minister Kapil Sibal said that a telecom operator buying another company will have to pay market price for any spectrum holding above 4.4 MHz GSM and 2.5MHz of CDMA. However, if the acquired spectrum is liberalized (bought through government auction), then there is no need to make any payment for the same.

The current guidelines will make less attractive for foreign telecoms such as America Movil to look into the Indian telecom market.

Telecom M&A guidelines may cheer players such as Telenor, Maxis-promoted Aircel, Sistema’s MTS India, NTT Docomo’s Tata Docomo, etc. but a merger among three dominant GSM operators will make business life tougher for smaller companies.

Note: the chart is sourced from a telecom operator.

Baburajan K
editor@telecomlead.com