India is currently the second-largest telecommunication market and has the third highest number of internet users in the world. Thus, it can be very well imagined that even a small ripple can create large waves in the vast waters of Indian telecommunications. The recent developments, however, have
been far from small. Post the major disruption caused by Reliance Jio, the latest development in the segment was the merger between Idea Cellular, promoted by Kumar Mangalam Birla and Vodafone India, the Indian wing of the British MNC with headquarters in London.
The first thing that will happen is, the companies, which were No.3 and No.2 respectively in terms of size in the pecking order of Indian telecom, will become No.1 post the merger, replacing Bharti Airtel.
The turf war that was started by Reliance Industries (RIL)’s Reliance Jio Infocomm introducing the Jio 4G services completely free has snowballed into a free-for-all match which will end, it seems, with major consolidation and survival of only a few, large entities.
While consumers rejoice now, in the long run, prices are bound to stabilize and then rise as only fewer players will remain. The trend of consolidation has already started, with Bharti Airtel announcing its desire to buy the India assets of Telenor while the big fish of Reliance Communications, Aircel, Tata Teleservices and MTS are all looking for options of merger.
The leapfrog to the top post consolidation
At present, Bharti Airtel leads the telecommunication charts with 265.85 million subscribers as per the Cellular Operators Association of India data. With the combined strength of Vodafone’s 204.69 million and Idea’s 190.52 million subscribers, the merged entity will move to the top with a comfortable margin from the second-placed Airtel.
Furthermore, it will also be set much higher than Reliance Jio, the latest disruptor in the telecommunications market, which has already amassed 72.4 million subscribers having just started its operations in September 2016. Also, the merger will achieve the maximum possible legalized market share of a merged entity in the Indian telecommunications sector with 49 percent of the market share, as more than 50 percent is not allowed.
It is not all dark and gloomy for the other telecom operators as they may also stand to gain from this merger. How? The merged entity will have 1120 MHz spectrum across 5 bands, thus being the biggest spectrum holder in India. However, the consolidated entity will have to either sell excess spectrum in the five circles of Maharashtra, Gujarat, Kerala, Haryana, and Uttar Pradesh (West) to other operators or give it back to the government without any compensation as it is not allowed for a merged entity to have more than 50 percent spectrum in any individual circle and more than 25 percent overall spectrum as per TRAI.
As the same scenario will happen in revenue and subscriber market share as well, other telecom operators are looking forward to getting much-desired spectrum at very low prices since Vodea will not like to muffle the feathers of the regulatory authorities for a long time. Consumers can also look forward to more options and better plans offered by major telecom operators till the market shares are readjusted.
A messier price war
The major disruption caused by Reliance Jio has seen the Indian telecommunications industry dive headlong into a sustained price war. With the merger, this price war is set to get prolonged as with more resources at its disposal, the merged entity will rain offers on consumers. Considering the complimentary rural-urban synergies of Vodafone and Idea, customized offers for deeper market penetration throughout the country will soon be on the cards as well.
Consolidations are always good for an industry in the long-term as with reduced competition, a stability in prices and revenue can be achieved. Thus, Bharti Airtel and the Vodafone-Idea merged entity will probably be the two biggest players in the Indian telecommunications market, thereby increasing the profit share amongst them.
This, however, depends on how well they are able to fight off the highly disruptive practices of Reliance Communications Jio, as India’s richest man, Mukesh Ambani has already promised to further invest INR 300 billion in addition to more than $25-30 billion already invested in an industry with total revenues of $27 billion.
Focus on 4G content ecosystem
While Airtel with its Wynk app and Airtel money etc. and Reliance Jio with its numerous entertainment content offerings and complete set of apps have rolled out quite an impressive 4G content strategy to attract more customers, no such substantive policies were seen either from Vodafone or Idea. Hopefully, post the merger with significant resources at its disposal, the merged entity will quickly roll out something similar.
Also, the merger can take the first-mover advantage to introduce and take the lead in the Internet of things (IoT) space in India. By combining its telecommunication prowess with rapidly developing infrastructure such as web-connected cars, homes, public buildings etc. it can emerge as the face of Indian telecommunications. By collaborating with the government in infrastructural build-up, it will also reduce the problems rising from regulatory roadblocks imposed by the government.
Post the announcement, Idea’s share valuation rose by 4-5 percent. Industry pundits are however, of the opinion that it is too early to write odes to this merger. Both Vodafone India and Idea Cellular are lagging behind when it comes to user engagement, investments and broadband network rollouts.
As seen in the case of Australia, when big organizations merge, the net result is often a loss due to integration issues. The telecommunications sector in India is at a crucial juncture today and ‘Vodea’ can emerge as a real Goliath and pave a new way in the industry only if it operates nimbly and takes quick decisions that capture greater subscriber share and generate newer sources of revenue.
By Dr. Aman Srivastava, associate professor, IMI-New Delhi