There is a new leader in the Indian telecom market with Vodafone India and Idea getting final approval from the government for their merger. The new operator — Vodafone Idea Ltd — is worth over $23 billion, with a 35 per cent market share and a subscriber base of around 430 million. This ends Airtel’s two-decade-long dominance in the domestic telecom space.
However, the key question is how well the merged entity will handle the RJio juggernaut.
Sanjay Kapoor, former CEO of Bharti Airtel, told
The other big worry is that even after the merger their balancesheets don’t look healthy enough to be able to bring in additional investments. “Contrary to everyone’s belief, the pricing pressure doesn’t seem to be dying down any time soon,” said Kapoor.
Analysts said that mergers are generally a difficult process as the key thing is to find synergies between the two operators. In the past, companies merging have missed targets, which has put them in a worse situation than before the merger.
The biggest worry though, will still be Reliance Jio’s aggressive roll out of 4G services. “One of the things that seldom happen is that a challenger steals the thought leadership position of the industry. RJio has been able to do that. Incumbents have become followers,’ said Kapoor.
RJio is not only rolling out a data network but also putting together a gameplan that covers all aspects of the data world — content, access, devices, security and storage. Incumbent players including Vodafone-Idea are still stuck with just the access piece. But, with a leveraged balancesheet, it looks difficult for the incumbent operators to balance long-term plan and short-term strategy.
Vikram Mehmi, former CEO of Idea Cellular, however, said the market is big enough to sustain three large players. “The Aditya Birla Group has sufficient management bandwidth to deal with any competitive threats,” he said.
Kumar Mangalam Birla, Chairman of the new combined entity, acknowledged the challenge. “ This is only the beginning,” he said. “It’s a very exciting journey ahead for us with Idea and Vodafone coming together. We are optimistic about it.
“The new merged entity will need to take a call on whether to continue with a two-brand strategy,” said Lloyd Mathias , former HP and Motorola executive and a telecom industry veteran. “Also of concern would be the short-term impact of customer-facing functions — sales, marketing and customer care coming together, making customer retention a challenge. Lastly, it remains to be seen how the entity will redouble on network and technology investments to stay competitive on the 4G front, where both RJio and Bharati Airtel are racing ahead.”