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Whether you call it compulsion or otherwise, the merger announcement of Vodafone and Idea Cellular is the best thing to happen to the telecom sector.
This is probably an ideal merger story for the academicians — combined entity creating the largest industry player (with 41 per cent revenue share), lots of synergies and many complementing areas including access to best talent in the industry.
The backing of the two best global business conglomerates will help in standing up to the new Big Daddy, Reliance Jio.
A year ago, when Reliance Jio announced 4G services, Idea was written off by most industry experts. But today’s announcement provides Idea and its promoters with a new lease of life. On the other hand, Vodafone has become the largest shareholder in the largest telecom company in the country with the fastest growing GDP.
The announcement comes at a time when the Indian economy is on the threshold of a massive growth trajectory, when GDP growth and technology innovations will drive further telecom penetration. As a dominant industry player, with business support from the Aditya Birla Group and technical support from Vodafone, the combined entity (Vodea?) is poised to grow exponentially.
On the synergies front, as already announced, there is huge scope to reduce combined operating costs by at least 40 per cent, mostly in maintenance and capex. In addition to this, the combined entity will enjoy higher negotiating power with vendors and lenders.
Spill-off effectThe spill-off effect of the increased network capacity, comprehensive range of voice and data products and implementation of best practices will position it as a preferred customer choice. The only downside is that no merger has succeeded ever with equal rights of two partners.
The future of Vodea will depend on how well they encash the opportunities presented by this merger, in the application of new technologies in the industry and services sectors rather than just remaining a data pipe.
They will also have to manage the spectrum effectively and steer the approvals from regulatory authorities who may have reservations for specific circles.
The writer is former Chief Executive Officer, Idea Cellular
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