Vodafone confirmed that it has entered into merger negotiations with Idea Cellular in a move that could result in the creation of the largest telecoms company in India. The announcement has ended months of speculation in relation to the two operators entering a partnership agreement in an effort to fend off Reliance Jio.
Its emergence into the market has had a significant impact in what is already a saturated and ultra-competitive mobile network market. The confirmation of the negotiations has a huge impact on trading with idea shares, rocketing by a whopping 26% on the Bombay Stock Exchange (BSE).
Vodafone India issued a statement and declared that there is no certainty any agreement will be reached between the two operators, but conceded if it did, that it would result in the de-consolidating of Vodafone India.
The statement said: “Vodafone confirms that it is in discussions with the Aditya Birla Group about an all share merger of Vodafone India (excluding Vodafone's 42% stake in Indus Towers) and Idea. Any merger would be affected through the issue of new shares in Idea to Vodafone and would result in Vodafone de-consolidating Vodafone India. There is no certainty that any transaction will be agreed, nor as to the terms or timing of any transaction.
Some analysts have suggested that a merger between Vodafone India and the Mumbai-based Idea Cellular would effectively turn India lucrative multi-billion dollar telecommunications market on its head. The group of analysts has estimated that the pair would command a combined revenue market share of 43 percent, ahead of rival Bharti Airtel, which would hold 33 percent.
Reliance Jio, has enjoyed great success since its inception last year – and the company is owned by India’s richest man, Mukesh Ambani who would have 13% according to some analysts who have carried out research into the proposed merger.
In September, the 4G Jio network launched an audacious free service for the remainder of the year. In addition to this it offered customers considerably cheaper data plans and free voice calls for life. That forced the hand of its rivals – and they responded by dramatically reducing their tariffs. It forced them to dig deep to compete with Jio who is heavily financed by India’s wealthy energy-to-chemicals conglomerate Reliance Industries.