Vodafone confirms talks about merger

Vodafone Plc, the British telecom company has confirmed "ongoing talks" of merger with Aditya Birla Group-owned telecom operator Idea Cellular, to cushion itself against a price war with Reliance Jio. The current market leader is Bharti Airtel with 33 per cent revenue market share. "It is inevitable now with high cost of managing telecom network", says Rajan Mathews, director general, Cellular Operators Association of India (COAI).

"The fundamental premise of preliminary discussion is based on equal rights between Aditya Birla Group and Vodafone in the combined entity", it said in the statement. "In view of the fact that the discussions are at preliminary stage, the company is not in a position to share any further details".

In the domestic market, the shares of Idea Cellular rose 28.41%, gaining Rs 22.10 to Rs 99.00 apiece.

"The merger will help Vodafone India improve its position in the mass market, while Idea Cellular would gain from Vodafone's strength in the metro circles", CLSA said in the January 19 note.

While Vittal did not name any operator, his obvious reference was to Reliance Jio, which is offering free services to customers till March.

A year ago the market was thrown into fresh turmoil with the launch of Reliance Jio Infocomm, the new 4G mobile broadband network built at a cost of more than $20 billion by India's richest businessman Mukesh Ambani as part of his Reliance Industries conglomerate.

The merger move is seen as a clear step by both companies to take on growing competition from rivals such as Bharti Airtel and Reliance Jio, at a time when the pressure on mobile margins continues to be high. Insiders said this was likely to be dropped by the merged firm. "However, this deal may face trouble over a breach of spectrum limits that could force the merged entity to sell off valuable airwaves in a few circles", said the experts. Local mobile operators are also limited to accumulating no more than 25% of available spectrum nationwide.

Jio has had an immediate impact on the profits of its Indian rivals, with Bharti Airtel reporting its lowest profit for four years in the final three months of 2016.

The Vodafone-Idea merger would result in a strong balance sheet as well as spectrum holding for the joint entity.

Idea now offers 4G LTE technology in eleven circles, whilst 3G services are available in 21 circles. The two companies have a combined debt of Rs. 72,000 crores.

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