The ground has shifted since they agreed to merge, and Vodafone Idea has its task cut out
A week is a long time in politics. In business, especially one as rapidly evolving as mobile telecommunications, a year can be an eternity. So for the Vodafone Group’s Indian unit and Idea Cellular Ltd., which had in March 2017 announced an agreement to merge, last week’s approval of the proposed union by the Department of Telecommunications came not a day too soon. The changes in the industry landscape over the intervening 16 months have been dramatic. The market has contracted marginally in terms of overall subscriber numbers — from 1.17 billion on March 31, 2017, to 1.13 billion at the end of May this year. But the number of competing service providers is set to shrink from double digits to just three privately run large rivals plus state-owned BSNL and MTNL. This consolidation, from the wave of mergers and acquisitions over the last couple of years, was the gain the companies left standing were hoping for. From more wholesome slices of the customer pie to more bang for the buck in a highly capital-intensive business, the merged entities including Vodafone Idea Ltd. — as the new business will be called — ought to be happy with the way things have panned out. But the situation on the ground is far from ideal.
The intensity of competition has steadily increased since the entry of Reliance Jio, founded by the deep-pocketed billionaire Mukesh Ambani. This has left the incumbents battling furiously to protect their turf with tariff reductions to match the newcomer’s ‘no prisoners’ approach to pricing of its voice and data services. The telecom regulator’s September decision to more than halve the fee that operators pay on cross-network calls has only added to their woes, resulting in a steep and continuing erosion in average revenues per user and margins. The managements of Vodafone and Idea have repeatedly underscored the competitive challenges facing them, with both operators losing customers and the latter awash in red ink. With about 430 million subscribers, Vodafone Idea would vault past Bharti Airtel’s current India customer base of about 345 million to the top of the heap. But this scale that they gain would ultimately count for little if the combine fails to staunch customer losses, and do that without compromising on the business’s viability. The cost of bidding for fresh wireless spectrum is escalating steadily and mobile number portability has made it easier for customers to switch networks in case of dissatisfaction with service quality levels or pricing. The combine will therefore need more than just a few smart ‘ideas’, as Idea Cellular’s erstwhile marketing campaign used to stress, to make a fist of their merger.
Source: Read Full Article