This week I am looking at telecommunications giant, Vodafone, which has announced a deal to merge its Indian operations with local rival, Idea Cellular. Back in January, the two companies announced that they were exploring a merger proposition and earlier this week Vodafone confirmed that the deal is going ahead. The merger will be the biggest in Indian corporate history and the combined group will become India’s largest mobile phone and wireless operator with almost 400 million users.
India is a large and promising market for Vodafone but it has proved to be much more expensive than the company initially expected as it has had to spend heavily in India for mobile spectrum and assets. Competition has also been very tough of late as some local operators are offering mobile phone plans for as little as $3 a month in this cut-throat market. Competition intensified further when India’s richest man, Mukesh Ambani, launched his new mobile carrier, Jio, which offered six months free service to customers. As a result, Vodafone was forced to take a £4.3 billion write-down last year in its Indian business.
The merger fits well with Vodafone's strategy of being the clear top player in each of the 26 countries it competes in. The company does not expect any major regulatory hurdles from the Indian authorities given that the two companies own the rights to cellular airwaves in different geographical parts of India with minimal overlap in some regions and in the customers they serve. The deal may also offer Vodafone a means of securing a public listing for its Indian assets, a possibility that it has long considered.
For long term investors, a merger can be seen as positive. The transaction adds scale and diversification to operations, and it creates cost synergies through consolidation of assets.