The Vodafone-Idea Merger will benefit all stakeholders
By Rajan S Mathews Director General – COAI
The announcement of the proposed merger between Vodafone India and Idea Cellular has been welcomed by all the stakeholders. It will be beneficial for the Telecom industry, the Government as well as consumers, for reasons more than one. Globally, as well intense competition and rapid innovation in technology has led to companies merging operations in order to maintain stability and drive economies of scale.
Speed is of essence in the success of all mergers. It is imperative that the requisite clearances come in due time from the concerned authorities. Since, the government has been emphasizing on the ease of doing business, the expectation is that approvals for the present merger and regulatory clearances will also come speedily. Delays of any kind would be counterproductive for all stakeholders, including the Government.
The ongoing amalgamation will decidedly create India’s biggest Telecom Service Provider with a combined base of almost 400 million customers – making the new entity, India’s largest telecom company and the world’s second largest. As competitive pressures drive consolidation, customers and the industry stand to benefit from the greater stability and better networks which will emerge. It may be recalled that a few years ago, there were 13 telecom operators in India. The fragmented market scenario impacted
services, triggering regular tariff wars and volatility which benefits no one in the long run. History bears the testimony to the fact that M&A deals in the Telecom sector have offered benefits such as: infrastructure expansion more economically; extensive networking efficiencies; brand value; bigger client base; and a wide array of products and services. Overall, M&A activity allows entities to continually organize themselves to take advantage of economic, commercial and technological changes to enhance the benefits to the consumer and improved returns to investors.
The same success story will unfold through the Vodafone-Idea merger. As the country’s number two operator Vodafone joins hands with the current number three, Idea Cellular, it will lead to almost $10 billion in cost savings, over a span of four years. The merger has come at a time when the sector is reeling under huge debt of over INR 4.5 lakh crores. With the financial health of the sector at its worst ever, the merger will result in easing the debt of the two entities. With India being the world’s fastest-growing smartphone market, the tremendous synergies created from a swift and successful merger will benefit the combined entity immensely. The benefits will certainly get passed onto the consumers and bring in economies of scale. The need of the hour however, is a predictable, stable, long term, regulatory and policy environment, to ensure the financial health of TSPs, along with a conducive ecosystem for continued investments for a fully connected and digitally empowered India. TRAI has also recently issued a consultation draft paper seeking inputs on the “Ease of Doing Business”, which is a welcome move.
The present merger is a bold step for both the TSPs indicating their intention to consolidate operations from a long-term perspective. The Government stands to gain too, because a stronger and more robust entity will be created, that maintains stability in the ongoing revenue stream accruing through taxes and other levies. Conversely, if a company completely exits the industry or fails, it denotes a permanent loss of revenue for the Exchequer.
As more efficient spectrum (such as 700 MHz) is re-auctioned by the Government in the near future, all stakeholders would need to ascertain that adequate infrastructure is in place, to support it. State- of-the-art services and networks need substantial investments as telecom players spread themselves thin in acquiring an efficient band like 700 MHz, their financial bandwidth to build the requisite networks can come under considerable strain. Consolidation and pooling of resources then becomes a viable way to improve infrastructure. In such situations, while all stakeholders benefit, customers emerge as the biggest beneficiaries because they receive better products and services at lower rates as the industry also continues to innovate in technology for both voice and data networks.
Nationally and internationally, mergers and acquisitions in competitive market conditions are the order of the day. In September 2016, along with its other partners, State-owned Russian energy major Rosneft acquired India’s second-largest private oil company, Essar Oil. Till date, this is India's
largest FDI inflow. In another instance, Ahmedabad-based cement company, Nirma Ltd, surprised the markets by acquiring Lafarge India. The deal reflected the global merger move of French cement company Lafarge and the building materials group Holcim of Switzerland.
Mergers and consolidation are considered to be a positive development that can drive stability and better services. Without a shadow of doubt, the Vodafone-Idea merger will bring immense benefits for all the stakeholders by providing stability in the country’s highly-competitive telecom market. There could be nothing better for India’s telecom industry, its customers and the Government. Technology is the biggest driver of the economy, creating new jobs, connecting the unconnected, delivering government services to every corner of the country including rural markets, becoming a tool for ambitious and timely government programs like Digital India, Skill India, Smart Cities, Make in India and many others. The country is also benefitting from e-education, e-health, tele-medicine and e-governance bringing about a never before openness in data, accountability and transparency. Telecom is the sector contributing substantially high revenues to the government, which is then used for higher benefit. It is also the unsung hero and therefore requires urgent reforms and perhaps also recognition of the industry’s contribution in nation building. Predictability backed by a stable regulatory regime can create a conducive environment for continued investments, which are prerequisites for a fully-connected, digitally-empowered India. The latter assumes significance given the government's push to promote initiatives like Skill India, Make in India and a less-cash economy.