India’s Largest Telco: What Vodafone-Idea Hope To Achieve

The proposed Vodafone-Idea merger is as vital for the two companies as it is astonishing in scale. India’s mobile subscriber base at just over a million users; the new entity would be able to cater to 700 million subscribers combined. It would also create the country’s largest telecom company, displacing Airtel from the position it has occupied for over a decade.

Solving the Jio Problem

Falling revenues in the wake of Reliance Jio’s competitive pricing is an issue that both telcos are struggling with. Vodafone lost 30% of its service revenues last quarter, while Idea’s share prices dropped to an eight year low. With voice and data prices falling a combined 63% in 2017-18, the Average Revenue Per User (ARPU) for Vodafone and Idea stood at ₹ 105 compared to Jio’s ₹ 137.5.

Customer retention is another pressing issue. For instance, high-ARPU postpaid customers contribute around 25% to Vodafone’s revenue. Jio’s attractive plans at nearly half the industry rates, however, have led to Vodafone losing 5,00,000 subscribers in the January-March quarter.

The new entity’s hopes to counter this through investment in smarter infrastructure and technologies such as high-speed broadband, the Internet of Things, digital wallets, cloud services and VoLTE. This promises better experience in terms of speed, voice quality and coverage to the customers.

Theoretically, Vodafone’s strength in urban areas and Idea Cellular’s credentials in rural circles. This gives the new telco an edge over their competition. Vodafone and Idea are also reinforcing the consumer connect through a new brand identity. They are including refreshed positioning to attract customers and retain recall value for both parent companies.

The Infratel-Indus Implication

While the new company would face a substantial cumulative debt, approximately ₹ 21,000 crore is expected to be raised. This will happen through a combination of Idea selling shares to institutional investors, Vodafone investing some money and savings in capital and operational expenditure.

Further funds are expected to be raised from the consolidation of tower firms Bharti Infratel and Indus Towers. With an increasing demand for better, lossless coverage and higher bandwidths, the need for tower infrastructure is only expected to go up.

Vodafone and Idea both hold shares in Indus, and investing in the merged entity could create a sustainable, money-making asset. This will take on Jio, which has 1,62,000 towers after acquiring Reliance Communication’s towers.

Clearing The Final Hurdles

The Vodafone-Idea merger is expected to be completed by June. Both the stock exchanges, the Securities and Exchange Board of India, the Competition Commission of India and the National Company Law Tribunal have approved it.

However, the Department of Telecommunications and the the Department of Industrial Policy and Promotions are still clarifying the Foreign Direct Investment (FDI) rules for the merger. Idea’s request for 100% FDI in the company is up for debate. FDI in Idea currently stands at 34% whereas

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