The merger between Vodafone India and Idea Cellular will certainly go down in the history books of the Indian telecommunication industry. Apart from the creation of a giant, this strategic decision from both the companies will also bring in an array of implications for consumers, the industry and employees. Undoubtedly, the merger is an act of retaliation as the telecom market in India continues to get more competitive. While the new entry Jio has already taken the industry by storm, Airtel’s acquisition of Telenor India further indicates that only the fittest will survive in the long run. Over the next couple of years, the telecom sector in India is likely to witness more mergers, which could prove to be the best survival strategy for telco companies. For instance, Aircel, Reliance Communication, MTS, and Tata Teleservices are in talks to join forces.
Following are the six possible aftermaths of Vodafone-Idea merger:
Fierce Tariff War
Jio’s unbelievable plan tariffs have already disrupted the market to a certain level indicating a start of a massive price war. With its free services, the new entrant has ruffled the feathers of existing players. The Vodafone-Idea merger will further instigate this tariff war in the industry. The merged entity will have a larger pool of resources making a direct impact on call rates and other service charges. However, consumers are expected to have a bigger role in determining prices in the forthcoming years.
Change in Pecking Orders
As Vodafone and Idea agree to join hands, it initiates the creation of India’s largest telecommunication entity and sees Airtel slide to the second spot. Reportedly, the merged entity is estimated to hold close to 39 crore subscribers, which is by far the largest amongst all the telcos operating in India. Online sources suggest that the entity will account for a staggering 40 percent revenue share of the market and capture the top position. Further, it is expected to represent the strongest retail footprint in the market along with a robust spectrum asset.
Quality of Services
Such industrial mergers often assimilate vital resources and infrastructure inevitably resulting in higher efficiency in operations and better service offerings and customer experience. Moreover, the financial burdens are also low in merged entities as responsibilities get shared between proprietors, allowing higher investments for quality enhancement purposes.
Rate Hikes in the Long – Run
A new entity may offer low priced attractive plans during the initial stages, however, after gaining a decent momentum in the market, rates are usually increased. As the market reaches a saturation point, few players will end up ruling the roost and unanimously decide on prices. In addition, high-quality telecommunication services are mostly expensive, which is why prices will rise after a certain point.
Benefits the Industry
Such market consolidation strategies will help bigger companies survive debt burdens and better manage financial bottlenecks. The merger between Vodafone and Idea may also cool down the ongoing fierceness in the telecom industry to a certain degree.
Cost Cuttings and Layoffs
Vodafone-Idea merger will lead to an excess load of resources, which might require layoffs. Nonetheless, Vodafone believes that the agreement will create more opportunities for its employees in India.
— Bloomberg (@business) March 20, 2017