India is currently the second-largest telecommunications market with a subscriber base of about 1.16 billion. The Indian mobile economy is expanding swiftly and will contribute extensively to India’s Gross Domestic Product (GDP) according to a report prepared by GSM Association (GSMA) in association with Boston Consulting Group (BCG). Therefore, similar to other industries, the Indian telecom industry is highly lucrative and profoundly competitive.
On August 31, 2018, Vodafone Idea Limited – An Aditya Birla Group & Vodafone Group partnership became operational as India’s leading telecom service provider with a subscriber base of over 408 million. VI (pronounced we), short for Vodafone Idea, became the new brand identity of the merger, accompanied by the tagline ‘Together for Tomorrow’.
Now, we shall discuss what made the two companies that were super dominant market opponents, join hands, and come together? What was the main stimulus behind this massive move?
Analysts believe this merger is nothing but a result of the JIO effect. Reliance Jio Infocomm Limited, popularly known as Jio, was launched in 2016 and transformed the entire Indian Telecom Industry as soon as it commenced its operations. In the pre-JIO era, 10 companies majorly operated in the telecom-sector. Jio wiped off more than half the companies leaving only three major private players namely Bharti Airtel, Reliance Jio, Vodafone-Idea, and two state-run corporations (MTNL & BSNL). Rest all succumbed, either they went bankrupt, or merged, or were taken over by other entities.
To further add to their distress, factors like high spectrum costs and TRAI’s September 2017 order of curtailing IUC or Interconnect Usage Charge, that is, the payment given by one telco operator to another, when its subscribers make outgoing mobile calls to the other operator’s customers, played a major role.
Although the promoters of both companies have denied JIO being the main reason for the merger, the belief that it aimed at business fundamentals and related figures speak for themselves. With a 42% market share, the combined Vodafone-Idea would better place them to fight the Jio domination and thus the merger.
According to a statement by VI’s CEO, Ravinder Takkar, “The new entity will be leaner, agile and better prepared to fit into the future world of digital and 5G. It will also continue to invest in developing its infrastructure and newer technologies such as high-speed and secure leased lines, MIMO (multiple-input and multiple-output) and cloud services.” Thus, preparing the brand for a better stand in this highly competitive market dominated by the highly diverse Reliance Jio.
The performance of VI Ltd. has not been anywhere near satisfactory yet. It is struggling at present. So, will this merger be a game-changer? It is admittedly complicated to predict. But what is notably understood is that it is very early to term it as a failure or a success. In due course of time, the complex telco-sector will itself reveal if VI Ltd. will attain glory or come tumbling down.