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Idea-Vodafone merger: What’s in it for the customers

While Vodafone and Idea Cellular will merge to become India’s largest telecom operator, its customers will also benefit from better infrastructure, better services and better tariffs of the combined entity.

business Updated: Mar 20, 2017 16:45 IST
Sunny Sen
Aditya Birla Group chairman Kumar Mangalam Birla interacts with Chief Executive Officer of Vodafone Group Vittorio Colao during the announcement of merger between Vodafone India and Idea Cellular.
Aditya Birla Group chairman Kumar Mangalam Birla interacts with Chief Executive Officer of Vodafone Group Vittorio Colao during the announcement of merger between Vodafone India and Idea Cellular.(PTI)

While Vodafone and Idea Cellular will merge to become India’s largest telecom operator, its customers will also benefit from better infrastructure, better services and better tariffs of the combined entity.

All this perhaps wouldn’t have happened if Reliance Jio had not come into the fray with its free telecom services – to begin with, the Welcome Offer, and then its Happy New Year offer – and the company has promised to offer free voice calls, forever.

Customers of Idea Cellular and Vodafone do not enjoy these freebies – at least not free internet. Coming together, both Idea and Vodafone will have more fire power to retain customers, offer better tariffs, and provide better services.

“This move is in line with our view of the dire need for consolidation in a crowded mobile market. The entry of Reliance Jio and its hugely disruptive free distribution of SIM cards to rapidly build up scale are clearly proving to be a catalyst,” wrote Dhananjay Mirchandani and Chris Lane, analysts with Bernstein.

Some believe the merger is more beneficial for Idea users. “In a telecom industry that is likely to see migration toward an free voice regime spurred by Reliance Jio, Idea stands to be most vulnerable (given Idea’s higher percentage of rural, semi-urban subs who are not nearly as data-hungry as creamy subs in Metros and select Circle As, where Idea has relatively limited presence),” wrote Viju K George and Anshul Agrawal, analysts with JP Morgan.

Industry sources said that both Idea and Vodafone users will continue to use the respective services without any disruption. However, once the entities are merged, the customers will be migrated to the merged entity, like it happened to Hutchison Essar users, when it was bought by Vodafone.

This would lead to a messier price war as Vodafone and Idea will try to retail customers, and Reliance Jio will want to chip customers off from them. “We are very complimentary. Idea is strong where Vodafone is weaker. Vodafone is strong where Idea is weaker,” said Vittorio Colao, CEO of Vodafone Group Plc, at a press event in Mumbai.

Together Vodafone and Idea will have 400 million customers, and will combine towers, tenancies, payment banks, and wallets. “The combined company will have a very large canvas for its payment banking offerings to its existence 400 million existing customers,” said Kumar Mangalam Birla, chairman of Aditya Birla Group.

The companies will also focus to build a better 4G and 5G coverage in the years to come, which will be services of the future. “Sustained investment by the combined entity will accelerate the pan-India expansion of wireless broadband services using 4G,4G+ and 5G technologies,” Idea Cellular said in its statement.

However, as the price war settles down, the merger and fewer telecom companies with larger number of customers will allow operators to make significant amounts of money. “There is currently a tariff war in the market which may not be sustainable for long,” said Rajan S Mathews, director general of Cellular Operators Association of India.

The price war has impacted the revenue stream of operators, and has even resulted in the decline of revenue. “All these have put the financial condition of this industry at risk and increased the debt to Rs 4.3 lakh crore,” added Mathews.