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Vodafone Group is in talks with Idea Cellular for a merger

Vodafone Group Plc today confirmed media reports of a potential merger deal with Idea Cellular in India. The company said in a press statement that it is currently in discussions with Aditya Birla Group, which owns the Idea brand in India for “an all-share merger of Vodafone India and Idea”. The deal, however, does not include Vodafone India’s 42% stake in Indus Towers.

“Any merger would be effected through the issue of new shares in Idea to Vodafone and would result in Vodafone de-consolidating Vodafone India. There is no certainty that any transaction will be agreed, nor as to the terms or timing of any transaction,” Vodafone Group added in its statement.

Interestingly, Vodafone’s confirmation comes just months after Idea earlier denied reports of it being in discussions with Vodafone, in a notification with the stock exchange. At that time, Idea termed the reports as “absolutely untrue and preposterous”. However, with the Vodafone issuing an official statement, it’s clear that the Indian telecom sector is getting competitive by the day, with hardly any space left for smaller telecom companies, especially after the launch of Reliance Jio.

Competition in the Indian market post Jio launch

After Jio’s launch in September, Idea’s net profit fell 99% Year-on-Year to Rs 4.3 crore in Q2 FY17, from Rs 675 crore in Q2 FY16. Vodafone, on the other hand, lost 100,000 data subscribers in India during the same quarter. Idea has 4G in 10 circles and plans to launch 9 circles by March 2017, for which it has been raising funds by issuing corporate bonds. Vodafone has 4G in 17 circles out of the 22 circles it operates in. If the merger deal goes through, both Idea and Vodafone might share their spectrum holdings to combat Reliance Jio, which is a 4G only operator with a presence in all 22 circles.

It is important to note that apart from the top three operators (Airtel, Idea, and Vodafone) who own more than 65% of the market, smaller players have been hit harder. Videocon is shutting down its operations in Punjab this by February, while the biggest operator Airtel is reportedly in talks with Telenor for a $350 million acquisition deal.  Prior to Jio launch, Reliance Communications (RCOM) announced the acquisition of MTS brand—a deal which was at around $690 million. RCOM has also signed a definitive deal with Aircel for a wireless business merger.

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