Vodafone-Idea merger and acquisition could trigger consolidation in telecom sector

Shares in Vodafone (LON:VOD) have jumped more than two percent in London this morning, as the telco confirmed that its unit in India was in merger talks with Idea Cellular, the country's third-largest network.

Vodafone's statement follows recent media speculation regarding a potential combination of Vodafone India and Idea Cellular.

The Vodafone-Idea merger is still in preliminary discussions, as both companies need to agree upon certain conditions in order for the deal to go through.

"The fundamental premise of preliminary discussion is based on equal rights between Aditya Birla Group and Vodafone in the combined entity", it said in the statement.

In the domestic market, the shares of Idea Cellular rose 28.41%, gaining Rs 22.10 to Rs 99.00 apiece. The new capital that Vodafone brings in may be used to pare the substantial debt that Idea has on its books.

The possible merger if happens will be to survive the stiff competition after the launch of Reliance Jio, cut cost of operations, expansion and protect margins in the hugely competitive Indian telecom market.

"It will also have concentrated spectrum portfolio with 36.5 per cent of the liberalised spectrum in 1800MHz band, enabling it to deploy higher spectrum per site resulting in higher revenue productivity per site", said Edelweiss.

Reliance Jio has said it has been adding 600,000 new users per day had already added 72.4 million customers as on December 31 on its network since launch in a hyper competitive market. If you consider subscribers and revenue, Vodafone India is bigger than idea Cellular. The move comes amid intense competition in India's mobile market.

Vodafone has said its Indian business is holding talks about a major merger which would create the country's largest telecoms firm.

Vodafone India had revenues of €3 billion and EBITDA of €892 million over the same period.

"The merged entity would also exceed spectrum capacity in seven circles, which it would need to sell for free to the government", Jain says in the report.

Analysts reportedly believe that given its current predicament, a merger is the only option that Vodafone has left. The firm made the highest amount of bids, leaving behind its rivals Bharti Airtel and Reliance Jio and Idea Cellular.

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