Rival telecommunications companies Vodafone Group Plc and Idea Cellular Ltd. agreed to a merger in India that is expected to finalize in 2018. This decision arose from the intense price war in the world’s second-largest mobile phone market, and this larger operator will have 395 million subscribers, more than market leader Bharti Airtel Ltd. Due to extreme competition in the country, Idea lost money last year for the first time in ten years. Vodafone faces similar struggles with profitability, but four years from the agreement, the merger will save $2.1 billion per year on costs and investments. The $23.2 billion deal values Vodafone India at $12.4 billion and Idea Cellular at $10.8 billion.
Vodafone’s expansion over time as a holding company allows it to relinquish partial control of its most troubled assets. The merger helps redeem the company’s expensive “bet” on India, which saw it continue to decrease in value and accumulate debt, by moving an unprofitable business off its balance sheet and providing potential for growth. Competitors will most likely follow in the footsteps of Vodafone and Idea, because “the logic behind telecoms mergers is indisputable. In effect mobile telecoms is infrastructure and the winner in such a market is the business with the greatest market share. They can put the biggest volume of users through their infrastructure, which is effectively fixed cost, minimizing cost per user.”
Vodafone CEO Vittorio Colao believes that this merger will trigger mobile network growth in India. He thinks the new network will bring strong 4G networks to more locations throughout the country and revolutionize “Digital India”. He says, “this is a transformational deal that changes, at the same time, the prospect and future of Vodafone and Idea in India, but also the industrial structure in India.” Due to the size of the new company, new technologies can be explored without the risk of losing too much money. Mobile money services and other technologies can now come to India and make life easier for its citizens.