Sunday Talk: Will Things Change After the Vodafone Idea Merger?

Also, since Reliance Jio speedily entered the market, the telcos were slow to react. It is also worth keeping in mind that in Vodafone’s Mumbai circle capacity utilisation has been said to be 150% resulting in frequent call drops (according to Trai); similar is the situation in Pune for Idea Cellular. Both the companies seem to be in a fix since these two markets are of prime importance for them. It is our opinion that in a situation like this, the newly merged companies remain a tad bit helpless since the obstacle is not something which they will be able to resolve in a short span of time. However, we would also like to establish at the same time that this merger has rendered the telco capable of making rapid and heavy investments thus lending it a position of advantage.

The experts are of the view that Vodafone-Idea will take another year to make its operations smooth and also to harmonise the network. In such a scenario, Idea and Vodafone will have to tread the waters with caution while Reliance Jio continues to wage war in the telecom sector with its powerful pricing techniques. As per our past observations, another thing which will make things tough for the newly merged entities is Jio’s willingness to capture market share even at the cost of profitability.

For example, Reliance Jio started offering free content to its users, which was followed very soon by incumbent telcos. Earlier, Airtel used to offer free Airtel TV subscription only to its postpaid users, but that has changed now.

We have already noticed that in a capital-intensive business, like telecom, the Mukesh Ambani led telco has dived in with the intention of inflating its subscriber base at any cost, not to mention that the existing competition has already consumed up other players who were on the sidelines like Telenor, Tata, Reliance Communications and Aircel.

The revenue aspect will still remain a problem for the merged entity as there’s no real solution for the same. But Telecom Secretary, Aruna Sundararajan stated the market will now head over for stabilisation; It will be interesting to see how the merged entity takes up the challenge.

Vodafone-Idea’s Spectrum Problem

As of now, Reliance Jio stands in the market with 20% subscriber market share, while Vodafone Idea grabs 37%, Airtel fills the rest of the scale with 30% claim and lastly some percentage of the pie under BSNL. We expect that Reliance Jio is only going to increase its investment in the company thus racking in more and more subscribers. However, we have also already established that Idea and Vodafone cannot resort to that position right now as the telcos have not matched Reliance Jio in terms of pricing owing to their incapability of providing the necessary spectrum and network. On the other hand, Bharti Airtel has marched side by side Reliance Jio by launching aggressively priced plans. Keeping that in mind, we are sure that in the near future Airtel and Reliance Jio are leading the major battle in the sector with their massive investments.

With the option of aggressive pricing out of the list for Vodafone-Idea, we think that the telco will either settle with a smaller share of the pie or will have to intensify its operations. However, if in the meanwhile, Reliance Jio manages to amass 40% market share then it will dominate the playing field in its entirety.

Network-wise, the merged entity has enough spectrum, fibre footprint and more than 2,00,000 GSM sites along with 3,40,000 3G+4G sites. So the network aspect will not be a concern for the merged entity, but how do they manage the existing infrastructure will be an interesting aspect to watch out for.

Simplified Tariff Structure Will Likely Boost the ARPU

Reliance Jio has a very simple tariff structure and very less number of tariff plans. On the whole, the telco is offering less than 30 tariff plans to its prepaid users, while postpaid users have to settle down with just one plan. On the other hand, incumbent telcos have a large tariff portfolio which often confuses the consumers. So a simplified tariff structure with offerings on par with Reliance Jio will certainly boost the ARPU of Vodafone Idea Limited.

The real question boils down to will things change at least now? Well, if the merged entity wants to sit on top of the industry, things will definitely change as we’ll get to see tariff revisions very soon to tackle the threat from Jio. If the merged entity looks for some stabilisation, it will be the same old story.