Unless you're lying under a rock, you won't be aware of Idea Cellular and Vodafone India merger. Both the top telcos of India will shortly merge their operations and will act as a merged entity. Both the operators recently secured CCI go ahead for the merger. However, experts now say that the merger would turn out to be a costly one.
Brokerage firm HSBC recently said on the CCI approval of the merger as “prompt CCI approval is a positive but integration of Idea and Vodafone India’s operations will have to “be seamlessly executed” to ensure the merged entity is able to contest market disruption by Reliance Jio Infocomm that is expected to continue for several quarters."
Idea Cellular in the earnings recall meeting said they can “now plan the integration aspects," considering the approval from CCI. Rajiv Sharma, HSBC director, stated that Idea Cellular and Vodafone India operations merging “may not be easy as the two organisations differ significantly in terms of billing systems, network vendors and culture.”
Director of the rating agency, Fitch, Nitin Soni also raised his voice about the merger claiming the merger as a complex and costly one. “Countrywide network integration could prove costly as both telcos might have to terminate some long-term contracts with partner tower companies prematurely, for which they could end up shelling out hefty penalties," he said.
Soni also added that integrating Vodafone and Idea's marketing teams would be a challenging task because they have been working independently until now. “Carrying two brands can prove very expensive for the Idea-Vodafone combined entity as it would require dedicated marketing teams to support each brand, which might not be a great idea,” said Soni. It will be interesting to see whether they go with both the teams or one.
Another brokerage Goldman Sachs cited that Vodafone and Idea Cellular would have a significant 'tower overlap.' Until now, both the companies have separate vendors for towers, network equipment, IT services, and managed services.
For example, the IT services for Vodafone and Idea are managed by IBM, Accenture, and Tech Mahindra, while Indus Towers, American Tower Corp, GTL Infrastructure, and Bharti Infratel provide towers.
That said, both the companies have to choose between vendors running parallel service and supply contracts, to keep one network.