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Mar 20, 2017 05:29 PM IST | Source: CNBC-TV18

Vodafone, Idea may lose 4-5% revenue mkt share for 2-3 yrs after merger: Bernstein

Idea Cellular on Monday announced that its board has approved the merger of Vodafone India and its wholly-owned subsidiary Vodafone Mobile Services Limited with itself in the process creating the country's largest telecom entity.

Idea Cellular on Monday announced that its board has approved the merger of Vodafone India and its wholly-owned subsidiary Vodafone Mobile Services Limited with itself in the process creating the country's largest telecom entity.

Here's how telecom industry experts are viewing the Vodafone-Idea merger:

Sanjay Kapoor, Telecom Expert

"This is the right thing to do. It is evident now that there will be three players in the market who will be competing and driving the virtue of this market for future."

Rajan Matthews, Director-General, Cellular Operators Association of India (COAI)

"The financial health and condition of the industry is going to be pushing for increased consolidation and that is what we are seeing."

"The Vodafone-Idea deal is an indication of the underlying strength of the industry and the solution that is coming out through consolidation."

Pradip Baijal, Former Chairman, TRAI

"Various permutations and combinations have shown that in any country four-five mobile players give the ideal mix. India now, after long last, is going towards that discipline. The market is forcing that discipline that you should have four-five players so that all the players have a viable amount of spectrum."

Kunal Bajaj, Telecom Expert

"A lot of people expected more of equality but initial news is showing that maybe Vodafone be the dominant partner."

"These are large organisations with near pan India footprint each and even if the merger is announced, it's going to be a long time before we start seeing operationally filtering down."

Chris Lane, Senior Analyst & MD-Asia Pacific Telecommunications, Bernstein Research

"Both Vodafone and Idea have been under tremendous pressure ever since Jio launched in the market, in fact we recently conducted consumer research which highlighted just how dire things were or are for both of them."

"When we look forward over the next three-four years, the synergies are real but the topline in terms of the operating environment that they are in in terms of their ability to retain the share that they have got will be very difficult. We are expecting them to lose between 4 percent and 5 percent revenue market share over the first two-three years of this merger."

Vikas Khemani, President & CEO, Edelweiss Securities

"It's a good move towards the consolidation of the industry and it should work well for the sector."

Simone Reis Partner - M&A Nishith Desai Assoc

"The capital structure today is a reflection in terms of equal merger and clearly, it could not have been achieved otherwise. Therefore, it has been constructed cleverly. It has been done before. Contractual commitments now will need to be reinforced in terms of how the voting rights are going to be exercised by both parties, but voting arrangements are recognised, have been adhered to in the past and I do not see why this really will not pass the test of law. Also, it is a great way to achieve the objective of the parties of, despite having disproportionate shareholding, having equal say on certain matters."

Naveen Kulkarni Co-Head - Research, Phillip Cap

"Synergies, we are referring to two different aspects here. One is the revenue which is essentially a case of pricing and competitive intensity. And the second aspect is cost. So, cost and pricing are completely delinked in the telecom market today. So costs, more or less, tend to be absolute. So, let us say network costs or the administrative costs, these costs are more or less fixed costs in nature."

"That is where there are a lot of synergies. For example almost 20 percent of the network, there is an overlap. So, they can reduce that and there is a lot of synergies with regards to spectrum, the amount of voice spectrum that the combined entities would be needing would be half of the total amount of combined pooling in of spectrum. So, that will free up a lot of spectrum for data which will essentially mean lesser future capex, so many aspects."

"So, linking costs with the EBITDA margin and with the EBITDA number at synergies at this point in time will not be very prudent because pricing and revenue growth will evolve with time as Jio starts charging and the way things evolve in the system. From that perspective, I feel the synergies which have been estimated in an absolute sense, which the way that the company has given out numbers seem to be pretty prudent."
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