Why Vodafone-Idea merger is a real threat to Airtel and Reliance Jio
It was in November 2016 when Reliance Jio shook up the telecom sector like nothing else before. Backed by the deep pockets of its founder, Mukesh Ambani, Jio entered the multi-billion industry, and within weeks changed the whole landscape of the money-spinning sector.
With billions to fall back on, Jio started a price war that led to mobile tariffs tumbling drastically, which despite being great news for customers created plenty of troubles for the rest of the telecom industry. The company's strategy to hand out freebies to win over customers caught the competition by surprise, resulting in heavy losses for established players like Vodafone, and Idea.
Almost two years on, with these carriers being put under more than Rs 7.7 lakh crore debt, some big casualties have been reported.
Aircel and Telenor have already quit the Indian telecom space, and with Tata Docomo also looking to follow suit, things look to be going as planned for Reliance Jio, and to an extent Airtel, which till now has managed to lay low, and fend off the Reliance Jio onslaught.
Over the last few months, Airtel and Reliance Jio have emerged as two players around which the market has consolidated. With bigger subscriber bases and deeper pockets than Vodafone and Idea, Jio and Airtel have looked in pole position to push everyone else out of the market and share between them the telecom sector pie.
However, that could be about to change with the entry of Vodafone-Idea Limited – India's biggest telecom entity to date.
Vodafone-Idea Limited
With a subscriber base of over 408 million people – a tally far exceeding the numbers that Reliance Jio and Airtel can boast of – this newly merged entity has emerged overnight as a heavyweight player that can complicate matters for Reliance Jio and Airtel.
With a pan India revenue market share of 32.2 per cent and also an impressive broadband network (3G+4G) with over 340,000 broadband sites covering 840 million subscribers, Vodafone-Idea Limited also has the widest distribution reach with over 1.7 million retailers and 15,000 branded stores to service customers.
The merged entity with its spectrum portfolio of about 1,850 MHz, is now the largest voice network in the country with over 2 lakh GSM towers and about 2.35 lakh kms of fibre connectivity. Covering as much as 92 per cent of the population by reaching nearly 5,00,000 towns and villages, Vodafone-Idea Limited now appears to be the biggest threat to the Reliance Jio juggernaut that has been steamrolling the competition for over a year now.
Jio and Airtel face threat
The numbers alone explain how big a threat this newly merged entity is to Jio and Airtel, which for months had been picking off subscribers from Vodafone and Idea. Analysts now expect the Vodafone-Idea combine to roll out aggressive pricing plans to regain subscribers that the two telcos have been losing to rivals Reliance Jio and Airtel.
And that's where the biggest threat for the Jio and Airtel lies.
The two have already tested the boundaries with several rounds of price cuts and tariff readjustments. However, with the new entity now looking to start a new bloodbath, things could get messier for Jio and Airtel, which have already exhausted much of their resources to stay in the battle over the last year and a half. As such, it will be interesting to see if they can indulge another price war of the sort we saw in early 2017.
Another important point to consider here is how Vodafone and Idea as a merged entity promise to provide far superior service than Jio and Airtel. With over 2 lakh GSM towers and about 2.35 lakh kms of fibre connectivity, catering to a subscriber base well within its capacity – unlike Airtel's network which currently faces capacity bottlenecks – call drops and connectivity issues on the new network will very likely not be an issue for at least a few years to come.
And last, but not the least, there is also the fact that this merger, in many ways is a match made in heaven.
The fact is that Vodafone-Idea Limited apart from being a mammoth Rs 1.55 lakh crore entity – that is not just India's biggest, but also the second largest in the world – is also an entity that takes the best from Vodafone and Idea to create a telecom operator which excels on pretty much every front.