5 mins read . 27 Apr 2023
In recent times, the world has been a witness to several successful and disruptive mergers that entirely shifted the paradigm of existing market shares in their respective sectors. Some of the positive examples globally include the merger of Exxon and Mobil in the oil sector as well as the merger of Disney and Pixar in the entertainment sector.
However, the merger of Vodafone and Idea (Vi) in 2018 did not deliver the desired results. With Reliance Jio getting aggressive and Bharti running hard to catch on, Vodafone Idea ended up losing scores of their customers amidst the chaos in the telecom sector. Jio and Bharti Airtel managed to cannibalize a big share of Vodafone Idea’s core clientele. With the government equity conversion done and dusted, one of the promoters, Kumar Mangalam Birla, is turning bullish on Vodafone Idea, as he sees light at the end of the tunnel.
Back in 2016, Vodafone and Idea were the largest telecom companies by subscriber base, only marginally falling behind Airtel who, at that point, enjoyed a 24% market share. The merger of Vodafone-Idea led to the consortium capturing over 38% of the subscriber base. If that seemed too good to be true, it was not true. Vodafone idea ended up seeing its market share dwindle from 38% to 25%, placing it a poor third behind Jio at 35% and Airtel at 29%.
In the entire merger melee, Vodafone Idea lost more than 13 crore subscribers. While Vodafone and Idea had been proactive on the launch of 4G in India, they could not follow it up with technological upgrades and capex; both are essential to stay relevant in the telecom industry. In addition, the huge debt burden imposed by the government in the form of AGR charges meant that Vodafone Idea was perpetually struggling to have cash on hand. The aggressive telecom pricing war ensured that nobody could really make adequate profits and eventually, Vodafone Idea ended with a huge pile of debt. Now, with the government converting its dues into equity, it improves the cash situation for Vodafone Idea, but leaves them with a pile of debt and a bloated equity base. Still, Birla sees light at the end of the tunnel.
The Indian government had recently acquired a stake of 33.44% in Vi in lieu of interest, and they also insisted that Vodafone Group and Aditya Birla Group invest in the company. While this has provided a temporary breather for the company, this alone is not enough to make them ready for the intense market competition. The government has been showing commitment in this acquisition, which may help Vi in acquiring investments or even close vendor deals with longer payment plans. What makes Mr Birla so optimistic?
VI needs a big name like Kumar Mangalam Birla to take on the competition. For Birla, the risk of living with a global telecom major is considerably reduced now. The priority for VI would be to upgrade technology, plan a massive 5G rollout and refinance debt of Rs4,000 crore. For Kumar Mangalam Birla, the government's commitment to prevent a duopoly is good enough. He can finally have control of a sizable telecom player in the Indian market. The immediate and the medium terms strategy would be critical now.
CONTENT SOURCE: FINANCIAL EXPRESS