BackTelecom firms take merger route to counter Reliance Jio onslaught
Post-merger, Vodafone-Idea with 35%marketsharewill be followed byAirtel's29%(including Telenor) and RCom-Aircel-Sistema's 16%
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Mumbai: Ever since Reliance Jio Infocomm Ltd launched services in September, offering a lifetime of free voice calls and three months of free data (later extended until end-March, then end-June), mergers and acquisitions (M&As) had become inevitable in India’s hyper-competitive telecom industry.
Idea Cellular Ltd, a part of the Aditya Birla Group, and Vodafone Group Plc.’s Indian unit said on 21 March they had decided to merge in a $23-billion deal to create the world’s second largest and India’s largest telecom company.
Although they played down the Jio factor as a reason for the merger, it’s clear that India’s No.2 and No.3 telcos had decided that, united, they had a chance of better competing with Ambani, who has so far invested $20 billion in the network. “It is the business logic that has fundamentally driven this combination...", Vodafone chief executive officer (CEO) Vittorio Colao had then told the press.
The aggression with which Jio went about signing up 100 million subscribers in less than three months would surely have provided a spur to the two former adversaries to join forces. The combined entity will overtake Bharti Airtel Ltd in India, with almost 400 million customers, coupled with a 35% customer market share and a 41% revenue market share. It will have a revenue of Rs81,600 crore and an operating profit of Rs24,400 crore.
Bharti Airtel Ltd hasn’t been sitting idle. Just three days after the announcement of the Idea-Vodafone merger, Bharti Airtel agreed to buy Tikona Digital Networks Pvt. Ltd’s 4G business, including its broadband wireless access spectrum and 350 cellular sites in five telecom circles, for around Rs1,600 crore.
A month earlier, Airtel had agreed to acquire the assets of Telenor South Asia Investments Pte Ltd’s India business. As part of the deal, Airtel will assume the Telenor unit’s liabilities related to licence fees and lease obligations for phone towers. The transaction, which won’t involve any cash payments to Telenor, will give Airtel access to 44 million customers (increasing its user base to 307 million), 43.4 megahertz (MHz) of spectrum in the 1,800MHz band and 20,000 base stations.
The first signs of consolidation were seen last September when Reliance Communications Ltd (RCom), led by Anil Ambani, and Aircel Ltd, owned by Malaysia-based Maxis Communications Bhd, announced they would merge their mobile network operations.
On 15 March, RCom received approval from the Securities and Exchange Board of India (Sebi), BSE Ltd (BSE) and National Stock Exchange of India Ltd (NSE) to demerge its wireless division into Aircel Ltd and Dishnet Wireless Ltd.
Following closure of the deal, RCom and the present shareholders of Aircel will hold 50% each in Aircel. The creation of the new entity will first involve RCom demerging its existing cellular business, which has around 100 million subscribers.
The other businesses, including tower assets and fixed-line enterprise units, will continue to remain with RCom. The wireless unit will then be merged with Aircel. RCom and Aircel’s owner, Maxis Communications, will hold 50% each in the venture, with equal representation on the board.
And last November, RCom announced its merger with Sistema JSFC’s Indian operation—MTS—under which the Russian firm will hold a 10% stake in RCom. The merged entity will, however, carry a debt of nearly Rs28,000 crore. RCom and Aircel will each contribute half that amount into a debt pool.
This effectively means that following the completion of the mergers (assuming that there will not be any regulatory hurdles), there would be three major telco groups that will control over 80% market share and revenue of the Indian telecom sector.
The Vodafone-Idea combine will come in first place with a 35% market share, followed by Airtel’s 29% (including Telenor) and RCom-Aircel-Sistema’s 16%.
Do cheap phones work in India?
The new Reliance JioPhone will run on KaiOS, based on Mozilla’s Firefox operating system (OS). The apps are basic, running HTML5 which will help the feature phone emulate a basic smartphone. HTML5 (the fifth version of the hypertext markup language that makes browsers render web pages correctly) mobile application development reduces cost of developing apps. All major browsers support these technologies but they have performance and security concerns, too.
But the Firefox OS never really caught on in India. On 25 August 2014, Intex launched the first Firefox OS smartphone in India, the Cloud FX, priced at Rs1,999. Three other brands—Spice, Zen Mobile and Alcatel One Touch—followed with cheap smartphones running Firefox OS—all for below Rs2,500. In December 2015, Mozilla announced it would stop building and shipping Firefox OS smartphones.
Similarly, on 15 September 2014, at an event that rivalled its annual I/O developer conference in San Francisco, Google Inc. launched the first family of three Android One phones in India as part of a larger initiative to bring “high-quality smartphones at affordable prices to as many people as possible", with support for local languages. Google’s insistence on a minimum specification baseline from vendors for these low-cost devices that were part of the Android One programme failed to make any impact and the project was shelved.
Google is now embarking on a new project called Android Go, which will be a lightweight version of the upcoming Android O operating system. The idea behind Go is to make Android run smoothly on the most basic Android smartphones, including devices with less than 1GB of RAM. Android Go will also have a Play Store version.
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