India has seen two blockbuster telecom deals in recent years. The merger of Vodafone India and Idea Cellular comes in the wake of the acquisition of MTS by Reliance Communications last year. Is there more consolidation in the offing?
Many analysts believe India will—and perhaps should—eventually have around five dominant telecom companies.
The most immediate cause for the current wave of telecom consolidation is well known. The aggressive entry of Reliance Jio has shaken the market. One clear indication of this has been the sharp drop in average revenue per user over the past few months. Sustained pressure on profit margins often provides the financial justification for industry consolidation, not just in telecom.
The telecom regulator will undoubtedly be watching the action closely. There is, right now, no case to throw sand into the merger machine, but there can be no doubt that fewer telcos will mean their ability to form a cartel to push up prices is far greater than before.