Mumbai: Shares of telecom companies surged on Monday on hopes of consolidation in the sector. Analysts expect there could be a possible merger between Vodafone and Idea Cellular in view of stiff competition among top telecom companies after the launch of Reliance Jio.
“Free service of Jio likely to impact other telecom operators like Bharti and Idea’s ability to gain traction as free service may continue at a nominal rate. While we find Bharti Airtel relatively better positioned, we find the smaller telcos potentially pushed towards exit or consolidation," said Bank of America Merrill Lynch on 24 January, in a report to its investors.
Idea Cellular shares closed higher by 25.90% at ₹ 97.95. The stock gained for the seventh consecutive session and rose 37% in this period. Rivals Bharti Airtel closed up 7.48%, while Reliance Communications Ltd shares rose 11.49%, Tata Teleservices Maharashtra Ltd shares rose 5.94%.
Recently, Idea postponed its board meeting which has scheduled on 23 January earlier.
Vodafone is weighing a merger of its Indian arm with rivals as it seeks a turnaround in the subcontinent’s cut-throat mobile market.
Also read| Vodafone confirms merger talks with Idea, could create India’s biggest telecom firm
Jio’s aggressive tariff plans and massive investments have started hitting rivals. Experts said that the Indian telecom industry is set for a major round of consolidation with smaller companies (such as Telenor India) likely to be acquired and middle-level companies (such as Anil Ambani-promoted Reliance Communication Ltd and Aircel Ltd) looking for mergers. The entire exercise will leave space for a maximum of four companies in the sector, Mint reported.
“Theoretically, we believe a potential Idea/Vodafone merger could make strategic sense (move to No. 1 market share, scale/synergy benefits, and complementary footprint with Vodafone strong in urban areas and Idea strong in rural areas)," the Bank Of America Merrill Lynch report added.
Recently, Sunil Bharti Mittal, chairman of Bharti Enterprises, said to CNBC on the sidelines of the 47th world Economic Forum at Davos that the merger of Vodafone India and Idea Cellular would be a perfect match.
“However, we see practical implementation issues. The most significant of them could be the cost associated with liberalizing the spectrum (at Rs2,000-3,000 crore—an expense which would go to the government without any benefit to a combined entity) and returning the scarce commodity spectrum in five circles on which competitors could capitalize," the report added.