Long overdue consolidation in Telecom
The best joke about the Idea Cellular and Vodafone merger that did the rounds on Monday was that they name the merged company ‘Batata-Voda’ a joke not only about the famous Mumbai snack but also harking back to Idea’s original birth as the love-child Birla Telecom, AT&T and Tata Telecom. The creation overnight of India’s largest Telecom operator is the culmination of 25 years of mobile services.
India got into the mobile telephony game later than most countries in the world. And it took a visionary change in policy by the late Pramod Mahajan to make the industry take off in 2001. Today, there are over a billion mobile phone connections in the country. The easy accessibility of voice has been an economic boon to India as several studies have proven, adding almost a percentage point of GDP growth.
However, one thing that held India back over the past few years has been that data charges in India have been very expensive. Partially this was a result of over-bidding during the 3G and 4G spectrum auction and the slow deployment that followed. The 2G scam severely dented the confidence of Telecom operators and also made accessing funds for them very difficult. The Telecom minister of the time claimed that he wanted to make telephony more accessible, but might have actually delayed the quick deployment of high-speed data networks.
But, over the past couple of years mobile operators have been rapidly deploying 4G networks. And Indian Telecom operators thought they would have a decade to milk consumers. However the arrival of Reliance Jio has really put the cat among the pigeons. And the Idea-Vodafone is a direct result of that. Jio’s great pricing schemes and rapid subscriber growth with over 100 million users has worried older Telecom operators.
Will the merger help the merged entity? It should. With lower costs and more spectrum across multiple bands the new operator will definitely benefit from economies of scale. But will they manage to beat the Reliance Jio monolith? India is big enough to support three large telcos. Clearly now there are only three. The problems now are less for Airtel and more for BSNL and Reliance- ADAG.
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