Idea Cellular – Vodafone merger announcement soon?

Idea Spectrum Holding

Idea Cellular has put off the trimonthly meeting of its board of directors scheduled to take place tomorrow, raising speculation that it may soon announce a merger or deal with Vodafone India.

The meeting was supposed to take on-board results  of the telecom operators’ working the three months from October to December.

After the meeting, Idea was scheduled to release its quarterly financial results on Monday as well. Both have now been postponed indefinitely, and the new date is yet to be intimated.

This has led to massive speculation that the company may make an announcement about its rumored merger with England-based Vodafone Group’s Indian arm when it releases  its financial results.


Several factors suggest that the two companies have been planning a move for months.

Out of these,  the  pattern of spectrum bidding in the recently concluded spectrum auction is the strongest indicator.

2.5 GHz band

Both Vodafone and Idea bid for, and won, 10 MHz each of the 2.5 GHz 4G band in the auction, while you need at least 20 MHz for an efficient operation.

Their decision to go for the ‘half purchase’ of spectrum was all the more surprising when one considers the quantity of spectrum being offered — there was 40 to 60 MHz of spectrum in each circle on offer, no bidder other than Idea and Vodafone.

Deploying 4G  on 10 MHz of continuous spectrum is considered less than optimal due to efficiency considerations.

At the time, Idea sources said they decided to buy only 10 Mhz because “the spectrum wasn’t going anywhere”.

In hindsight, a strong possibility suggests that the companies were aware of merger considerations even as they stepped into the auction in mid-2016.

Since the total spectrum  in the band is 60 MHz, 50% cap comes to 30 MHz. If the merged Vodafone-Idea entity was to hold more than 30 MHz, they would have had to surrender the remaining to the government.

In those rare circles where one of the two operators bought the full 20 MHz spectrum, the other party bought only 10 MHz, and the combined holding of the two will remain within the 50% cap. Moreover, 30 MHz is considered an efficient block for 4G deployment as well.

2.1 GHz band

A similar ‘lack of conflict’ in the 2016 spectrum strategy of the two operators  can be seen the 2100 MHz or 3G band.

Here, Vodafone was the more aggressive of the two.

Here too, the combined spectrum holding will be within the 50% cap.

Vodafone bought only one extra 5 MHz block in the circles that it purchased 3G spectrum.

However, there was one exception to this rule — Tamil Nadu, where the  company splurged on two 3G blocks even though it already had one block in the circle already. It so turns out that Tamil Nadu and Karnataka are also the only important circles in India where Idea has no 3G spectrum.

But then, Vodafone did not buy an extra 3G block in Karnataka, only in Tamil Nadu. This may have to do with the fact that Idea has a 5 MHz block in the 900 MHz band. This band can also be used for 3G, and Idea and Airtel have used this band for 3G in places like Mumbai and Delhi.

Moreover, Idea is ranked at No. 4 in terms of market share in Karnataka. As a result, it is possible to deploy the 900 MHz block of spectrum for 3G services after a possible merger with Vodafone and move its 2G subscribers to Vodafone’s network.

This could possibly be a reason why the situation in Karnataka is not considered as bad as in Tamil Nadu.

That said, even after a merger, Karnataka will remain a weak spot for the combined entity due to the poor spectrum profile of the combined unit.

Between the two, they have two slim 4G carriers, 1 3G block, one potential 3G carrier (if they sacrifice the 900 MHz 2G service) and some 2G airwaves, adding up to a total of 58 MHz of spectrum. In most circles, the duo will have 80-105 MHz of spectrum.

For example, even in Tamil Nadu, they will have 81.2 MHz.

However, Tamil Nadu and Karnataka will remain the only circles where they won’t have any high-capacity (or TDD) 4G spectrum, though this can be remedied in the next auction as enough airwaves are available in these circles. Moreover, the combined entity will have five (slim) spectrum blocks in Tamil Nadu which can be used for either 3G or 4G as it sees fit.


Idea Market share

The only remaining stumbling block for the merger to take place would be revenue market share.

According to Indian telecom M&A rules, no single entity can have a market share of over 50% after one year of merger.

There are five circles where the two companies will have a joint market share of close to 50% — Kerala (60%), Madhya Pradesh, Mumbai, Maharashtra and Uttar Pradesh West.

Except in Kerala, the other circles are not a point of worry as the market share is roughly equal to 50% and with the entry of Reliance Jio, it will fall below 50% over the next one year.

In Kerala, it is likely that the combined entity will have a market share of around or just above 50% even after the entry of Reliance Jio, and may have to go slow on business expansion to let others catch up.