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The Idea-Vodafone merger will create a strong player, but multiple challenges from the deal, including breach of spectrum holding and revenue marketshare cap, will have to be resolved in a fixed timeframe, ICRA said today.
Analysts are of the view that the competition in the industry is unlikely to subside in the medium term despite the mega merger.
"The transaction faces many challenges... The merged telco would breach the spectrum holding cap in 5 circles in 900 MHz band and in 2 circles in the 2,500 MHz band and is likely to breach the revenue market share cap of 50 per cent in six circles. These would have to be resolved in a fixed timeframe," said Harsh Jagnani, VP-Sector Head, ICRA.
Further, the debt levels of the merged telecom firm will be high at around Rs 1,08,000 crore, he said, adding that the entities will have to inorganically deleverage to rein in the debt.
In the long term, this consolidation is expected to be positive for the industry as it will restore some pricing power and give better bargaining terms with vendors, he hoped.
"We do not expect any reduction in the competition in the industry in the medium term as the large telcos would continue to keep the intensity high," he said.
Pressure created by Jio's launch and the subsequent pricing competition pushed the Indian telecom industry to consolidation, he noted.
"While there are many regulatory hurdles for the merger, it would nevertheless create a strong player in the industry," he said.
Vodafone-Idea will be India's largest telecom operator in terms of subscriber base, revenue and spectrum holding.
It will have a strong footprint, with market leadership in 12 out of the 22 circles, and second rank in 9 circles. The merged entity will also benefit from operational synergies allowing it to curtail expenses such as co-location rentals and energy costs, customer acquisitions and support teams and reduced expenses on branding.
"This should translate into profitability uplift to the merged entity although the same will take some time to materialise," he said.
According to Angel broking, as the industry consolidates with 3-4 large players, there can be some sanctity that can return to pricing and end of data wars, but the same seems unlikely over the next 1 year.
"The consolidation in the telecom industry through the Idea-Vodafone merger, acquisition of spectrum from other operators by Bharti Airtel and market share gains by Jio would ensure competitive and demanding times for telecom operators, but the consumer is having the last laugh at their expense at the current juncture," said Mayuresh Joshi, Fund Manager at Angel Broking.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)