Vodafone and Idea on Monday confirmed that two were in talks to merger their operations in India. If successful, the combined entity will be India's largest private sector telecom company displacing Bharti Airtel from its numero uno position. 

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In a statement, Idea Cellular said, "In view of the fact that the discussion is at the preliminary stage, the company is not in a position to share any further details. However, it is important to mention that the fundamental premise of preliminary discussion is based on equal rights between Aditya Birla Group and Vodafone in the combined entity."

Before Idea, Vodafone in a release had said that it is in discussions with the Aditya Birla Group for an all share merger of Vodafone India (excluding Vodafone's 42% stake in Indus Towers) and Idea. 

It had said that any merger would be effected through the issue of new shares in Idea to Vodafone and would result in Vodafone deconsolidating Vodafone India. 

Will the merger give competition to Bharti Airtel?

Though the merger talk came in with the growing competition in the telecom industry after the official launch of Reliance Jio. 

Jio's entry jolted the industry as it became difficult for the telecom operators particularly Idea Cellular, Bharti Airtel and Vodafone India to retain their market share.

According to an IANS report, which quoted JP Morgan talked about the merits of such a merger.

"This could unlock more than $9 billion in potential synergies and offer an elegant route to deconsolidating India, thereby helping focus (Vodafone`s) attention back onto a rebounding European equity story," the top investment banker said.

As regards Idea, it said, in the migration towards free voice regime, the company stands to be the most vulnerable. Idea has a higher of rural and semi-urban subscribers, who are not as data-hungry as the creamy users in metros and cities, where it has a relatively limited presence.

Last week, during the 47th World Economic Forum, Sunil Mittal, chairman Bharti Enterprises had said that this merger (Idea-Vodafone) will be a 'perfact match'.

"It’s a perfect match, if you look at it, the match is not bad. But you know I can’t sit on the minds of Vittorio or Kumar. The strength and weaknesses match very well. Rural - urban, structured portfolio...makes for a good business case and I would support it," Mittal was quoted by Bloomberg Quint. 

According to Telecom Regulatory Authority of India (Trai) in a recent data released stated that the market share in terms of Wireless subscribers as on October 31, 2016, for Bharti Airtel stood at 24.32%, Idea's 17.17% and Vodafone's was 18.72%.  

If Idea and Vodafone combines, they combined can own market share of nearly 35% which is far more than Bharti Airtel. 

As per Trai data, Bharti Airtel had 259.9 million subscribers at the end of October 31, 2016 as against 200 million of Vodafone and 178.8 million of Idea. 

The combined entity of Vodafone-Idea will have user-base of 278.8 million and a market size of 35.89% as against Airtel's 24.32%. 

Out of the total wireless subscriber base (1,078.42 million), 970.4 million wireless subscribers were active on the date of peak VLR in the month of Oct-16. The proportion of active wireless subscribers was approximately 89.99% of the total wireless subscriber base. In the month of October, Idea was the only company whose number of VLR subscribers were more than its subscriber base due to a large number of inroamers in its network.   

Sanjesh Jain, Analyst at ICICI Securities, in a report released on January 23, had said, "We strongly believe Vodafone and Idea can potentially enter into spectrum sharing (for 2100MHz/1800MHz spectrum bands) and active infrastructure sharing agreements, which imply virtual consolidation among the top-3 operators."

Commenting on the merger, Amresh Nandan, Research Director, Gartner, said, "Both Vodafone India and Idea have to figure out their long term business strategy and merger could well be the path, given current industry competitiveness and dynamics.  If they decide to do so, one can hope for a long term strategy behind it and not just gaining market share and subscriber share."

"It would be very important for the merging entities to realise the transformation required in their operations. At this point in time in communication industry, transforming themselves while they consolidate will be a necessary step, even though not an easy one.”