Global Insight Perspective | |
Significance | Spice Communications and Idea Cellular have decided to merge, but the two companies have yet to give further details concerning the deal. |
Implications | The move would help the two companies accelerate their expansion in India's consolidating mobile market, where the top six players account for more than 90% of the subscriber base. |
Outlook | The two companies would complement each other in terms of geographical areas. In addition, the combined company would become the fifth-largest player in the market, with a subscriber share of about 10%. |
Indian mobile telecoms operators Spice Communications and Idea Cellular have decided to merge, a senior Spice executive said yesterday, quoted by Dow Jones. "The two companies have merged," Spice Chief Executive H.N. Nanani said, but declined to give any details. A spokeswoman of the Aditya Birla Group, which owns a 57% stake in Idea Cellular, would not comment. India's MCorpGlobal holds a 51% stake in Spice Communications, while Malaysia's Telekom Malaysia holds the rest.
Outlook and Implications
- Another Consolidation: The move follows the recent acquisition of Hutchison Essar by U.K.-based Vodafone Group, signalling that the Indian mobile market continues to consolidate. Spice and Idea Cellular did not disclose any details of the merger, as the two parties could be still finalising the deal, including issues such as valuation and post-merger shareholding structure. Both companies are backed by shareholders harbouring strong ambitions to catch the growth opportunities in India. Birla and Telekom Malaysia, in particular, are unlikely to be satisfied with a reduced level of presence in the merged company. In addition, the two companies need to figure out how a merger will fit in with Spice's listing plans. The operator has recently received government approval for an initial public offering (IPO). The company had intended to use the funds raised through the IPO for repayment of long-term debt and acquiring equipment to expand services (see India: 25 May 2007: Spice Telecom Receives Regulatory Approval for IPO).
- Merger Synergies: Nevertheless, a merger of the two makes perfect sense. Firstly, the two companies both offer GSM mobile services but in different telecom circles. With a merger, the two companies could gain instant entry into each other's operating areas. Idea Cellular currently operates in 11 circles, including Delhi, Maharashtra, Gujarat, Andhra Pradesh, Kerala, Haryana, Uttar Pradesh (W), Uttar Pradesh (E), Rajasthan, Madhya Pradesh and Himachal Pradesh. The company also plans to expand into Mumbai and Bihar, after it recently received licences for these circles (see India: 18 May 2007: Nokia Siemens Wins US$500-mil. Deal from Idea Cellular). Spice only operates in two circles—Karnataka and Punjab. Both companies have hoped to expand their presence into the rest of the country, but their plans were held up due to the lack of additional spectrum in other circles. Secondly, a merger would significantly enhance the market position of the combined company in India's consolidating mobile market, where the top six players account for more than 90% of the subscriber base. Idea Cellular, with around 15 million subscribers, is the sixth-largest mobile operator after Bharti Airtel, Reliance Communications, BSNL, Hutchison Essar and Tata Teleservices. Spice is the eighth-largest, with nearly 3 million subscribers. Together they could overtake Tata Teleservices to become the fifth-largest player, with a market share of approximately 10%.