In the past one decade, the Indian telecommunications industry has witnessed various events of company mergers and acquisitions. These ventures have been influenced to a great extent by the rapidly changing policies of the Government and the constant upgradation in technology and mobile communication. Telecommunication industries that are considered as the most profitable industries are now expanding horizontally through the concept of business merger as this type of development has potential scope for growth, design of innovative products and to gain a distinct position in an excessively competitive market.
Types of Mergers in Telecommunications
When two companies have merged and their product line and industry is the same then it is termed as a horizontal merger. On the other hand when companies with two different concepts merge, it is a vertical merger. For example: A Telecom company merges with a vendor of the same product. Mergers are basically undertaken to empower growth which may not be achievable through a company’s individual efforts.
Reasons for Mergers and Acquisitions
One of the core aspects of a company merger is gaining market dominance and expansion of resources. Although some researches point that mergers may not necessarily lead to profitability, there are some key factors that determine the importance of mergers in the present day telecom industry. Here are a few:
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Shareholder’s enhancement of holdings
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Improved standing in the market
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Synergetic functioning
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Product and technology innovation
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Strengthening of business operations
Besides the above mentioned reasons, there are a few other factors including entry into new circles, achieving economies of scale, elimination of competition, etc. that motivate the telecom operators to enter into an agreement of merger with an existing company.
Mergers of the Past
In 2007, Vodafone Group Plc. Bought its stake in Hutchison Telecommunications International and the merged entity, Vodafone India became Indian second largest telecom by subscribers. Idea Cellular bought 80% shares in Spice Telecom with a purchase of INR 2,700 crore in the year 2008. Telenor also purchased stakes worth INR 2,380 crore of Unitech Wireless. In June 2010, Reliance Industries bought 95 percent stakes of Infotel Broadband just after its announcement of 4G launch.
Mergers Expected to Happen Soon
Anil Dhirubhai Ambani led Reliance Communications has recently announced its merger with Aircel. The new entity formed by this merger should rank as the fourth largest telecom operator by subscriber base and revenue. RCom and Aircel’s owner Maxis Communications Berhad (MCB) of Malaysia will each be holding 50 percent in the merged entity. It is said in various reports that the new company will be India’s largest private sector companies with a net worth of 35,000 crore.
In response to the price turbulence created by Reliance Jio’s marketing entry, Vodafone India also plans to merge with Idea Cellular soon in the coming days. The projected merger will be creating 400 million users which is a surpassing figure when compared to Bharti Airtel’s 260 million users.
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