Consolidation seems to be the natural progression of a business cycle.
The proposed Vodafone-Idea merger may have been compelled by Reliance JIo’s aggressive stance but it was perhaps inevitable. The nature of business demanded it.
The combined entity may lead to CapEx savings, reducing overlapping network investments, give better bargaining power to the vendors, improve spectrum efficiency, and with a possible equity injection strengthen its balance sheet and provide flexibility for more CapEx.
The merger will certainly have an impact on competition. 2017 may well see further consolidation, as this may prompt the exit of Telenor and Tata Teleservices, making way for a higher ARPU for the remaining players. A merged Idea-Vodafone entity, with a good grip on urban and rural subscribers, and better placed to exploit synergies and benefits of scale, would pose major challenges for Bharti Airtel and Reliance Jio. The regulatory and operational hurdles of the merger, however, may provide a breather, and give time to help put their house in order.
But it is unlikely that in 2017 things will ease for the industry. Stagnant EBITDA growth for the next six to eight quarters, a near-term decline in wireless data revenue growth, falling voice and data realization, and declining overall margins will maintain pressure on the carriers.
The impact of consolidation will be felt by the vendors too. Tower companies may see lower rentals and revaluation of contracts, as carriers look at combining synergies and removing redundancies. As operational efficiency on a circle-to-circle basis is brought in, carriers may have to choose between telecom equipment and managed services vendors, running parallel service and supply contracts, and redistribute geographies between suppliers. IT vendors may have to brace for a sharp hit coming from long-term contracts. CRM partners would also see some realignments of existing agreements and contracts.
In the meantime, the industry has its hands full with the recent announcement of the Union Budget by the Finance Minister and the jolt by the Trump administration’s move in the US to raise the bar for 85,000 H1B visas.