Everyone is well aware that JIO entered the Indian market with a bang. This led to the merger of two of India’s telecom industry giants, Vodafone and Idea. So, we will have a look at the Vodafone-Idea merger case study which will include why did the merger happen, how did it happen, and the position of both companies post the merger.
Let’s get started by getting to know Vodafone as a company.
The parent company of Vodafone is a UK-based multinational service provider of telecommunications called Vodafone Group plc. It has a network in over 20 different countries. When the company entered the Indian market in 1992, it set up its headquarters in Mumbai, Maharashtra, and became, arguably, one of the biggest telecommunication providers in the country. We are sure none of us can not forget the pug and the funny ZooZoos we used to see in their creative advertisements.
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However, the company faced fierce competition in the year 2016 by JIO, as they provided free services for the first six months, and then charged a very minimal rate for good quality services. This gave JIO a leg up against the rest of the field and they were able to capture the majority of the market. So, in March 2017, Vodafone and Idea announced their merger, and on 31st August 2018, Vodafone Idea Limited or popularly known as VI was introduced.
The biggest telecom merger in India saw Vodafone holding a 45.2% stake, the parent company of Idea, Aditya Birla Group holding 26% of the stake, and the remaining stakes were held public.
As mentioned above, one of the main reasons why the Vodafone Idea merger took place was to handle and fight the dominance of Reliance Jio in the telecom industry, as its free services attracted almost everyone to get a sim card of their own.
The free services also started a price war among all the players in the industry. As companies started to lower their prices to retain their customers and not lose them to Reliance Jio. This saw the profit margins of those companies simmer down.
Vodafone and Idea, becoming a combined entity were expected to hold a strong foothold in the industry. This way it was able to become one of the largest service providers in certain sections and regions of the country.
Even so, the merger did not fail to create a negative image of both companies in the eyes of the public. When the merger was announced, the share price from March 2017 was Rs.97.70, which declined to Rs. 81.81 by September 2017. The current share price of VI, as of 16th November 2022 is Rs. 8.40.
However, despite the share price dropping substantially, the merger allowed both companies to receive the necessary support to compete with Reliance Jio and Airtel, which are the biggest names in the Indian telecom sector.