Here are our answers to the questions raised in the Vodafone-Idea merger case. Our views cover maximising merger value, brand identity, and strategies to tackle intense competition in the sector and grab a higher market share.
How can Vodafone and Idea achieve the projected synergies and successfully maximise the merger’s value?
Vodafone and Idea have great synergies in terms of costs, infrastructure and customer base. The two firms share considerable complementarity too. While Vodafone is focussed largely on the urban areas, Idea’s consumer base is more rural. The combined infrastructure, when pooled, would lead to lower maintenance costs, operational efficiency, energy savings, improved service levels and distribution efficiencies.
In the areas where both companies are operating, they can offload the redundant spectrum and use the proceeds to purchase spectrum in new locations, thereby increasing their coverage, including in circles where the combined spectrum share is more than 50 per cent. IT infrastructure can be streamlined on a nationwide basis and a single system can be used to ensure high-quality service levels for the merged entity across the country. Several operations can be centralised to achieve scale economies for the merged firm.
Should the management maintain both brands separately, or combine them? How can it successfully integrate both the companies without diluting their brand image?
In our opinion, the management should combine both the brands into one. This can be justified from the viewpoints of both — an existing Idea user, and an existing Vodafone user. Idea has a more rural and rustic brand image, while Vodafone is more urban youth centric. If they operate under one brand, the rural customers will be more attracted to it since it will now become an aspirational brand for them, rather than being just a telecom operator with functional and emotional benefits.
For the existing Vodafone users, the merged brand will be a symbol of a big brand covering the entire nation which is international, and yet tied to its Indian roots — an image which is appreciated in urban culture.
This requires extensive marketing expenditure in the initial months of transition but if done properly, it can be a huge advantage for the merged entity. The brand image will, in fact, be enhanced, with a combination of international and Indian brands coming together.
What should the merged entity’s future strategy be, given the intense competition in India’s telecom sector? How can the management make the new entity the country’s top telecom provider?
The merged entity should focus on customer acquisition and ensure high service levels in every corner of the country. The price wars have already forced companies in the sector to be price-takers, rather than price-setters. Further lowering of prices will hurt the sector. Hence, the focus of the management should be to increase profitability by widening the customer base and increasing the top line, while cuttingoperational expenditure, staff and maintenance costs and the capex.
In the short run, the focus should be on market penetration and product development, basically using the existing market base and customer trust to engender loyalty for the new merged brand. Also, the company could offer new products, bundled with the existing ones, to gain a market reputation for the new entity.
In the longer run, the focus should be on new market development and penetration, once trust has been built for the new merged brand. The choice of new markets can be based on the operational efficiencies observed in the short run.
What can be the combined entity’s strategy to garner higher market share in data, given Jio’s aggressive schemes?
Jio’s real threat can be determined once it starts charging actual rates for its product offerings. The combined entity will have the power to offer products at the lowest prices in the most sustainable manner, realising operational efficiencies with cost-cutting at various levels.
The focus should be on gaining market share in areas where Jio has already converted non-users of the internet into consumers with data needs, and offer them better-packaged deals. This should work in tandem with retaining the existing consumer base. Also, the marketing of the merged brand should focus on higher coverage areas and better quality services.
The urban customer base should be offered better quality, while the rural consumers should be attracted by better affordability and network coverage in the remotest locations. Such an approach will definitely enable the merged entity to garner market share from Jio as well as from other strong players such as like Airtel.
(The third runners-up are second-year PGPM students from IIM Bangalore.)