The Vodafone-Idea merger involves achieving synergies in terms of cost and capex.
According to a BCG report, to succeed at this, it is important that the companies consider the following:
~ Assess the estimated gains against realistic targets and ensure a coordinated handoff from the due diligence team to the integration team.
The deal is expected to close in 2018. Given that the Indian telecom space is evolving, no one can guess what it may look like six years from now. This requires giving mutual benefits a longer timeline to accrue while also factoring in the downside risks.
For instance, the combined entity may have to shed spectrum for regulatory reasons. As this may be priced low, it could be attractive for Airtel to consider buying the excess spectrum.
~ Integrating IT systems is crucial as the combined entity will hold the highest spectrum in the industry. It will also require a sound marketing strategy, as it has to compete strongly in data.
~ The due diligence team should include the functional heads to assess advantages for every function, even though it would mean involving more people.
~ Make the most of the independent team to gain perspective. The companies have suggested a board comprising three members from each company and six independent members.
~ Several rounds of bottom-up validations may be needed to enable a greater degree of accuracy against current targets.
~ Vodafone will have to play up its technological expertise and leverage its global experience. It should have an India-focused growth plan.
~ The focus of the merged entity may shift toward integration, thus diverting the management’s attention from market dynamics. This should be prevented in order to stick to the timeline for rolling out 5G services in the presence of competitive threats.
~ Manage disturbances: Both are large organisations with distinct cultures. If the integration task-force mandates that the combined entity lay off workers, this could cause trouble.
~ Stay customer-centric: Customers usually feel uncertain when they hear news of mergers. Assuring them by communicating the exact details and concentrating on customer service post-merger will help retain the customer base.
Keeping it separate
The management should keep the two brands separate for a multitude of reasons.
First, the two brands are popular in different demographics. While the possibility of cannibalisation does exist, it would be helpful to have two separate brands in the post-Jio era, so that even if customers leave one brand and join the other, they might not leave the company.
Re-branding (into a single brand) at this stage will be expensive, financially and otherwise, as a new brand will require extensive advertising and time to connect with customers.
Keeping two distinct brands will also reduce confusion among the existing user base. A way to integrate the two companies without diluting the brand would be to demarcate the areas that each brand will focus on. The merged entity should advertise the two brands as sister concerns, which will together provide coverage across the country.
To stay in business, it will also need to improve margins, which would require vertical integration of businesses. Most individuals use Jio as the second SIM for their mobiles, which they may discard once it starts charging for its services. Vodafone-Idea can get the upper hand by providing quality services (for instance, less call drops — which have been a major problem).
Vodafone and Idea have strongholds in different markets and they should use this to their advantage by making counter-offers to customers, keeping in mind the varied user base. Urban and metro users have easier access to smartphones and require more attractive data packs, whereas rural and semi-urban users are inclined towards calling services.
Jio’s entry into the market has resulted in a price war among providers. A merger should ensure that the combined company has deeper pockets. Customers, particularly prepaid ones, are known to be fickle. Attractive offers should be given out till the consumer base gets consolidated again.
Another aspect that may work in its favour is that Jio’s offer is attractive only to those who have a 4G compatible handset. Hence, this plan doesn’t hold as much appeal in the rural areas. Here, Idea should target and procure more market share with better schemes.
(The second runners-up are students of IIM Calcutta.)