New Delhi–Ending months of speculation, Vodafone on Monday confirmed it is in talks with the Aditya Vikram Birla group for the merger of its Indian entity and Idea Cellular in what will be the largest such deal in the country’s telecom space once it materialises.

The merger will create an entity with a subscriber base of more than 400 million to emerge as the largest player in India, replacing the current dominant player Bharti Airtel, which currently has over 260 million users on its network.

“Vodafone confirms that it is in discussions with the Aditya Birla Group about an all share merger of Vodafone India — excluding Vodafone’s 42 per cent stake in Indus Towers — and Idea,” the Indian entity’s parent company said in a statement.

“Any merger would be effected through the issue of new shares in Idea to Vodafone and would result in Vodafone deconsolidating Vodafone India.”

In a clarification later, Idea Cellular said it is in preliminary discussions with Vodafone.

“In view of the fact that the discussion is at the preliminary stage, the company is not in a position to share any further details,” Idea Cellular said in a regulatory filing.

“However, it is important to mention that the fundamental premise of preliminary discussion is based on equal rights between Aditya Birla Group and Vodafone in the combined entity,” the company added.

Vodafone India has over 200 million subscribers, with a presence in all the 22 circles the country has been divided into. It intends to have 4G services in 17 circles, covering 2,400 towns, by the end of this fiscal.

Idea, on the other hand, says it has a similar subscriber base, also with a presence in all the 22 circles. It intends to have 4G services in 20 circles by”March 2017.

“Given the financial pressure and dynamics in the telecom sector consolidation is imperative. It is good for both industr” and consumers,” Rajan S. Mathews, Director General, Cellular Operators’ Association of India told IANS.

Mathews said the merged entity of Vodafone and Idea Cellular will have 43 per cent of the revenue market share.

“The merger confirms the trend towards consolidation. It shows that the companies recognise the nature and size of the challenge posed to their businesses by Jio. This will help both companies to improve their competitiveness,” Mahesh Uppal, Director, telecom consultancy firm Com First told IANS.

“Going forward there will be a reduction in number of players to four and consequently a decrease in the competition in the sector. This is not necessarily good for consumers in the short term. In the medium term, these consolidations will make the sector a bit a more stable,” he added.

Both Vodafone India and Idea have to figure out their long term business strategy and merger could well be the path, given current industry competitiveness and dynamics, said Amresh Nandan, Research Direct”r, Gartner.

“As per our recent note, we believe that a potential Idea and Vodafone merger could make strategic sense. However, the merger would result in the combined entity facing practical implementation issues, the most significant of them could be the cost associated with liberalizing the spectrum. The combined entity would also breach spectrum caps in 5 circles, the market value of which comes t” Rs 75 billion,” said Bank of America Merrill Lynch.

Industry speculation over a possible merger has been doing the rounds for nearly a year and intensified after Reliance Jio entered the market with its mega voice and data offer, with an announcement that voice will be free on its network for life.

But the Aditya Vikram Birla Group had scoffed at media reports suggesting merger talks in their regulatory filings with the stock exchanges, though analysts found a lot of synergies in such a move.

Earlier this month, JP Morgan spoke about the merits of such a merger.

“This could unlock more than $9 billion in potential synergies and offer an elegant route to deconsolidating India, thereby helping focus (Vodafone’s) attention back onto a rebounding European equity story,” the top investment banker said.

As regards Idea, it said, in the migration towards free voice regime, the company stands to be the most vulnerable. Idea has a higher of rural and semi-urban subscribers, who are not as data-hungry as the creamy users in metros and cities, where it has a relatively limited presence.

Analysts also maintained that the initial public offering by Vodafone India did not make sense.

“We believe an elegant alternative would be for Vodafone to reverse merge into locally listed peer Idea (a deal that offers Idea a solution to their mounting balance sheet challenges),” JM Morgan said.

Idea Cellular’s stock prices spurt at the merger talks announcement. Its stocks closed at Rs 97.95 per share up by 25.90 per cent at the closing time of the BSE. (IANS)