Vodafone + Idea (Scenario Analysis)

The purpose of this note is to analyze how the combined entity of Vodafone and Idea will look like compared to its key competitors.

The table below captures the RMS (Revenue Market Share) rankings of all operators mapped to the individual markets (service areas). The operators are marked by a specific "color code" as indicated at the bottom of the table.

RMS Rank (All Operators)

The spectrum map of Bharti, RJIO, Vodafone and Idea are as below.

Bharti

The weighted average (WA) of the total spectrum on a Pan India basis is 33.54 MHz, and spectrum usage charge (SUC) is 3.57%. In 12 circles it is RMS rank "1", in 5 circles it is RMS rank "2" and in 5 circles its RMS rank "3". The spectrum marked "RED" is expiring in next 4 to 5 years. Incidentally, these are also Bharti's weakest circles.

Vodafone

The weighted average (WA) of the total spectrum on a Pan India basis is 26.39 MHz, and spectrum usage charge (SUC) is 4.08%. In 6 circles it is RMS rank "1", in 9 circles it is RMS rank "2" and in 7 circles its RMS rank "3" or less. The spectrum marked "RED" is expiring in next 2 to 5 years. Incidentally, 3 of them are also Vodafone's weakest circles.

Idea

The weighted average (WA) of the total spectrum on a Pan India basis is 26.49 MHz, and spectrum usage charge (SUC) is 3.89%. In 4 circles it is RMS rank "1", in 4 circles it is RMS rank "2" and in 14 circles its RMS rank "3" or less. The spectrum marked "RED" is expiring in next 5 years. Incidentally, all of them are also Idea's weaker circles.

RJIO

The weighted average (WA) of the total spectrum on a Pan India basis is 29.15 MHz, and spectrum usage charge (SUC) is 3.22%. The spectrum marked "RED" is expiring in next 5 years, except Gujarat which is expiring in next 2 years. The spectrum shared with RCOM is marked as "Yellow". RJIO is the only operator which has 4G spectrum in the sub-GHz band on a Pan-India basis, and in some circle, it has 10 MHz. But, the issue is that the large bulk of this spectrum will be expiring in next 5 years.

Vodafone + Idea (Total)

The weighted average (WA) of the total spectrum on a Pan India basis is 46.56 MHz, and spectrum usage charge (SUC) is 4.13% (if Vodafone acquires Idea), and 3.97% (If Idea acquires Vodafone). In Gujarat and Maharastra, some spectrum in the 2500 MHz band has to be returned as it is breaching the cap. Also, in Gujarat, Haryana, Kerala, Maharastra, and UPW some spectrum in 900 MHz has to be returned as it breaches the 50% band cap. The spectrum is expiring in next 5 years in cells marked "RED" and those marked "Grey" has an overlapping spectrum of both the operators. In 11 circles the combination of Vodafone and Idea will be RMS rank "1", and "2" in rest of the 11 circles. This is at par with that of Bharti. Also, note that in some circles the combined entity will breach the 50% RMS cap for the M&A to go through. But, the RMS share of individual operators will get rebalanced once RJIO starts to charge for its services. Hence, the situation on this account will become clear once that happens.

The table below its the spectrum cap matrix of the combined entity of Idea and Vodafone.

In the above table, the cells marked "RED" where the spectrum cap is being breached by the combined entity.

The table below provides a band wise snapshot of the maximum spectrum the combined entity is allowed to hold.

From the above table, one can see that the merged entity of Idea and Vodafone will have to return in the 900 MHz band - 0.9 MHz in Gujarat, 2.9 MHz in Haryana, 3.1 MHz in Kerala, 3.9 MHz in Maharastra, and 1.9 MHz in UPW (not a problem here as 6.2 MHz spectrum is un-liberalised). Then in 2500 MHz band, it has to return 5 MHz each in Gujarat and Maharastra. Total commercial impact on account returning spectrum is approximately Rs 6000 Cr.

The table below list the RMS cap of the combined entity of Idea and Vodafone.

In the above table, the cells marked "RED" indicates the circles where the combined entity is breaching RMS cap of 50%. Also, if you assume that the combined entity has to forgo some of its revenue, then the impact will be less than 5% of their total revenue. This will further go down with an increase in the overall base after the launch of RJIO.

Vodafone and Idea combination will be able to create a larger block of 4G spectrum in various bands due to their spectrum blocks lying adjacent to each other. These synergies are investigated as under.

Vodafone + Idea (900 MHz band)

You can see that Vodafone and Idea together can create a 10 MHz block in the 900 MHz band in 7 of the 22 circles without harmonization. These are, Delhi, Gujarat, Haryana, Kerela, Maharastra, Mumbai, and UPW. Please note that combined entity will breach the spectrum cap as indicated in the table above and therefore has to return a small amount of spectrum for the merger to go through.

Vodafone + Idea (2100 MHz band)

Vodafone and Idea together get a contiguous block of 10 MHz or more in Gujarat (10 MHz), Kerala (10 MHz), Kolkata (10 MHz), Maharastra (10 MHz), Mumbai (10 MHz, with harmonization), Rajasthan (15 MHz), TN (15 MHz), UPE (15 MHz, with harmonization). Please note I have left out Haryana due to interference coming from the Pakistan border.

Vodafone + Idea (2500 MHz band)

In the above figure, Vodafone is indicated in "Blue" and Idea in "Orange". The other assignment shown in black is with BSNL. Note, in Gujarat and Maharastra the combination will breach the band cap and hence spectrum has to be surrendered. In 13 of the 22 circles, they will be able to create a 20 MHz block. Some of the current assignment are 10 MHz and therefore inefficient for supporting 4G services.

Vodafone + Idea (1800 MHz band)

In the 1800 MHz band, the gain will not be much, as their assignments are not adjacent, with an exception of Kolkatta and Rajasthan where 15 MHz and 5 MHz can be created.

Finally

Today (30th Jan 2017) I have edited this note (originally written on 15th Jan 2017), as Vodafone has officially announced that it is in talks with Idea for a potential merger. I hope it helps us to get a perspective on how the picture will look if this merger was to happen.

 (Views expressed are mine and do not reflect that of my employer)