If I had looked at a deal such as the Vodafone-Idea Cellular merger ten years ago, I would have immediately put a tick in most boxes.
Second and third ranked players join forces to become number one, putting distance between themselves and the new rival – Reliance Jio – shaking up the market and snapping at their heels. Tick.
After all, consolidation is the big theme in Indian telecoms. This deal is only the biggest in a string of similar consolidations in a market with too many players, so it makes sense for two plus three to equal one. Another tick.
This is a market where 700 million people don’t have cellphones. Of the 600 million who do, only 250 million have smartphones. Huge upside right?
But 2017 being what it is, those old judgments need to be viewed with some caution. Or at least we should suspend our enthusiasm.
In a market which is moving as fast as Indian telecoms, and in the global context of a market where old style incumbents continue to struggle, no matter what they do, the $24 billion deal does not come without risk.
It sounds great that the new company will have 400 million customers in one of the world’s fastest growing markets, but that doesn’t mean that its revenues or its profits will improve.
The danger is that the merger process will be distracted by regulatory clearances and integration issues and, in the meantime, aggressive and new lighter weight competitors will steal a march on Vodafone-Idea.
This is a market where, if the merger is not executed well, customers will be lured away as prices for basic services race to the bottom, or as new entrants come and grab share of markets where there is growth, such as data.
In this world of disruption and transformation, I’m not entirely sure that an old style defensive merger such as this makes as much sense as in the past.
We all know returns in the traditional telecoms sector are down, and despite everyone’s best efforts they are not coming roaring back. In 2017, size and scale are no guarantee of success, as any number of operators around the world will attest.
As the chairman of Bharti Airtel, Sunil Bharti Mittal, told Mobile World Congress in Barcelona earlier this month, money invested in telecoms can probably be better put into the bank.
“You may as well put the money in a bank, get a decent return, and go out and play golf,” he said, in one of the more quotable lines from the conference.
What is clear is that Vodafone and Idea are not going out to play golf. Despite recently copping a major writedown and a disappointing financial loss respectively, they are in business for the long haul.
Both came away from the underwhelming spectrum auction last year with the capacity to build out their 4G services, with a focus on data.
That is another tick, for sure, and if they put it all together, add 400 million customers and execute well, then the breathless spin which greeted the deal this week may in some way be justified.
As keen market watchers, however, we owe it to ourselves to treat the deal with caution before we get too carried away. This is 2017, after all.
Which is also how Vodafone and Idea should approach it, as they try on the Number One ranking for size.