30/01/2017 2:09 PM IST | Updated 30/01/2017 2:35 PM IST

Vodafone Confirms Merger Talks With Idea Cellular,  Combined Company To Be India's Largest Telco

The all-share merger would include issuance of new shares in Idea to Vodafone

Bloomberg via Getty Images

Following media speculation about possible merger of Idea Cellular with Vodafone Plc amid growing competition from Reliance Jio, Vodafone has confirmed the merger deal talks are on.

In a statement Monday, Vodafone said it is in discussions for an all-share merger with Idea with the exception of Vodafone's 42 per cent stake in Indus Towers. The merger would include issuance of new shares in Idea to Vodafone and "deconsolidating" Vodafone India, signalling a new entity could emerge from the combination.

The timing and terms of the deal, however, are still uncertain, it said in the statement.

News of the possible deal was first reported by Economic Times. The merger of the second largest telco, Vodafone India, and Idea, the third largest player, would create India's largest telecom player by revenue and subscribers, toppling Bharti Airtel from the top spot.

India's $26 billion telco market is ripe for consolidation with many smaller players who are finding it hard to compete against the aggressive entry of Reliance Jio late last year, and the resulting tariff wars.

As the cost of upgrading technology goes up for each new generation of 3G, 4G and now 5G, returns get increasingly tied to scale, Chris Lane, an analyst at Sanford C. Bernstein, told Bloomberg. "As you slip down the ranks, you become more and more sub-scale and profitability keeps diminishing."