ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Creating Telecom Midgets

Creating Telecom Midgets

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What is New Delhi doing about the Vodafone-Mannesmann merger? The suggestion that the government of India has to respond to a distant merger between an Anglo-American wireless service provider and a German provider of wireless and Internet services might strike many as far-fetched. It only goes to show that globalisation still remains more a slogan than a practical imperative for most people, even in policy-making circles. The world’s largest corporate merger has implications for Indian policy in telecom and corporate law, which can be ignored only to the detriment of the country’s economy. Two specific aspects of the Vodafone-Mannesmann merger stand out. One, of course, is its sheer size. The other is convergence.

The merger is taking place by means of swapping Mannesmann stock for Vodafone’s and the value of the merger varies with changes in Vodafone’s stock prices. But the size of the deal that Indians should bother about is not the figure of $190 billion announced initially but the market share of the merged entity in global mobile telephony. That share would be 10 per cent – 42 million subscribers out of the global total of around 420 million. The Vodafone-AirTouch is itself the product of a trans-Atlantic merger, with British Vodafone having acquired American AirTouch. Mannesmann is a major player in Germany and Italy and owns, besides, Orange, a wireless service provider in Britain that the combined company would have to sell off to gain regulatory approval. Now Vodafone-Mannesmann would be the dominant player in Europe. The chief of Vodafone claims that the new company would be able to effect cost savings to the tune of 40 per cent. Even after discounting such claims for exaggeration, it would be unwise to ignore the competitive strength of the new company. It would rapidly expand in the liberalising telecom sector of Europe and the US.

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