Idea Cellular wants to Spice up its network

After Bharti Airtel, Tata Teleservices, Reliance Communications and Idea Cellular, a relatively smaller player, Modi promoted Spice Telecom, operating in just 2 but lucrative circles of Punjab and Karnataka, would be the one to hit the capital market with an IPO in June. Idea Cellular may buy around 10% in prep-placement IPO.

The Economic Times reports that Spice Telecom, Idea Cellular and Reliance Telecom could be eyeing an organisational alliance. This resembles a 5 year ago merger which led to creation of brand ‘Idea’, between existing brands of AT&T in Maharashtra, Goa and Gujarat, of Tata Cellular in Andhra Pradesh and of RPG Cellular in Madhya Pradesh and Chhatisgarh. Reliance Telecom is a different entity to Reliance Communications, the former is a GSM player operating in 8 circles including North-East (probably having least tele-density in the country).

The alliance makes strategic sense as Idea has already applied for licences in Punjab and Karnataka, so it may not dole out money to start its operation and in allocation of spectrum. Moreover, Reliance Telecom is insignificant in comparison to CDMA-based Reliance Communications, so the company may be well off selling its GSM venture and concentrate only on CDMA. However Anil Ambani wants to start a pan-India GSM based services, but this would put pressure on the company’s stock as it would require huge capital investment and would be difficult to compete with established GSM players like Airtel and Vodafone-Essar.

Spice Telecom needs funds for expanding into national footprint, but growing competition and falling tariffs may derail its growth plans, while Idea Cellular wants to be present in every telecom circle in the country and Spice and Reliance Telecom comes perfectly in its scheme of things. So, if this alliance works out, it would be a win-win situation for all the 3 players leading to consolidation in GSM mobile services.