Idea Gets Spiced Up

Aditya Rao

Indian telecom circles have for long known that at one point or another Spice Telecom would eventually be bought by the Idea Cellular group. This week it finally happened with BK Modi finally deciding to part with his stake of almost 41% in the company to the Aditya Birla group run Idea Cellular.

Modi was very clear that he would indeed sell his stake in a company he drove to expansion and profits. Few can blame him simply because as big as it has gotten, Spice has over the past two years faced severe losses largely caused by the big juggernauts of Vodafone and Airtel marching on into the country.

It was simply a case of Idea offering a good price for Spice and when they finally agreed to pay a little less than seventy eight rupees a share; Spice agreed to make the sale.

From an expansion point of view, Idea has gained quite a bit. Firstly it has finally managed to enter into the country’s highly profitable Karnataka telecom circle where it had absolutely little presence earlier and at the same time has consolidated its position in the Punjab telecom circle. These two being Spice’s areas of operation.

Secondly, Idea has gained Spice’s entire consuming population of 4.8 million subscribers.

But to assume that Idea will have it easy is too far fetched at this point. Even in Karnataka and Punjab people have been opting to switch from Spice to Airtel and Vodafone. This is largely due to Spice’s often complicated tariffs and plans in addition to a customer relations system that is not very strong. Spice has also been unable to build crucial partnerships with telephone manufacturers like Nokia and Sony instead opting to market their own mobiles to customers.

The result has been a significant loss of revenue. What Idea will be happy about however is that by managing to buy Spice they have not only entered the profitable circles of Karnataka and Punjab but have also managed to become India’s fifth largest telecom and cellular operator.

So if Idea is able to erase the losses acquired by Spice, there is a huge possibility for them to expand simply because Spice’s core infrastructure is still around and is very strong. This is perhaps a sign as to why they have been able to stay in business for so long.

Idea will also have to deal with the other partner in Spice. The Malaysian company Telecom Malaysia whose 39.8% is currently being negotiated into a 20% holding for them in Idea Cellular.

Idea will try to simplify Spice’s tariffs and launch an advertising campaign to attract their lost consumers once more. For Idea, the acquisition of Spice is an important one and necessary in order to take down the market leaders – Vodafone and Airtel. Even though it may take quite some time, Idea can take heart from the fact that India is poised to be the world’s biggest mobile market in the next few years.

Simply for that it should satisfy Idea that they spent almost Three Thousand And Eight Hundred Crores to buy Spice.