The proposed merger between and is a credit positive for the telecom sector and will push the combined entity’s margins up by around 3 percentage points on cost synergies, said.

“The combined entity’s operating margins will improve by around 3 percentage points due to cost synergies in networking and selling, general and administrative expenses,” the rating outfit said in a report.

The merged company will a revenues in the Rs 77,500- 80,000 crore range and the pretax profit margins will be around 28 per cent, it said.

For the industry as a whole, even though Reliance Jio’s aggressive posturing will continue to cause troubles in the near-term, the merger is a credit positive and may help improve the return on capital employed by 3 percentage points by financial year 2019, while the total capital deployed will also rise by 90 per cent.

The merged entity’s subscriber base will be over 380 million or 37 per cent of the industry, compared to Airtel’s 262 million, while the revenue market share will be around 30 per cent as same as Airtle’s.

It will complement the circle presence of both the entities – Idea has strong presence in rural areas and Vodafone in urban centres, the report said.

The amalgamation will also result in capex synergies, since it will eliminate the duplication of spectrum capacity and infrastructure related requirements, it said.

The combined entity will breach the spectrum holding limit in five circles under the 900MHz band, one circle under the 1,800MHz band and two circles under the 2,500MHz band with the cumulative worth of around Rs 9000 crore-based on last auctioned prices, the rating company agency said.

Among other challenges for the merger are operational and management control of the merged entity, along with the outstanding tax matter of Vodafone, it noted.

The London-based Vodafone Group surprised all by confirming speculation on the merger, saying it is indeed in talks with the Aditya Birla Group entity for a merger, but added nothing has been finalised yet.

Media reports said the two parties, which are the second and the third biggest telcos at present, are looking at equal ownership in the merged entity.

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