Vodafone Group Plc., the British telecommunications giant, on Monday confirmed that it has been in talks with Aditya Birla Group for an all-share merger of its Indian unit Vodafone India with Idea Cellular, ending months of speculation about the proposed alliance.

If the talks end in a merger, the combined entity would become India’s largest telecom player, ahead of current market leader Bharti Airtel.

As a fall-out of the announcement, the shares of Idea rose 26% to ₹97.96 in a flat Mumbai market on Monday valuing the company at ₹35,279 crore.

Indus stake excluded

“Any merger would be effected through the issue of new shares in Idea to Vodafone and would result in Vodafone deconsolidating Vodafone India,” according to a statement from the British major adding that there is no certainty that any transaction will be agreed on, nor as to the terms or timing of any transaction. If the talks end in a merger, it would exclude Vodafone’s 42% stake in Indus Towers.

Kumar Mangalam Birla-led Idea Cellular, in a clarification to the stock exchanges, said, “As part of the exercise, the company has been in preliminary discussions with Vodafone. In view of the fact that the discussions are at preliminary stage, the company is not in a position to share any further details.” The statement added that it was important to mention that the fundamental premise of the preliminary discussion was based upon equal rights between Aditya Birla Group and Vodafone in the combined entity.

Amresh Nandan, research director at Gartner is not surprised by the merger talks and expects the consolidation to continue in telecom sector in 2017.

“Both Vodafone India and Idea have to figure out their long-term business strategy and, a merger could well be the path, given current industry competitiveness and dynamics. If they decide to do so, one can hope for a long-term strategy behind it (beyond) just gaining market share and subscriber share. It would be very important for the merging entities to realise the transformation required in their operations,” said Mr. Nandan adding that at this point in time in the communication industry, transforming themselves while they consolidate would be a necessary step, even though “it may not be an easy one.” Allan C. Nichols, Equity Analyst at Morningstar said he liked the idea of the merger, as there were far too many operators in the country and that this trend had prevented good returns.

“We think this merger also demonstrates the difficulty that (Reliance) Jio’s entrance has caused for the Indian wireless telecom market,” Mr. Nichols said.

“Reliance Jio has been giving its voice service away for free, as well as some free data, which has attracted millions of subscribers.”

The analyst from Morningstar added that the firm’s promotions had extended beyond the time allowed by regulations and that it had complained other operators had intentionally dropped voice call connections.

“Reliance Jio’s network is built for data and the voice problems may very well be coming from its own network,” said Mr. Nichols.