U.K.-based telco responds to mounting speculation as it seeks to ease pressure wrought by Jio.

Vodafone on Monday confirmed it is in talks about potentially merging its Indian business with local rival Idea Cellular.

In a brief statement, Vodafone said it is in discussions with Idea parent Aditya Birla Group about an all-share transaction with Idea.

"Any merger would be effected through the issue of new shares in Idea to Vodafone," the telco said. The deal would also see Vodafone India deconsolidated from the group.

Vodafone’s 42% stake in cell tower firm Indus Towers – a company in which Idea and rival Bharti Airtel also hold shares – would not be included in any merger with Idea, the company said.

The statement confirms mounting media speculation that Vodafone is on the hunt for a deal.

A tie-up between Idea and Vodafone would create a new market leader in India, with 387 million mobile customers, according to figures from the Telecom Regulatory Authority of India (TRAI). Current leader Bharti Airtel has 262 million.

The combined entity would likely have to divest assets, including spectrum, in order to comply with competition rules that stipulate that no single telco can have more than a 50% share of subscribers and revenue in any one telecom service area, or circle as they are called in India. Telcos are also limited to accumulating no more than 25% of available spectrum nationwide, and 50% in any one circle.

A deal would also help Vodafone and Idea ease the pressure wrought by the market’s ongoing price war.

It was sparked by Reliance Jio Infocomm, which has been offering free nationwide voice and 4G data since early September 2016, and has forced other telcos to drastically cut prices in order to remain competitive.

Jio’s rivals have also seen their points of interconnect (POIs) flooded by Jio customers availing themselves of the free calls.

Jio is expected to continue offering free voice and data until at least the end of March, after which it is rumoured to be planning to introduce a nominal monthly fee for data.