Ending months of speculation, Vodafone on Monday confirmed it's in talks with the Aditya Vikram Birla group for the merger of its Indian entity and Idea Cellular in what will be the largest such deal in the country's telecom space once it materialises.

The merger will create an entity with a subscriber base of more than 400 million to emerge as the largest player in India, replacing the current dominant player Bharti Airtel, which currently has over 260 million users on its network.

"Vodafone confirms that it is in discussions with the Aditya Birla Group about an all share merger of Vodafone India -- excluding Vodafone's 42 per cent stake in Indus Towers -- and Idea," the Indian entity's parent company said in a statement.

"Any merger would be effected through the issue of new shares in Idea to Vodafone and would result in Vodafone deconsolidating Vodafone India."

Vodafone India has over 200 million subscribers, with a presence in all the 22 circles the country has been divided into. It intends to have 4G services in 17 circles, covering 2,400 towns, by the end of this fiscal.

Idea, on the other hand, says it has a similar subscriber base, also with a presence in all the 22 circles. It intends to have 4G services in 20 circles by March 2017.

Industry speculation over a possible merger has been doing the rounds for nearly a year and intensified after Reliance Jio entered the market with its mega voice and data offer, with an announcement that voice will be free on its network for life.

But the Aditya Vikram Birla Group had scoffed at media reports suggesting merger talks in their regulatory filings with the stock exchanges, though analysts found a lot of synergies in such a move.

Earlier this month, JP Morgan had spoken about the merits of such a merger. 

"This could unlock more than $9 billion in potential synergies and offer an elegant route to deconsolidating India, thereby helping focus (Vodafone's) attention back onto a rebounding European equity story," the top investment banker said. 

As regards Idea, it said, in the migration towards free voice regime, the company stands to be the most vulnerable. Idea has a higher share of rural and semi-urban subscribers, who are not as data-hungry as the creamy users in metros and cities, where it has a relatively limited presence.

Analysts also maintained that the initial public offering by Vodafone India did not make sense.

"We believe an elegant alternative would be for Vodafone to reverse merge into locally listed peer Idea (a deal that offers Idea a solution to their mounting balance sheet challenges)," JM Morgan said.