By Elton Gomes
The Department of Telecommunications (DoT) has approved for 100% foreign direct investment (FDI) in Idea Cellular. The move paves the way for the Idea-Vodafone merger which has been in the pipeline for a while now.
In a statement issued Monday, the telecom company said, “The FDI approval is a major milestone in the merger process of Vodafone India with Idea Cellular, and follows other statutory approvals already received from the SEBI, NSE, BSE, CCI and NCLT Mumbai and NCLT Ahmedabad,” as reported by the Economic Times.
In lieu of its vision of creating Vodafone Idea, India’s biggest telecom operator, the DoT’s approval comes at an opportune moment for both companies. Subject to a final approval from the DoT, the merger is expected to be complete within 2018 itself, according to the statement.
News agency PTI reported that Vodafone would own 45.1% of shares in the merger, whereas the Aditya Birla Group would acquire 26%. A total of 28.9% would be held by Idea shareholders. Furthermore, the combined entity will reportedly be known as Vodafone Idea Ltd. and will be India’s largest telecom operator with approximately 430 million subscribers.
Idea has called for a general meeting on June 26 to consider proposals, including changing the name of the combined entity. Additionally, the meeting might deliberate the raising of Rs 150 billion through non-convertible debentures.
On May 6, PTI reported that the DoT had sought views of the Department of Industrial Policy and Promotion (DIPP) on the proposal. Commerce minister Suresh Prabhu told PTI, “The matter is completely in the domain of the line ministry. We have already clarified. No need of our approval.”
Why does this matter
With the DoT’s approval, the stage is set for a merger between Vodafone and Idea. The merger is likely to go through and will give tough competition to other players in the already crowded Indian telecom market. Moreover, it will be interesting to see how the combined entity will counter a threat from Reliance Jio, which has captured a large part of the market share since its launch. . In the cutthroat Indian telecom market, the combined firm may set to compete by providing more affordable 4G plans. If that happens, the Indian consumer will get a range of options to choose from.
Elton Gomes is a staff writer at Qrius.
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