By Prarthana Mitra
The National Company Law Tribunal (NCLT) on Friday gave the final approval for the merger between Idea and Vodafone to form India’s largest telecom service provider Vodafone Idea Ltd. The companies made a joint press statement saying, “Both Vodafone and Idea brands, which have strong consumer affinity across metro, urban, rural and deep interior markets, will continue to operate.”
How it all began
The final approval came within two months of the June 30 deadline for the two companies to finalise the deal. During a visit to India last month, Vodafone Group CEO Vittorio Colao had said he expected the merger to close in August.
The proposed merger was announced in March last year and is now expected to narrow the playing field to three competitors. With mobile data usage in India at its peak and expected to double, Vodafone Idea has already displaced Bharti Airtel as the leading telecom service provider for the first time in two decades.
The two operators had planned to join hands especially because they were losing their ground rapidly after Mukesh Ambani-led Reliance Jio Infocomm Ltd disrupted the telecom sector two years ago.
The dotted I’s and crossed T’s
Aditya Birla Group, the promoter of Idea Cellular, will own 26.1 percent along with an additional purchase of 4.8 percent stake from Vodafone Plc. Vodafone Plc. will hold 45.2 percent stake in the company with an option to sell 0.2 percent of its stake in the open market. The public shareholders of erstwhile Idea Cellular will retain 28.7 percent stake in the merged entity.
The deal excludes Vodafone’s 42 percent stake in Indus Towers but includes Idea Cellular’s 11.15 percent holding in India’s largest telecom infrastructure provider, which will add value to the service provided by the merged provider.
With the merger, Vodafone Idea now has more than the largest market share in terms of subscribers and revenue. With 408 million subscribers, a broadband network of 340,000 sites and a distribution reach with 1.7 million retail outlets, both companies stand to benefit immensely from the deal, as evinced by the joint statement made on Friday.
Kumar Mangalam Birla will head the merged company as the non-executive chairman of a 12-member board. “Today, we have created India’s leading telecom operator,” the chairman of the Aditya Birla Group said. “This is much more than just about creating a large business. It is about our vision of empowering and enabling a New India and meeting the aspirations of the youth of our country,” he added.
Vodafone Idea Ltd will be headed by its chief executive officer Balesh Sharma, who said that the company is now equipped with the scale and resources to ensure sustainable customer choice and introduce new technologies.
“The merged entity should clock as much as $10 billion in savings over time, making it a more potent rival for Bharti Airtel and Jio, according to analysts. “The market and customers will now see how the new company deploys and catches up with its 4G rollout, in which it has been a laggard,” ex-Bharti Airtel CEO Sanjay Kapoor told The Economic Times.
Commenting on the increasing monopolisation of the telecom industry, Mahesh Uppal of ComsFirst Consultancy told LiveMint, “If RJio was to crash prices further in the coming days, others including Vodafone Idea Ltd will have to follow suit to remain competitive. So, there isn’t going to be a major differentiation in terms of prices. However, the situation is of concern from the perspective of competition, as from a situation where we had too many players, we now have too few.”
On top of expanding and improving telecom service in India, Vodafone-Idea’s investments will also help the merged company match the data capacities of its rivals in a billion-strong market. The merged entity will have net debt to the tune of ₹1.09 trillion, according to reports.
Prarthana Mitra is a staff writer at Qrius.
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