Make Way for New Telco Giant Vodafone Idea as DoT Approves Merger


Vodafone Idea will be the largest telecom company in India with over 430 million subscribers and will remove Airtel from the top position

Vodafone, Vodafone India, Idea Cellular, Vodafone Idea merger, Vodafone Idea merge, Vodafone debt charges
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Vodafone India and Idea Cellular have got conditional approval from the Department of Telecommunications (DoT) today to take their merge ahead as ‘Vodafone Idea’. The merge that was announced by the two telco giants in March 2018 can be finally cleared only after both the companies meet certain conditions.

Vodafone needs to pay debts for its one-time spectrum charges

DoT has asked Vodafone to make a payment of Rs 3,926 crore in cash for its one-time spectrum charges. However, based on merger and acquisition rules, the debt charges can be paid by either Vodafone or Idea. Also, Idea Cellular must prepare a combined bank guarantee of Rs 3,342 crore as well.

Once the merge is finally given a green signal, the combined entity will become the largest telecom company in India with 430 million mobile subscribers and a value of more than Rs 1.5 lakh crore (US$ 23 billion). The entity will hold 35 per cent revenue market share and the customer market share is expected to be 42 per cent.

Furthermore, Vodafone Idea – the combined entity, will also own 1,850 MHz of the spectrum of which 1,645 MHz of liberalised spectrum has been obtained through auctions. The entity will have the ability to build substantial mobile data capacity, utilising the largest broadband spectrum portfolio with 34 blocks of 3G spectrum and 129 blocks of 4G carriers across the country. The merger will also make way for capex synergies since it will eliminate the duplication of spectrum capacity and infrastructure related requirements. Also, the 6,300 mobile sites for which Vodafone and Idea are paying rental separately will also be synced for the merge in two years.

4G spectrum in all telecom circles of India

In the competition-hit telecom market, it is highly probable that the merge will offer some form of relief to both the telco giants who are also debt-ridden. Also, according to a presentation by Idea Cellular, the 4G spectrum of both the companies can provide up to 450 megabits per second broadband speed on mobile phones in 12 Indian industries.

Largest Telecom Company in India

The combined entity of Vodafone and Idea Cellular will push Bharti Airtel to take the second stage of the largest telecom company in the country. It is expected that Vodafone will own 45.1 per cent of the stakes whereas Aditya-Birla Group and Idea Shareholder will own 26 per cent and 28.9 per cent, respectively.

Under an agreed mechanism with the intention to equalise shares in the combined entity over time, Aditya Birla Group can obtain up to 9.5 per cent additional stake from Vodafone. In fact, it is required of both the companies to have equal stakes in the combined entity, therefore in four years, if the shares are still unequal then Vodafone needs to sell down its shares in the merged firm to equalise the shareholding over the following five-year period.

Until equalisation, no voting rights of additional shares by Vodafone

Till the time equalisation of shareholding is attained, the voting rights of the additional shares owned by Vodafone will be restricted and votes will be conducted jointly under the terms of the shareholders’ agreement. Kumar Mangalam Birla is set to become the new non-executive chairman of the combined entity and Balesh Sharma will be the new chief executive officer (CEO). Akshaya Moondra, the financial officer of Idea will lead the financial operations of the merged company as its chief financial officer (CFO). The current deputy MD of Idea, Ambrish Jain will become the new chief operating officer (COO).