Vodafone (NASDAQ:VOD) and Idea (NASDAQ:IDEA) have already announced the merging of their Indian operations. While the brands confirm on co-existing, the long-pending merger has now been pushed back further!
Apparently, The government will give green-signal to the Idea-Vodafone merger immediately after the Department of Telecom (DoT) completes all statutory formalities.
According to reports from Economic Times, The Prime Minister’s Office necessitated details from the telecom department regarding the whole Idea-Vodafone India merger amid delays in deal closure. The much-publicized merger, supposed to create India’s largest telecom company, was expected to be sealed by 20th June, this year. However, the telecom department, already being a hurdle in the merger, seeks around Rs 4,700 crore from Vodafone before granting clearance. As if this doesn’t delay the whole deal much, now the Department of Telecommunications (DoT) seeks more clarifications from its legal experts on the dues to be claimed from both the telecom players, following a summon from PMO.
Idea-Vodafone Merger: The Largest Telco
In January last year, Idea confirmed that Vodafone India and Idea Cellular will be merging within two years. This deal steered that Vodafone will own 45.1 per cent while Idea will have the upper-hand at appointing the chairman of the merged entity.
This merger is highly anticipated to be the largest telco in India. Clearly, this upheaval will not only have an impact on customers in India, but also the telecom industry here.
This merger may put thousands of employees under the axe. According to sources, more than 5,000 employees could lose their jobs if the merger of Vodafone and Idea is through all the regulatory approvals.
When this merger was put forth on the table, the scenario was much in favour of the deal. As per COAI’s December 2016 data, Bharti Airtel positioned itself as the largest telecom operator in India with 265.85 million mobile subscribers. Vodafone with 204.69 million users and Idea Cellular with 190.52 million respectively, trailed behind closely. Now, with the speculated merger, if the Vodafone-Idea deal is sealed, this can mark note-worthy changes. The resultant entity can surpass Bharti Airtel to become the top-honcho of telecom operator space with a total of 395.21 million subscribers. In January, Reliance Jio announced that it has a total subscriber base of 72.4 million.
The Merger and The Challenges It Escorts!
According to a BloombergQuint report, the merged entity will have 1,120Mhz spectrum across five bands, which would rank it as the biggest holder of spectrum in India. However, staying in-boundary with TRAI rules, in order to get the deal ordained, the consolidated entity cannot have more than 50 per cent spectrum of an individual circle and more than 25 per cent of overall spectrum.
Back in 2015, when Vodafone merged its four subsidiaries Vodafone East, Vodafone South, Vodafone Cellular and Vodafone Digilink with Vodafone Mobile Services, it came into the market as Vodafone India. At this point of time, the DoT insisted on having Vodafone clear OTSC dues worth Rs 6,678 crore. After this, the company lashed back by applying in Supreme court, following which it had to pay only Rs. 2,000 crore to get the deal cleared. The DoT now wants Vodafone to clear the pending amount before it can merge Idea Cellular. An eye for an eye, they say!
Vodafone Group with 45.1 percent, and Ideas with 26 per cent will uphold the equity share capital. The remaining balance of 28.9 per cent will be held by the public shareholders.
Impact of the Merger on Telecom Industry
Strategically speaking, the merger here will definitely position itself as a formidable force in the competitive telecom industry. Having the heft and the dominance, with the bounteous subscriber base, it can finish in front, even with the likes of Bharti Airtel and Reliance Jio in the race.
Not only will it be on the heavier side with the subscriber space, in fact, in terms of revenue, markets share, spectrum hold and market capitalization, the Idea-Vodafone merger will be the largest telecom company, reducing the number of big telecom players to three.
More importantly, Idea-Vodafone together will be the highest spectrum holder of all the 3 telecom companies. With Bharti and Jio holding 1403 MHz and 1107 MHz of spectrum respectively, the Vodafone-Idea entity will lead the pack with 1850 MHz of spectrum.
Again this deal can reduce the price war in the industry. With just 3 large players left in the telecom space, the shareholders can pocket in benefits, on account of having fewer competitors fighting for the same market.
Now confronted with the legal battle, people familiar with the development claim that, although there have been many delays as of now, Idea and Vodafone are likely to challenge any demand for dues by the department.