Idea and Vodafone to merge: Start of an end of tariff war?

Mumbai, March 20: Ending months of speculation, Idea Cellular Ltd., and Vodafone India announced a merger on Monday to form the largest telecommunication company in India.

A filing with the Bombay Stock Exchange (BSE) said Vodafone Group plc will hold 45 percent in the combined entity while 26 percent will be with Idea Cellular Ltd. promoters.

The combined entity will have roughly Rs 80,000 crore of annual revenues and 400 million customers. This works out to a 41 percent market share by revenues, and 35 percent market share by subscribers.
Apart from the two, Aditya Birla Group will have the right to buy 9.5 percent stake at Rs 130 per share, according to the filing.

Kumar Mangalam Birla will be the chairman of the combined entity, with the Aditya Birla Group having the sole right to appoint the Chairman as one of its three directors. Vodafone will have the sole right to appoint the Chief Financial Officer. Both Vodafone and the Aditya Birla Group will jointly appoint the CEO and Chief Operating Officer, the release by Idea says.
According to an earlier report by brokerage firm Credit Lyonnais Securities Asia (CLSA), the merged entity will have revenues of over Rs 80,000 crore.

The combined entity will have 43 percent revenue market share and a 40 percent active subscriber base.

The giants will account for over 25 percent of allocated spectrum and will have to sell about 1 percent to comply with spectrum cap norms.
It will be an all-share merger of Vodafone India (excluding Vodafone’s 42 percent stake in Indus Towers) and Idea. The merger will be effected through the issue of new shares in Idea to Vodafone and would result in Vodafone

The merger will be effected through the issue of new shares in Idea to Vodafone and would result in Vodafone do consolidating Vodafone India.

This comes as the latest entrant in the telecom sector, Reliance Jio, is fast acquiring subscribers on the back of free voice and data services under its Jio Happy New Year offer.

Last week, India’s largest telecom operator Bharti Airtel informed the bourses on Thursday that it will acquire Norwegian telecom company Telenor India’s assets.

At a public event last week, Gopal Vittal, Bharti Airtel’s Managing Director for India and South Asia said the telecom industry’s financial health was at its weakest ever with a massive debt burden that exceeded Rs 4.5 lakh crore.

Rumors of consolidation have been doing the rounds following a poor response to the spectrum sale last year which earned the government only a fraction of Rs 5.63 lakh crore it had envisaged.

Reliance Jio’s aggressive push to gain market share is also seen as a major trigger for consolidation in the sector.

On the meanwhile, the consolidation process may also result in job losses as companies cut costs. Industry body COAI expects a 30 percent reduction in jobs over the next few years.