Vodafone, Idea Cellular to merge, set to become India's largest telecom operator

The confirmation ended months of speculation that the two operators were ready to sign a deal to help fend off Reliance Jio, whose recent arrival has shaken up India's ultra-competitive mobile network market. Here are 5 things you need to know.

Vodafone, the world's second-largest cellphone operator, had previously sought to leave joint ventures it did not control but Chief Executive Vittorio Colao said the group had to be realistic in such a challenging market. The merger will come into effect after new shares are issued in Idea to Vodafone and would result in Vodafone deconsolidating Vodafone India.

Cellular body COAI today termed the merger of Idea Cellular and Vodafone India as a "bold" move and said the combined stronger entity will be beneficial to both government and consumers of the Indian telecom market.

The Aditya Birla Group will have the sole right to appoint the Chairman (as one of its three directors), who will be Mr Kumar Mangalam Birla.

The report also stated that the combined value of the enterprise will be about $23.7 billion; $12.6 billion (INR 828,000 crore) for Vodafone and $11.04 billion (INR722,000 crore) for Idea Cellular.

Both Idea Cellular and Vodafone India are present in all 22 telecom circles in India and have 4G connectivity in 17 circles.

Launched in September by Reliance Industries, India's leading private conglomerate, Jio has notched up a 100-million subscriber base on the back of its free voice and dramatically cheaper data service plans.

Vodafone will hold 45 percent in the combined entity, Idea promoters 26 percent, and the rest by the public.

A broader tie-up with Liberty Global remains the best option for Vodafone to address challenges including the price war in India, competition in the Netherlands and Italy and regulations in Germany, Beyazian wrote in a note, referring to on-again-off-again talks for a broader asset swap.

"I am pleased and honoured to be the Chairman of the new company", Kumar Mangalam Birla said on Monday after Vodafone India-IDEA merger.

The merger is expected to close during 2018, subject to approvals, and add to Vodafone's cash flow from its first full year following completion.

Until equalisation is achieved, the voting rights of the additional shares held by Vodafone will be restricted and votes will be exercised jointly under the terms of the shareholders' agreement.

Vodafone will have its nominee as the chief financial officer.

"While there are many regulatory hurdles for the merger, it would nevertheless create a strong player in the industry", he said. Vodafone India is a wholly owned unit of Vodafone.

  • Zachary Reyes