Vodafone India, Idea to merge into India's top cellco

The combined company will have around almost 400 million subscribers and is expected to have a revenue market share of around 40%, propelling it ahead of current market leader Bharti Airtel.

Undercutting rivals in such a competitive markets left few options but to cut costs through mergers, with Bharti Airtel - the country's largest telecoms operator - having also recently agreed to buy Norwegian firm Telenor's Indian arm.

The merger excludes Vodafone's 42 per cent stake in Indus Towers and will be effected through issuing new shares in Idea to Vodafone, which will result in Vodafone deconsolidating Vodafone India.

Vodafone India and Aditya Birla Group-promoted Idea Cellular on Monday announced their much-awaited amalgamation, with Kumar Birla as the Chairman of the merged entity.

Once considered as an incumbent's game, India's telecom sector has been roiled by the entry of Reliance Jio Infocomm's 4G mobile broadband network a year ago, bankrolled by Mukesh Ambani, the country's richest man.

Vodafone will own 45.1 per cent of the merged entity, after it transfers about 4.9 per cent to promoters of Idea and/or their affiliates for Rs3,874 crore in cash, Idea said.

"The merger pegs implied enterprise valuation of Rs 82,800 crore ($ 12.4 billion) for Vodafone India and Rs 72,200 crore ($ 10.8 billion) for Idea", according to an exchange filing by Idea.

The strategy behind the Vodafone-Idea Cellular merger is for the two companies to fill in the blanks in each other's networks so that villages, towns and cities across India can access the best in 4G, said Vodafone Group CEO Vittorio Colao in a statement. "Both Vodafone and the Aditya Birla Group will jointly agree on the appointment of the Chief Executive Officer and the Chief Operating Officer", the release said.

Although there is some hope that those customers who took up Joi's free offers as a second SIM but kept existing contracts will revert back to Vodafone and Idea, Wilson points out that the six months from April 1 will be "highly instructive".

The capital expenditure synergies are expected to reach Rs 14,000 crore on an annual basis by the fourth full year post completion.

In India's relatively untapped market, "carriers are jostling to get into position to sell lucrative data plans to potentially hundreds of millions of future smartphone owners", MarketWatch said.

The company has been embroiled in a long standing tax dispute of over $2 billion that remains the subject of global arbitration.

The tie-up is largely considered a reaction to the launch of Mukesh Ambania's Reliance Jio.

  • Zachary Reyes