Vodafone and Idea Cellular today formally announced the much-anticipated merger, upping the stakes in the Indian telecom market. The merged entity will be the largest telecom company in India with 395 million customers and Rs 80,000 crore in revenue, according to moneycontrol.com.
Prior to the merger Vodafone and Idea were the second and third largest telecom players respectively, while Bharti Airtel was number one. The combined market share of 43% – Vodafone has 23% and Idea 19%- will catapult the new company to around 10 percentage points higher than Bharti. In addition, the base share will exceed the limit of 50 percent in at least nine circles.
As per India Ratings, the merged entity will reduce its operational cost by eliminating the duplication of spectrum and infrastructure capex. The merger is also expected to improve the combined earnings of both companies due to cost savings, mainly on network and marketing expenses, according to a Fitch Ratings report.
“The combined entity will also have a more balanced subscriber mix, as Vodafone is strong in urban areas whereas Idea focuses more on the rural mass market,” the report said. With 205 million Vodafone users and 190 million Idea Cellular users this new entity will have a subscriber base close to around 395 million.
Mergers and Acquisitions in the Indian telecom sector have gained pace due to the entry of Reliance Jio’s 4g services. Reliance’s investment of $25 billion and an offer of free voice and data service for six months has disrupted the pricing structure in the telecom sector. It also accelerated the pace of industry consolidation and led to the exit of many small players.
Apart from the Vodafone-Idea merger, Bharti Airtel recently acquired Telenor and Reliance Communication joined forces with Aircel and is now in talks with Tata Teleservices as well.
Vodafone will own 45.1% of the new company after transferring a stake of 4.9% to the promoters of Idea and their affiliates for Rs Rs 3,874 crore in cash. The promoters of Idea will hold 26% of the company and the balance will be held by the public, according to a notification sent to the stock exchanges.
The merger is expected to be completed this year.
Disclosure: Reliance Industries, which owns Reliance Jio, also owns Network18, which is the parent of News18.