Telecom Department Clears Vodafone-Idea Merger With Riders

The telecom ministry today approved the merger of Vodafone India and Idea Cellular Ltd. that will create the country’s largest mobile services operator, an official source said.

The Department of Telecom has cleared the Vodafone-Idea merger today, but both companies will have to meet conditions for final approval, the official told PTI.

The department has asked Idea Cellular to pay Rs 3,926 crore in cash for Vodafone spectrum and furnish a bank guarantee of Rs 3,342 crore, the source further said.

The combined operations of Idea and Vodafone will create the country’s largest telecom operator worth over $23 billion (or over Rs 1.5 lakh crore), with a 35 percent market share and a subscriber base of around 430 million.

The merger is expected to provide a breather to the two debt-ridden firms from cut-throat competition in the market where margins have hit rock bottom with free voice calls. The combined entity will have the capacity to provide 4G spectrum in all telecom circles.

According to a presentation by Idea, the combined 4G spectrum of both the companies are capable of offering up to 450 megabit per second broadband speed on mobile phones in 12 Indian markets.

With the new entity coming into force, Bharti Airtel will lose the tag of India’s biggest telecom service provider to the new entity which is proposed to be called Vodafone Idea Ltd. The combined debt of both the companies is estimated to be around Rs 1.15 lakh crore.

Vodafone will own 45.1 percent stake in the combined entity, while Kumar Mangalam Birla-led Aditya Birla Group and Idea shareholders would have 26 percent and 28.9 percent, respectively. The Aditya Birla Group has the right to acquire up to a 9.5 percent additional stake from Vodafone under an agreed mechanism with a view to equalising the shareholdings over time

If Vodafone and the Aditya Birla Group's shareholdings in the combined company are not equal after four years, Vodafone will sell down shares in the combined company to equalise its shareholding to that of the Aditya Birla Group over the following five-year period.

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.

Kumar Mangalam Birla is proposed to be the non-executive chairman of the merged entity and Balesh Sharma new CEO. Idea’s Chief Financial Officer Akshaya Moondra will head the financial operations of the new entity as its CFO. Ambrish Jain, currently the deputy managing director at Idea Cellular, is set to become the new chief operating officer.

Vodafone Idea Ltd. will hold 1,850 MHz of spectrum, which included 1,645 MHz of liberalised spectrum acquired through auctions. It will be capable of building substantial mobile data capacity, utilising the largest broadband spectrum portfolio with 34 blocks of 3G spectrum and 129 blocks 4G carriers across the country.

The amalgamation will also result in capex synergies, since it will eliminate the duplication of spectrum capacity and infrastructure related requirements.

Idea and Vodafone are separately paying rental for 6,300 mobile sites which will be synced for merged entity in two years.