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Vodafone, Idea merge to create giant

Idea Cellular, the Kumar Mangalam Birla-led telecommunications major, agreed on Monday to merge with the Indian unit of the U.K.-headquartered Vodafone Plc, making it a $23 billion giant.

The merged entity becomes India’s largest mobile telephony and data service provider with 39.25 crore customers, ahead of current market leader Airtel, which has a 26.44 crore user base. Both figures are provided by the Telecom Regulatory Authority of India.

Brand strategy

A joint statement issued by Vodafone and Idea said the combined company would have a 35% customer market share and 41% revenue market share. It said that the brand strategy for the new firm “will be developed in due course” and “will leverage customers’ affinity for both existing brands, built up over the past decade.”

Kumar Mangalam Birla will be the chairperson of the merged entity. The move, though not surprising, has stoked rumours that the current tariff war, initiated by the Mukesh Ambani-led Reliance Jio’s entry into the high-speed data market in 2016, will possibly come to an end in the near future.

Rajan Mathews, director general of the Cellular Operators Association of India, said, “There is currently a tariff war in the market which may not be sustainable for long. This has also severely impacted the revenue stream of operators, not just in terms of an increase in cost but also in terms of a marked decline in the revenue stream. All these have put the financial condition of this industry at risk and increased the debt to Rs. 4.3 lakh crore, also leading to a severe decline in government revenues from the industry.”

He said that in contrast to 13 operators a few years ago, the Indian mobile telecom market is down to “four or five operators.” “Due to the poor financial health of the sector, we are witnessing mergers, acquisitions and combinations of companies like Idea and Vodafone, Aircel and R Comm and MTS. Other companies such as Videocon and Etisalat have already left the industry because of this hyper-competitive pressure,” he added.

Investment experts said the largest consolidation in the highly competitive Indian telecommunications space will test the ability of both Vodafone and Idea to jointly operate the combined entity as equal partners.

S.P. Tulsian, a leading investment adviser told the The Hindu , on Monday that even as the companies claim it is a “merger of equals”, Idea will have to buy 4.9% stake in Vodafone for Rs. 3,900 crore ($579 million) in cash when the merger completes, to increase the Aditya Birla Group stake to 26%.

“Besides, the company will have to spend another Rs. 9,000 crore to bring its stake at par with Vodafone in the combined entity. So, it’s not a merger of equals.”

In a statement on Monday, Aditya Birla Group chairperson Kumar Mangalam Birla said, “For Idea shareholders and lenders who have supported us thus far, this transaction is highly accretive, and Idea and Vodafone will together create a very valuable company given our complementary strengths.”

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