Vodafone’s India merger will put UK firm in pole position

The British multinational's India unit is to join up with Idea Cellular in a move that will create the subcontinent's largest telecoms operator with 400 million customers.

A Vodafone store in London, Britain. The Indian mobile network operator Idea Cellular will merge with Vodafone India within two years. Andy Rain / EPA
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The British mobile phone multinational Vodafone’s Indian unit will merge with Idea Cellular to create India’s largest telecoms operator, the firms said on Monday, as they combine to fight the rise of Reliance Jio.

“Vodafone Group and Idea Cellular today announced that they have reached an agreement to combine their operations in India,” they said in a statement to the Bombay Stock Exchange (BSE).

“The combined company would become the leading communications provider in India with almost 400 million customers, 35 per cent customer market share and 41 per cent revenue market share,” the statement added.

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

Reliance Jio is owned by India’s richest man Mukesh Ambani and has sparked a rush towards consolidation in the market since starting operations last year.

The 4G Jio network launched in September with an audacious free service for the rest of 2016, followed by vastly cheaper data plans and free voice calls for life.

It forced rivals to dramatically slash their tariffs and left them scrambling to match the deep pockets of Jio, which is backed by India’s hugely wealthy energy-to-chemicals conglomerate Reliance Industries.

Shares in Idea rose almost 4 per cent in Mumbai following announcement of the deal, which will see the combined company overtake Bharti Airtel as India’s largest telecoms operator.

Vodafone will hold 45.1 per cent of the merged entity after it transfers a 4.9 per cent stake to Idea backers for US$579 million in cash.

Idea will hold 26 per cent in the combined company and the merger will take up two two years to complete. The agreement excludes Vodafone’s 42 per cent stake in Indus Towers.

The merged firm will be worth $23.2 billion, based on the combined enterprise value of $12.4bn for Vodafone India and $10.8bn for Idea Cellular, according to Bloomberg News.

The companies will be able to nominate three directors each, the statement said.

The global brokerage firm CLSA has estimated that the Vodafone-Idea tie-up would command a revenue market share of 43 per cent by the start of the 2019-20 financial year, ahead of Airtel on 33 per cent. Jio would have 13 per cent.

The Indian telecoms analyst Baburajan Kizhakedath said the two companies would make savings by merging but would come under pressure to reduce tariffs.

“The merged entity will not be able to withstand pressure from Jio because both Vodafone and Idea Cellular are not seen as aggressive as Jio and Bharti Airtel,” he said.



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