The Department of Telecommunications (DoT) on Monday cleared the merger of Vodafone India and Idea Cellular with conditions to deposit Rs 3,911 crore as spectrum dues and a bank guarantee of Rs 2,153 crore.
The merger of Vodafone India-Idea Cellular will create the largest mobile firm surpassing Bharti Airtel and leaving the telecom market with three private players – Bharti AIrtel, Vodafone Idea, Reliance Jio and a telecom PSU BSNL/MTNL. The merger will mark the end of the consolidation spree in the telecom market where many small players had to exit because of intense competition.
The combined operations of Idea and Vodafone will create the country's largest telecom operator worth over $23 billion with a 35% market share and a subscriber base of around 430 million.
The conditional nod to the merger, subject to payment of dues, was given on Monday, a senior DoT official said.
The department had earlier decided not to take the recent Airtel-Telenor legal intervention as a benchmark to clear the current Vodafone-Idea Cellular.
DNA Money on June 26 had reported that the department is likely to raise a demand of Rs 6,500-6,800 crore from both the telecom firms.
DoT had earlier sought a legal view for raising demands. However, the companies may move court to get a stay on deposit of spectrum dues as the matter of one-time spectrum charge has already been challenged by telecom players in the court, according to sources. Airtel also recently got a stay from the Court for paying spectrum dues for its deal with Telenor India, a unit of Norway's Telenor.
Vodafone will own 45.1% stake in the combined entity, while Kumar Mangalam Birla-led Aditya Birla Group would have 26%and Idea shareholders 28.9%. Vodafone Idea will hold 1,850 MHz of spectrum, which included 1,645 MHz of liberalised spectrum acquired through auctions.
The Aditya Birla Group has the right to acquire up to a 9.5% 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.
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 MD at Idea Cellular, is set to become the new chief operating officer.
The last approval has to come from the DoT, while the rest is already in place. DoT had recently approved increase in FDI limit in Idea Cellular to 100%, from the current 67.5% from DoT.
Vodafone and Idea Cellular had announced a merger last year, following the entry of a new player Reliance Jio, which triggered a consolidation phase in the telecom industry forcing small and marginal players to exit the hyper-competitive market.
Analysts at HSBC Global Research last month said Vodafone-Idea combined entity could save $900 million in operational expenditure in the next two fiscal years, but it will take over a year to close the 4G network gap with Bharti Airtel and Reliance Jio.
"Vodafone-Idea's 4G network is likely to continue to trail Reliance Jio and Bharti Airtel, given the gap on 4G capex. Reliance Jio doubled its 4G capex in the fourth quarter of FY18 and its capex/sales is expected to remain high for some time. Full network integration (of Vodafone and Idea after the merger) may narrow this gap, but this could be 12-15 months."
About $600 million is estimated to be saved as opex in this fiscal, while another $300 million will be saved in the fiscal ending March 2020. Capital expenditure requirements and integration costs for the next four to five quarters may be covered by recent cash injections, HSBC said.
During the consolidation phase, Airtel acquired Telenor India and announced acquisition of wireless operations of Tata Group, Reliance Jio has agreed to buy wireless assets of Reliance Communications and Aircel has filed for bankruptcy
According to a PTI report, the combined 4G spectrum of both the companies is capable of offering up to 450 megabit per second broadband speed on mobile phones in 12 Indian markets.
The management structure has already been announced by the firms. The new entity is proposed to be called as Vodafone Idea. The combined debt of both the companies is estimated to be around Rs 1.15 lakh crore.
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