Merger creates new telco giant
Jio’s entry sparks price war in India
MUMBAI: British mobile phone giant Vodafone Group Plc will merge its Indian unit with Idea Cellular Ltd to create India’s largest telecoms operator, as they combine to fight a price war sparked by the country’s richest man.
The confirmation ended months of speculation that the two operators were ready to sign a deal to help fend off the Mukesh Ambani-backed Reliance Jio Infocomm Ltd, whose recent arrival has shaken up India’s ultra-competitive mobile network market.
“Vodafone Group Plc and Idea Cellular Ltd 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% customer market share and 41% revenue market share,” the statement added.
Jio 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, forcing rivals to dramatically slash their tariffs.
It also left competitors scrambling to match the deep pockets of Jio, which is backed by India’s hugely wealthy energyto-chemicals conglomerate Reliance Industries Ltd, and caused a rush towards consolidation in the multi-billion-dollar sector.
The combined Vodafone-Idea company will overtake Bharti Airtel Ltd as India’s largest network provider.
Shares in Idea initially soared following the announcement but then tanked to close down more than 9%, with reports saying investors were worried the deal undervalued Idea.
Vodafone will hold 45.1% of the merged entity after it transfers a 4.9% stake to Idea backers for 39 billion rupees ($579 million) in cash.
Idea will hold 26% in the combined company and the merger will take up to two years to complete. The agreement excludes Vodafone’s 42% stake in Indus Towers, a joint venture between the British group, a unit of Bharti Airtel and Idea.
The merged firm will be worth $23.2 billion, based on the combined enterprise value of $12.4 billion for Vodafone India and $10.8 billion for Idea Cellular, according to Bloomberg News.
The companies will nominate three directors each, according to the statement.
Global brokerage firm CLSA has estimated that the tie-up would command a revenue market share of 43% by the start of the 2019-20 financial year, ahead of Airtel on 33%. Jio would have 13%.
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 told AFP.
The announcement is the latest move towards consolidation as telecom companies in India scramble to shore up their status or cut their losses and run in the face of Jio’s price war.
Norwegian multinational Telenor ASA announced last month that it was selling up to Airtel, saying the amount of money needed to be competitive in the multibillion-dollar sector would not offer an acceptable level of return.
The withdrawal came after Videocon Telecom told subscribers in January that it planned to cease operations and pull
out of the market. Aircel and Mobile TeleSystems (MTS) have sold up since the beginning of 2016.
Reliance Communications Ltd (Rel Comm) — owned by Ambani’s younger brother Anil Ambani — purchased Russian conglomerate Sistema’s Indian telecoms business, branded MTS, last year and is in talks with Tata Teleservices Ltd to join forces.
There were a dozen telecoms companies battling for Indian customers in 2010 but industry watchers say they expect that soon there will be only four ventures.