Vodafone-Idea merger deal to conclude in Feb 2017

The Dollar Business Bureau

Vodafone and Idea, the second and third largest telecom players in the Indian market after Airtel, have decided to combat intense competition from newcomer Reliance Jio, by merging their Indian business segment. The Birla enterprise and the British telecom giant are said to finalise a merger deal by February 2017, making the combined entity the largest telecom company in India.

Vodafone has entrusted Marten Pieters, its former Chief for Indian market, with the responsibility of this ground breaking merger.

The consolidation will result into a new firm that will hold a lion's share of Telecom industry's revenue. Projections estimate 40% revenue share and 380 million subscriber base for the consolidated enterprise. India Ratings and Research, a rating agency predicts a revenue of Rs.77,500-80,000 crore for the merged company.

There are concerns regarding regulations laid out by Telecom Regulatory Authority of India (TRAI), which outline constraints on the revenue and spectrum that a telecom company can hold. The upper limit for revenue share and subscriber base is 50%. Ownership of spectrum in a particular circle is restricted to 25% while that of a certain band in a service area is limited to 50%.

The Idea-Vodafone merger is likely to force both the participants into conceding their spectrum, revenue and subscriber base partially, a step necessary to abide by Indian Telecom regulations. Airtel has indicated that it will be the beneficiary of the spectrum that will be freed post the merger.

In the 900 MHz band, Maharashtra, Gujarat, Haryana, UP West, Kerela are areas where the proposed merger will breach the spectrum cap, and in the 2500 MHz band, it is Maharashtra and Gujarat.

The merger will involve a cost of Rs.5,700 crore for the liberalisation of radio waves allocated administratively to Idea and Vodafone. The surrender of excess spectrum is likely to fetch Rs.5,400 crore to the sellers.