Vodafone Idea is on its way to becoming the largest telecom operator in the country, dethroning Bharti Airtel, as the Department of Telecommunications (DoT) has given its final nod to the merger.
The approval came after the companies deposited over Rs 72 billion to DoT on July 23 under protest. The firms have deposited a bank guarantee of Rs 33.22 billion for one-time spectrum charges and Rs 39.26 billion cash for liberalising spectrum up to 4.4 MHz assigned to Vodafone administratively. The firms now need to register the merged entity with the Registrar of Companies.
The new entity, to be headed by Vodafone insider and current Chief Operating Officer (India) Balesh Sharma, will have a revenue market share of about 37.4 per cent and more than 438 million subscribers. The UK-headquartered telecom major, Vodafone, had announced the merger of its India operations with Kumar Mangalam Birla-led Idea Cellular in March last year.
After the final nod, DoT will now transfer Vodafone India’s licences to Idea Cellular. The department will also start transferring Vodafone’s bank guarantees for deferred spectrum payments to Idea Cellular.
Analysts, however, feel that the new entity would be vulnerable to market share losses, given both Airtel and Reliance Jio are investing heavily in infrastructure to boost data capabilities and are may take away customers.
“According to estimates, Airtel and Reliance Jio are set to invest between Rs 3 billion and $4 billion on infrastructure, whereas the amount for Vodafone Idea could be around $2 billion for the next two years. The combined debt of Vodafone India and Idea, estimated at around Rs 1.05 trillion, will be an added burden on the margins.
Also, as per rules, the merged entity may have to reduce its market share based on adjusted gross revenues in some circles, including Haryana, Kerala, Madhya Pradesh, Maharashtra and UP (West).
The merger may give a breather to both the debt-ridden firms in a market where margins have hit rock bottom. Jio’s entry forced consolidation in the telecom sector, which used to be a seven- to eight-player market not too long ago.