Vodafone Idea is here

Vodafone India and Idea Cellular completed their merger to create a giant telecom entity that’s in a stronger position to take on erstwhile leader Bharti Airtel and Reliance Jio Infocomm, having garnered the most subscribers and the biggest chunk of revenue.

“Today, we have created India’s leading telecom operator… As Vodafone Idea, we are partnering in this initiative by building a formidable company of international repute, scale and standards,” Kumar Mangalam Birla, chairman of the new company.

The combined entity has 408 million active subscribers and a revenue market share of 32.2%. Shares of Idea Cellular, to be renamed Vodafone Idea Ltd., dropped 0.7% to ₹49.50 at the close on the BSE.

The largest merger in the sector leaves three major private telcos and state-run Bharat Sanchar Nigam to battle it out for over a billion subscribers.

Demand for data is surging in India amid rock-bottom tariffs as the country progresses to the 4G mobile standard from 3G and smartphones become more affordable.

UK-based Vodafone Group owns a 45.2% stake in the joint entity while Aditya Birla Group has a 26% stake, although both partners have equal rights. The shareholding of both parties will be equalised over the next few years. Vodafone Idea’s board has 12 directors — three each nominated by the two partners and six independent directors — which met on Friday morning.

Vodafone Idea will be headed by Balesh Sharma as chief executive officer, who said the “company has the scale and resources to ensure sustainable customer choice and introduce new technologies”.

He added that the new team will cater to both retail and enterprise customers with “new products, services and solutions”.

The Vodafone and Idea brands will continue to operate separately.

The merger between the telcos, which had struggled individually in the face of a pricing onslaught by Jio, has been in the making for over a year and received final approval from the National Company Law Tribunal on Thursday.

The new company will start with revenue of ₹53,500 crore and a net loss of ₹12,300 crore for fiscal 2019, according to Deutsche Bank. It added that comparatively, Airtel’s mobile revenue is expected at ₹43,400 crore and Jio’s at ₹35,600 crore.

The two companies had a combined debt of ₹1.09 lakh crore at the end of June, but will start with a cash balance of ₹19,300 crore after equity infusion by the parents of both telcos and the sale of their standalone towers. The new company has the option to sell its 11.15% stake in Indus Towers, which would equate to ₹5,100 crore in cash, the companies said.

“The merger is expected to generate ₹14,000 crore annual synergy, including opex synergies of ₹8,400 crore, equivalent to a net present value of approximately ₹70,000 crore,” the companies said.

Some analysts were sceptical about the future of the new company, saying the main issue is not capital or cost reduction but revenue recovery, which is difficult with Jio unlikely to ease up on price competition.

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