New Delhi: Telecom operator Vodafone on Monday confirmed to moneycontrol.com that it is in exploratory discussions with the Aditya Birla Group's telecom arm Idea Cellular for a merger.
The landmark merger, if it goes through, will create India's largest telecom company with revenues of over Rs 80,000 crore. It is expected to take on the likes of market leader Bharti Airtel and Reliance Jio.
Vodafone Group Plc said that any merger would be effected through issue of new shares in Idea to Vodafone which will result in deconsolidation of Vodafone India. CNBC-TV18 had in August reported that the two telecom players are in exploratory talks for a possible merger.
The latest entrant in the telecom sector, Reliance Jio, is fast acquiring subscribers on the back of free voice and data services under its Happy New Year offer. Reliance Industries’ telecom subsidiary Jio acquired 72.4 million subscribers in the four months of commencement of services.
Nitin Soni, Director-Asia Pacific — technology, media and telecommunications — at Fitch Ratings, told CNBC-TV18 that there is a high possibility of a Vodafone-Idea merger over the medium-long term. In case of a successful merger, both companies will stand to benefit from lower cost of operations, he added. While Vodafone has a stronger base in metros, greater rural focus is Idea’s game.Also Read: Idea Cellular Jumps 26 Per Cent on Merger Talks With Vodafone
Regulatory challenges There are, however, regulatory hurdles on the mergers and acquisitions front that await Vodafone and Idea Cellular. M&A norms mandate that revenue market share of the merged entity should not exceed 50 percent in any circle.
Also, the rules dictate that spectrum holding shouldn’t exceed 25 percent across all bands and 50 percent in each band individually. Experts see a spectrum cap breach in at least 5 circles in the 900 MHz band. Besides, revenue market share of the merged entity will overshoot the 50 percent threshold in six circles.
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