Ever since Reliance Jio entered Indian telecom field, the conventions have been changing. Indians got data and voice call at absolutely zero cost. Apparently, the ‘free’ label made Jio famous and even brought them to the 100 million subscribers club.
The growth of the newborn negatively affected other mobile networks. Almost every other telecom operator in India faced a net loss in the last quarter of 2016. And, they had to introduce new offers matching Jio’s.
In order to sustain and make the position secure, they began thinking about mergers. Idea-Vodafone India merger goes official as the first one.
Idea-Vodafone Merger Aims to Challenge Reliance Jio
The growth of Reliance Jio was quick. No one ever thought they would hit 100 million subscribers milestone so fast. As many started using Jio, almost every other telecom network saw a huge decline in their income.
Vodafone started thinking about mergers as a part of the Jio combat mission. Their obvious choice was Bharti Airtel, being the number one telecom network in India. According to telecom M&A norms, the adjusted gross revenue market share of the merged entity shouldn’t cross 50% of the total in any telecom circle. If Vodafone had joined with Airtel, they would have disobeyed this condition.
That’s how Vodafone India approached Idea Cellular for the merger. Once the merger completes by 2018, the entity will become the largest telecom network in India with close to 400 million subscribers.
Even though the rights of a merged entity remain equal to those who take part, the Idea-Vodafone India merger doesn’t seem to be one such. In the beginning, Vodafone will have 45.1 percent stake and Idea Cellular gets 26 percent. But they can increase the percentage of stakes by 9.1% (35.1 in total) later on.
Aditya Birla group gets a chance to purchase 9.1% shares at a rate of 130 INR each within three years. In case they don’t want the stakes at that price, they can opt for the market price in the fourth year.
About Rs 55200 crore debt of the Vodafone Plc gets shifted to the new entity and they get Rs 3874 crore by transferring 4.9% stakes to Idea. On the other hand, Idea can stay on top of the competition as a part of the entity, and they won’t have to spend a lot for that. Within three years, they can decide whether they want to stay committed or not.
What benefits does this merger bring to customers? Well, being the largest telecom operator, Idea-Vodafone India entity (named later) can offer better infrastructure, tariffs, and service.
Is this sufficient to beat RJio? Let’s wait and see!
Tail Bit: – Reliance communications-Aircel merger got CCI approval.