Idea and Vodafone are a step closer to becoming India’s largest telecom operator
- The Department of Telecommunications has allowed the raising of the FDI limit in
Ideafrom 67.5% to 100%.
- This paves the way for the merger of Idea and
Vodafone, creating India’s largest telecomoperator with over 430 million subscribers.
- Prior to the final greenlight, however, the DoT needs Vodafone and Idea to clear around ₹57 billion in one-time spectrum charges.
AdvertisementIndia’s telecom market is all set for another disruption. The Department of Telecommunications (DoT) has approved a 100% foreign direct investment (FDI) into the homegrown Idea Cellular, paving the way for its merger with Vodafone’s Indian subsidiary. The merger was first announced in March 2017.
The combined entity - Vodafone Idea Limited - will become India’s largest telecom operator, by market share and subscribers, unseating
Up until now, Idea had a FDI limit of 67.5%. The limit had to be raised to 100% in order for the merger to go through. This also includes the complete foreign ownership of Idea’s subsidiaries - Idea Cellular Infrastructure Services and Aditya Birla Telecom.
Vodafone will own a 45% stake in the combined entity. Meanwhile Idea’s shareholders will take a 29% stake and Aditya Birla Group, Idea’s parent, will own 26%. The company will be run by Balesh Sharma, the current chief operating officer of Vodafone India.
The Idea-Vodafone merger comes amid a wider trend towards consolidation in the telecom sector. Bharti Airtel is in the process of purchasing the Indian operations of Telenor.
One last approval
However, before all this can go through, DoT needs Vodafone and Idea to clear around ₹57 billion in one-time spectrum charges (OTSC). As per the mergers and acquisitions policy for the telecom sector, all spectrum dues need to be cleared ahead of a merger. The companies might be able to challenge this in court, but will still need to provide a bank guarantee to get the DoT’s approval.
The merger is slated for completion within the next few months. The managing board of Idea has called for a meeting later in June to consider all the requirements for the merger, including the name change and a proposal to raise ₹150 billion worth of debt capital.
Despite its large size, it won’t exactly be smooth sailing for the combined entity. Domestic rivals Airtel and Reliance
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