DoT gives a conditional nod to Vodafone-Idea Cellular merger

Vodafone Idea is on its way to becoming the largest telecom operator in India as the Department of Telecommunications (DoT) on Monday gave a conditional nod to the merger between the second- and the third- largest telcos in the country.

UK-headquartered telecom major Vodafone and Kumar Mangalam Birla-controlled Idea Cellular cannot operate as one company till they pay more than Rs 72 billion to the government as one-time spectrum charges. The DoT has asked for a bank guarantee of Rs 33.42 billion from Idea Cellular, while Vodafone has to pay Rs 39.26 billion in cash in lieu of spectrum liberalisation, sources said. Idea needs to give an undertaking about fulfilling any other dues in the telecom operation.

A source said the firm was expected to deposit the cash by Friday and that Idea was preparing to give the requisite bank guarantees. Earlier, there were indications that the firms may move court to challenge the Centre’s demands. But the firms have decided to pay to prevent a delay in the merger, another source said.

The companies were hoping to complete the merger by June-end. Queries sent to Vodafone Group on their future course of action remained unanswered at the time of going to press.

DoT’s demand for one time spectrum charges in the case of Bharti Airtel-Telenor merger was dismissed by the Supreme Court, thereby making the department clear the deal without insisting on a bank guarantee from Airtel.

A DoT official said that after receiving the bank guarantee and cash, the department would give the final approval and 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.

The clearance of the merger will create a telecom behemoth in a highly competitive market where Bharti Airtel is the current leader and the latest entrant Reliance Jio is the disruptor. The merged entity, to be called Vodafone Idea, will have a revenue market share of around 37 per cent, and around 433 million subscribers.

The merger is expected to 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.

However, remaining on top for long will not be easy for the merged entity as others including Bharti Airtel and Reliance Jio are expected to continue to exert pressure on the margins. The combined debt of both the companies, estimated at around Rs 1.05 trillion, will be an added burden on the margins.

The companies had earlier this year announced a restructuring of the leadership team for the merged business that will have Kumar Mangalam Birla at the helm as non-executive chairman. Vodafone insider and current Chief Operating Officer (India) Balesh Sharma will be chief executive officer (CEO) of the merged entity.