Merger talks between Vodafone and Idea Cellular

There are merger talks going in the market of cellular communication. Recently, Vodafone Plc. has confirmed that there may be a potential merger of its Indian unit with the Aditya Birla Group's subsidiary Idea Cellular Ltd. to create the country's largest service operator.

There was also a statement issued by Idea Cellular Ltd. on Indian stock exchanges soon after, confirming that the two telecom operators were engaged in preliminary talks.

According to the statement issued, any merger if it takes place would be based on the equal rights between the two entities.

If the merger takes place then, the merged entity will become the country's largest telecom operator holding around 1,120 megahertz of spectrum across the five brands.

But first of all, this possible merger will need to be approved by the Department of Telecommunication (DoT) and Telecom Regulatory Authority of India (TRAI).

According to the merger and acquisition guidelines in telecom state, the merger is allowed only if the adjusted gross revenue percentage and the subscriber base of the merger entity do not command more than 50 percent of the market shares in the particular circle. It also specifies that the combined entity should not hold more than 50 percent of the spectrum in each circle. Similarly, there is a cap on the total spectrum held by the merged entity, which has to be more than 25 percent of the entire spectrum available in the country.

  

The merged entity will have excessive spectrum in the five circles i.e. Maharashtra, Gujarat, Kerala, Haryana, and Uttar Pradesh (West), which means that the excess holding will have to be paired, for the regulators to approve this deal. The brokerage houses which have been coming out with reports on the potential merger for some time now have to come out with some different options. 

CLSA in its report dated January 17, 2017, had valued the total excess spectrum at Rs 5,400 crore. ICICI Securities, which also came out with a report on January 23, 2017, have said that it would be difficult for the merged entity to sell the excess spectrum held in the 900 MHz band, which in turn would mean that it “had to be returned to the government without any refund.”

The aggregate revenue market share of the entity will also breach the 50 percent capital in seven circles - Mumbai, Maharashtra, Gujarat, Kerala, Haryana, Uttar Pradesh (West). The combined aggregate revenue market share stands at exactly 50 percent, as of September 30, 2016.

The merged entity will be the market leader in 12 out of the present 22 circles. The subscriber as per the database as of October 2016 suggests that the subscriber capital would be breached in five circles - Maharashtra, Gujarat, Kerala, Haryana and Uttar Pradesh (West). The combined consumer base of the two telecom operators stands at 380.7 million as of October 31, 2016, with a market share of around 43 percent.

Among other challenges for the merger are operational and management control of the merged entity, along with the outstanding tax matter of Vodafone, it noted.

And as said this news is just in the wind, the merger is not confirmed yet by both the entities.