All You Need to Know About the Vodafone India and Idea Merger

All You Need to Know About the Vodafone India and Idea Merger
Karan Singh
| Updated: Aug 05, 2021 | Category: Mergers and Acquisitions

It has been proved that Mergers and Acquisitions is an effective tool for the objective of corporate reorganising activities. The telecommunication business is one of the most beneficial and quickly developing industries. The second-largest telecommunication industry in the world is the Indian Telecommunications Industry. Mergers in the Indian telecom enterprise are not rare. The merger experience has developed and increased in the industry since the last few decades. The most famous mergers seen in the telecom industry are Idea and Spice Telecom, Reliance and Aircel, Vodafone and Hutchison Essar, etc. In 2017, Idea and Vodafone India announced that they had received consents from their respective boards for a Vodafone India and Idea Merger. It was the creation of the largest telecom company in India, beating Reliance Jio and Bharti Airtel. Scroll down to check more information regarding the Vodafone India and Idea Merger.

What is the Reason for the Vodafone India and Idea Merger?

With the Vodafone India and Idea Merger, the two companies have increased enormously. It was a recumbent merger amongst the two most prominent players in the telecom industry. This Vodafone India and Idea Merger deal was worth $23 billion. The foundation behind the Vodafone India & Idea Merger, when both these companies were doing great individually, is explained below:

Reason for the Vodafone India and Idea Merger
  • Market Domination
    1. Individually, the market share of Idea and Vodafone India was very low as compared to Bharti Airtel and the current entry of Reliance Jio. Reliance Jio took the telecommunication industry by storm;
    2. The combined company would gain around 400 million subscribers, a client market share of 35%, and a revenue market share of 40%.
  • Synergy Benefits
    1. Both the entities had said in their statement that the synergy would be very cost-effective. The measured savings yearly would go up to Rs. 14000 crores. The savings would be in the shape of both capital expenditure and operating costs;
    2. Earnings before depreciation, amortisation, tax, and interest of both the companies were nearby the margin of 30%. It was relatively lower than that of Bharti Airtel & Reliance Jio Infocomm Ltd.
  • Spectrum Share
    1. The companies’ amalgamation would give, it was expected, the merged company hold of 728 Mhz, increasing the chances of the merged entity to rank one or two in India;
    2. Idea and Vodafone had separate spectrum holdings of 316 MHz and 411 MHz, respectively. But, on the other side, the spectrum hold of Reliance Jio and Bharti Airtel was 650 MHz and 860 MHz, respectively. Hence, efficiently competing in the industry separately was proving to be hard for Idea and Vodafone.

Challenges Faced

The merged company faced many regulatory challenges like:

  • The company was surpassing the caps on revenue market share, spectrum holdings, and subscriber market share in at least six circles each;
  • In the spectrum holding cap, the merged company was shooting over 25% in Kerala, Madhya Pradesh, Gujarat, Kerala, Maharashtra, and western U.P.

Consent from Directory of Telecommunication (DoT)

The Directory of Telecommunication for Mergers and Acquisitions guidelines lays down definite situations that are meant to be met to receive consent for mergers in the telecom industry. The policies provide that the company should submit excess spectrum within one year from receiving the permissions. The procedures allow the companies to sell surplus spectrum to different telecom entities.

The merged company can have up to 50% spectrum holding in each band separately. But, the challenge faced by the merged company was that they were violating the spectrum cap 900MHz band. The obstruction, with the surplus of market share, was that it had to be lowered to the prescribed limit within a year of receiving the consent.

What is the Effect of the Vodafone India and Idea Merger?

The Vodafone India and Idea Merger were embraced by all the stakeholders but had its consequences as well.

  • Customer: The Vodafone India and Idea Merger is a wonderful example of a market that primarily benefits the customers. This deal released the telecom business from the pressure of severe tariffs and prices. Reliance Jio has had an enormous impact on the telecom industry, and it cornered other telecom companies in India to reduce their prices as Reliance Jio had launched free voice calling & data at discounted prices. The Vodafone India and Idea Merger meant an increase in competition, which means that the clients will be paying low prices. The merger increased their reach & it now jointly offers 4G services to a broader range. The assets were also combined with both entities, which meant better human resources, services, and airwaves. It is also beneficial for the clients with good quality of network & expansion of the same around the nation. The company is now able of offering a better 4G & 5G network to its clients.
  • Employee: The merger took charge of both companies’ employees. The employees were met with severe uncertainty. Somewhere, the entities failed to increase or maintain company confidence. Idea and Vodafone had to let go of 5000 employees leading up to the merger. The employees who come in the bottom quartile in the performance assessment were asked to leave the entity. Apart from this, there was an enormous cultural difference that affected the remaining employees. The entities were dissimilar that affected the remaining employees. The entities were different concerning their salary levels & human resource processes. As per the few of the employees, the new structure which was adopted after the Vodafone India and Idea Merger led to demotions. Most of the employees of the Idea who were asked to leave were adapted in different entities under the Aditya Birla Group, but no such report was given to the Vodafone India’s group.
  • Other Stakeholders: The Vodafone India and Idea Merger left the telecom industry with only three big players, namely Reliance Jio, Bharti Airtel, and Vodafone Idea Limited. Vodafone Idea Limited became the most significant player with 35% of the share worth Rs. 1.5 lakh crores. The telecom industry was amidst severe price wars due to the entry of Reliance Jio. The price wars were impacting the profits & revenues of the industry. The cost-cutting would benefit the Government of India, and it would also aid in controlling the neck to neck competition in the telecom industry, stabilising the industry in India.

Present Status of Vodafone India and Idea Merger

In September 2020, they rebranded itself. The Vodafone Idea Limited company used the initials to rebrand itself as “Vi”. This took place after two years of the merger, but it shows the integration spirit. The company, in their statement, said that the name Vi is to be pronounced a “we“. The long-overdue rebranding was done to remember the final lapse of the merger. It marked the combination of the two companies after three years of merger execution & talks.

The rebranding announcement was but led by the Supreme Court of India directing Vodafone Idea[1] to pay back government dues. This company owes approximately Rs. 504 billion. To pay off such debts, the company has to increase $ 3.41 billion. The company plans to increase capital via a mix of equity & debt. It has received the required Board consent. It also plans to aim at joining the 5G service in India.

Conclusion

It can be ended that the Vodafone India and Idea Merger was required to fight the competitive pricing strategy taken up by Reliance Jio. The customer is the most beneficial due to Vodafone India and Idea Merger as now all the telecom entities will try to bring in the best technology at the best cost and with better client service to maintain client loyalty.

Read our article:Payment Methods of Mergers and Acquisitions for Investors – A Complete Guide

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Karan Singh

A legal writing enthusiast, a wanderer, and a zealous reader. After gaining a lot of knowledge about the diverse legal topics and developing research skills, Karan joined the league of legal content writers to deliver quality-rich blogs.

 

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