DoT may approve merger of Vodafone, Idea Cellular in the next few days

The department of telecommunications (DoT) is likely to approve the merger of Vodafone and Idea Cellular in the next few days, making the combined entity the country’s largest mobile services operator.

Sources said all the wings of the DoT as well as Telecom Secretary Aruna Sundararajan had given a go-ahead to the merger. After signature by Communications Minister Manoj Sinha, the approval document will be sent to the companies.

The sources further said neither company would have to pay big sums to the government as most dues, including licence fees and spectrum charges, were under litigation.
 

“Dues under judicial intervention cannot be sought by the government. Only the ongoing dues need to be paid by the companies at the time of merger,” a source in DoT said.

The source added that although one-time spectrum charges had also been stayed, Idea Cellular, the acquirer, would have to furnish a bank guarantee for this charge in accordance with the merger and acquisition guidelines. One-time spectrum charges for Idea Cellular stand in the range of Rs 20-25 billion. Idea is likely to contest the bank guarantee demand by the DoT. Ongoing dues, which include penalties and other minor charges, are just a few billion rupees, which will be paid at the time of merger.

Idea Cellular will have to furnish an undertaking that it will entertain all the liabilities whenever a final decision is taken by courts.

The two companies are set to start operating as one entity from July 1 and for that to happen, the merger proceedings must be completed this month. The board of Idea Cellular will meet on June 26 to consider the proposal of renaming the merged company Vodafone Idea. It will also consider raising Rs 150 billion through non-convertible debentures.

The new operator will have a revenue market share of around 37 per cent, and around 433 million subscribers. However, remaining on top for long will not be easy because Bharti Airtel, after acquiring Telenor and Tata Teleservices, is in striking distance of reclaiming its top spot.

Airtel, with a revenue market share of 32.2 per cent, has for long been the country’s top mobile operator and its supremacy was only challenged when the next two players, Vodafone and Idea Cellular, decided to join hands last year. 

Also new entrant Reliance Jio has amassed a revenue market share of about 20 per cent in just under two years of commercial operations.

A debt pile of over Rs 1 trillion will make the going tough for Vodafone Idea.  Idea Cellular has finalised the sale of its tower portfolio, which will fetch the company Rs 40 billion, and the sale of its 11.5 per cent stake in Indus Towers can bring in another Rs 65 billion. The two companies have started sharing mobile sites.

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.