Vodafone further said that the ongoing arbitration over a tax dispute with the Indian government will have no bearing on the merger with Idea.
“We are very complimentary. Idea is strong where Vodafone is weaker. Vodafone is strong where Idea is weaker,” Vittorio Colao, Vodafone Group Plc Chief Executive, said at a press conference in Mumbai.
Aditya Birla Group Chairman, Kumar Mangalam Birla said that there will be no significant downsizing post the merger, which was announced Monday. The merged listed entity which will take shape over the next 24 months, will have a 26% shareholding from Idea Cellular, 45.1% from Vodafone Group and the remaining will be held by the public.
Birla, who will be the chairman of the combined entity, added that the Group hasinvested Rs 115000 crore in last decade in Idea, and the funding for this merger will come from promoters and not by any of the group listings.
Colao reiterated that India was an important market for he UK company where it has 10,000 engineers who work for Vodafone Global.
The merged entity with over 400 million customers, will have two brands, but will have a combination of mobile businesses of both companies, towers, tenancies, payment banks, wallets, broadband offerings under different subsidiaries and will include Idea’s 11.15 % share in Indus Towers. It will however, exclude Vodafone’s 42% stake in Indus Towers.
The combine will invest towards expanding new digital services, including content and mobile payments, driving greater financial inclusion, while accelerating availability of high speed data services over 4G and 5G.
“Together, there will be lot of efficiency of resources that are national and scarce. This will give us an opportunity to accelerate 4G and 4G plus but also 5G. we will be able to deliver speed in excess upto 150 Mbps,” said Colao. He added that since both brands will continue, he asked partners and distributors to continue to invest in the businesses.
“The combined company will have a very large canvas for its payment banking offerings to its existence 400
million existing customers,” Birla added.
The move comes at a time when the telecom sector is going through an implosion of sorts, as consolidation triggered by the entrance of deep-pocketed Reliance Jio is bringing down the number of players to a handful from nearly a dozen.
“Consolidation will help bring in operational efficiencies and improved quality of service to customers,” Arpita Pal Agrawal, Partner and Leader- Telecom, PwC India.
“The regulatory regime will have to ensure that benefits of effective competition continue to be availed by customers,” she added.
Jio has been offering free voice and data plans since September and will begin charging for data from April onwards. But in the small time frame and on the back of freebies Jio has been able to rake in over 100 million customers, taking up a substantial market share by subscribers. The RIL telecom arm aims to capture half of the industry’s revenue market share in the years to come.
“As soon as Jio starts charging, we’ll see what the real market share is. We have one year after completion to reach that number,” Colao said.
“We will ensure that through our scale, attractive prices and choice will continue to be available to our customers. It is important that choice, and sustainable choice are given to customers,” he added.
Purchase of 4.9% stake which is being done by the birla group from Vodafone is at a price of Rs 108 per share which was the closing price on Friday.
The scale of the merged entity will prove to be a long term sustainable choice for consumers that offers attractive prices. The entity will also have the capacity to market unlimited voice and very large mobile broadband bundles, while offering enhanced offerings for enterprise customers.
Vodafone-Idea will lead in 10 circles post merger, commanding 60% of industry revenue, and will be either No 2 or No 3 in the remaining circles. Complementary footprint across metros, urban and rural area will mean the companies together will have 27,000 2G sites, 189,000 3G and 4G sites, with a deep spectrum portfolio, besides 2 million retailers and 19,000 stores.
The spectrum maps of both companies will lead to some overlaps. Vodafone will return spectrum in six circles based on the present merger and acquisition rules, which it said will be a small amount.
“If there is value, we will be happy to get the money else we will give it back to the government,” Colao added.
Vodafone Group has the right to contribute $369 million more debt than Idea at completion. The net debt of the two companies as per December 31, 2016, financials is somewhere in the region of Rs 1,07,000 crore. Synergies NPV of Rs 670 billion or US$ 10 billion and net of spectrum liberalisation costs, the companies added.
Vodafone will appoint a CFO for the merged entity while CEO and COO ill be jointly appointed before the merger is completed in 2018.
While the merger may have officially taken off the ground on Monday, Vodafone Group still has an outstanding IT demand from the Indian government which is under arbitration. Colao said, however, that the merger transaction has nothing to do with the arbitration.
“There is an arbitration between Vodafone group plc and the government and the government has indicated that it wants this arbitration to continue, the judicial process is to follow,” he said.
The ABG has the right to acquire upto an additional 9.5% stake from Vodafone under an agreed mechanism to equalise shareholding overtime. If the ABG does not equalise its stake, Vodafone is committed to reduce its holding in order to equalise its ownership with the ABG over time. Until the equalisation is achieved, the additional shares held Vodafone will be restricted and be only exercised jointly.