Mumbai: Idea Cellular and Vodafone India started to function as one entity on Friday, a day after the National Company Law Tribunal (NCLT) approved the merger of the two telecom companies into a new entity called Vodafone Idea Ltd.
The merger has created India’s largest telecom service provider and displaced Bharti Airtel Ltd from the top spot after about two decades.
The merged entity has more than 408 million subscribers, a broadband network of 340,000 sites and a distribution reach with 1.7 million retail outlets, according to a joint statement by the companies on Friday.
The new entity will have a market share of 32.2% and leadership position in nine out of 22 circles.
The merger is expected to generate ₹ 14,000 crore in synergies annually.
“Today, we have created India’s leading telecom operator," Kumar Mangalam Birla, chairman Aditya Birla Group and Vodafone Idea Ltd said. “This is much more than just about creating a large business. It is about our vision of empowering and enabling a New India and meeting the aspirations of the youth of our country," Birla said.
The merger also narrows the field in the telecom sector to three competitors now, from what was once a battle between rivals Bharti Airtel Ltd, Mukesh Ambani-promoted Reliance Jio Infocomm Ltd, Vodafone, Idea, government-owned Mahanagar Telephone Nigam Ltd and Bharat Sanchar Nigam Ltd.
Ambani’s firm has disrupted tariffs, made its rivals bleed and controls more than 18.78% market share in less than two years of its launch. Jio can also take credit for triggering the long-heralded consolidation in the telecom sector and ushering in a data revolution in the country.
As the dust from ever-changing regulations and a tariff battle appears to be settling down, the industry is again eyeing an upward curve in revenue.
A concern for the merged entity is the company’s virtual absence from the fixed line business, whose importance is growing even as Bharti Airtel and Reliance Jio (RJio) race ahead in the segment, according to Mahesh Uppal, a director with ComsFirst consultancy.
“If RJio was to crash prices further in the coming days, others including Vodafone Idea Ltd will have to follow suit to remain competitive. So, there isn’t going to be a major differentiation in terms of prices. However, the situation is of concern from the perspective of competition, as from a situation where we had too many players, we now have too few," Uppal said.
Vodafone Idea Ltd will be headed by its chief executive officer Balesh Sharma, who said that the company has the scale and resources to ensure sustainable customer choice and introduce new technologies.
The company claimed to have cash balance of over ₹ 19,300 crore after payout of ₹ 3,900 crore to the department of telecommunications towards spectrum charges.
The company also has the option of raising ₹ 5,100 crore by monetising its stake in Indus Towers, a mobile tower company owned jointly by Bharti Infratel Ltd, Idea and Vodafone.
Vodafone Idea Ltd will invest ₹ 60,000 crore in infrastructure to meet the expected sixfold rise in demand for data to more than 120 petabytes a day in the near term, a person with the direct knowledge of the matter told Mint in February, months before the completion of the merger.
“Overlapping of spectrum will be reversed, and with large spectrum chunks at disposal, rolling out faster data will be possible," the person said adding that the infrastructure ramp-up would see the merged company increase its capacity by up to six-seven times its existing capacity and also provide high-speed data at 200-300 Mbps as compared to current speed limits of 20-30 Mbps.
The investments being made by Vodafone-Idea will also help the merged company match data capacities of its rivals. The merged entity will have net debt to the tune of ₹ 1.09 trillion.