Vodafone, Idea Cellular pay up Rs 72 billion to govt, nod for merger soon

Putting an end to the speculation on whether or not the Vodafone-Idea Cellular merger would be delayed over the spectrum charge demand made by the Department of Telecommunications (DoT), the two companies have deposited a total of Rs 72 billion in cash and bank guarantee. With the financial dues out of the way, the merger of Vodafone and Idea Cellular is likely to be approved in the next few days, a DoT source said.

The companies have deposited a bank guarantee of Rs 33.22 billion for one-time spectrum charges and Rs 39.26 billion cash for spectrum liberalisation. Having made the payment, the merged entity, to be called Vodafone Idea, could still challenge the dues, the DoT source said. The companies have deposited the amount under protest, the source said.

The firms have sought a recalculation of dues, but the DoT is yet to respond, it is learnt. To avoid a delay, the companies decided to pay the whole amount demanded by the government, a source said. Any further delay could have cost the two debt-ridden firms heavily, according to an analyst. In fact, the Vodafone and Idea top teams recently had a brainstorming meeting together, a first of its kind ahead of the merger, indicating that there’s no time to lose. They have also started joint training sessions.  

Vodafone Idea will be the country’s largest telecom operator, with a revenue market share of around 37.4 per cent and more than 438 million subscribers. The UK-headquartered telecom major, Vodafone, had announced the merger of its India operations with Kumar Mangalam Birla-led Idea Cellular in March last year. The companies were hoping to complete the merger by the end of June but the process got delayed by a month. The DoT had given a conditional nod to the merger a couple of weeks ago if they paid up Rs 72 billion as spectrum charges.

After issuing the final letter of approval, the DoT will transfer Vodafone India’s licences to Idea Cellular. The department will also start transferring Vodafone’s bank guarantees for deferred spectrum payments to Idea Cellular.

The merger of Vodafone Idea is expected to alter the telecom market in the country, making it a three-player universe of two big incumbents and disruptor Reliance Jio. In just 18 months of commercial operations, Jio has captured a revenue market share of around 20 per cent.

Recently, Bharti Airtel (India) CEO Gopal Vittal had said that the telecom sector was set to have just three big players holding similar market share. 

If that theory holds, Vodafone Idea could lose some market share as Airtel and Jio are expected to continue to exert pressure on margins. The combined debt of Vodafone India and Idea, estimated at around Rs 1.05 trillion, will be an added burden on the margins.

The companies had earlier this year announced a restructuring of the leadership team for the merged business that would have Kumar Mangalam Birla at the helm as non-executive chairman. Vodafone insider and current chief operating officer (India) Balesh Sharma will be CEO of the merged entity.


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