Will Vodafone-Idea merger break Reliance Jio’s winning streak?

Idea Cellular and Vodafone India's merger has been triggered by Reliance Jio, which has pumped in $20 billion to set up its network, acquire customers and provide cheapest network offerings

Vodafone Idea

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To counter Reliance Jio Infocomm’s rapid growth spurt in the Indian telecommunications market, telecom companies Vodafone India and Idea Cellular have undergone a merger to create the country’s largest telecom business. According to a Reuters report, the combined asset will have about 400 million customers and will own 35% of the Indian telecom market customer share. The report also stated that the combined value of the enterprise will be about $23.7 billion; $12.6 billion (INR 828,000 crore) for Vodafone and $11.04 billion (INR722,000 crore) for Idea Cellular.

Nasdaq states that Vodafone will own 45.1% of the combined company post the transfer of 4.9% stake to Aditya Birla Group (parent company of Idea Cellular) for $579 million, when the merger comes to a close. Idea Cellular on the other hand will own 26% of the company and various shareholders of Idea Cellular will own the rest 28.9%.

As of now, the merger does not include the British telecommunications group’s stake in Indus Tower, which claims to be India’s largest telecom tower provider and is a three-way joint venture amongst Vodafone, Idea Cellular and Bharti Airtel. Vodafone owns 42% and Idea owns 11.15% of Indus Tower.

The talks for merger between the two companies stated in January post Reliance Jio Infocomm launched its services which provided free voice calls and dropped mobile data prices to a rock bottom. According to Reuters. The Mukesh Ambani owned Reliance Industries pumped in $20 billion to build this broadband and 4G network in competition to the three biggies in telecom; Bhari Airtel, Vodafone India and Idea Cellular.

This is not the only merger in the Indian telecom industry that is happening right now. Because of Reliance Jio Infocomm’s offerings to its customers, there has been a wave of mergers and exits from the sector. For example, Telenor stated that it will not gain any acceptable level of return from its future business in the country and is on its way out. Bharti Airtel stepped in last month and entered a definitive agreement to acquire Telenor India and its outstanding spectrum payments, operational contracts, and its running business in seven circles.

According to the agreement, Aditya Birla Group has the sole right to appoint the Chairman and Vodafone has the sole right to appoint the Chief Financial Officer. Both Vodafone and Idea Cellular will jointly decide the appointment the Chief Executive Officer and the Chief Operating Officer of the entity. The new company will also be renamed in the coming few months and will own a 41% of the Indian telecom market revenue share.

However, as compared to the other network providers in India, Reliance Jio’s infrastructure is considered superior as it invested heavy amounts to setup a Greenfield network, which offers better connectivity and higher bandwidth. While other operators have tweaked 2G and 3G infrastructure to provide 4G in the country, Reliance Jio claims to be the first telecom company to introduce VoLTE-only (Voice over LTE) network that is capable of offering 5G and 6G speeds. The company has also laid 250,000 KMs of fiber optic cables in 22 telecom circles around the country to provide 4G and LTE, making it a fierce competitor in the telecom market.

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