Vodafone’s Indian unit announces merger in wake of price war

Vodafone India has announced that it is to merge with Idea, creating the country’s largest telecoms operator

Mobile phone service is a volume market in India, with competitors falling over themselves to offer cheaper and cheaper deals to villagers and small town dwellers nationwide

On March 20, Vodafone’s Indian unit announced a ‘merger of equals’ with Idea Cellular, which is India’s third-largest mobile operator by subscribers. The merger will form the largest telecommunications operator in India, with almost 400 million customers and 41 percent market share in terms of revenue.

The announcement comes amid a backdrop of increasingly steep competition, with at least five major telecoms providers vying for market share in the rapidly expanding Indian telecoms market. The recent launch of a new operator – Reliance Jio – has further intensified this battle for customers. Jio, backed by oil-giant Reliance Industries, was accused of introducing prices that unfairly undercut its competitors upon its arrival in the market last year. The company has claimed that it hopes to reach 90 percent of the country’s population over the course of just one year, and has set tariffs way below the prevailing rate – starting at just above $2 per month.

Vodafone will own 45.1 percent of the merged company, on the condition that it transfers $579m to the Aditya Birla Group

In the face of this intense competition, which often resembles an all-out price war, Vodafone and Idea are under pressure to achieve extensive synergies. The companies hope that the merger will bring down costs by rationalising network infrastructure, lowering maintenance expenses, and generating energy cost savings. According to Vodafone’s press release, the joint company will have the “scale and efficiency required to offer innovative and attractively priced mobile services”.

The combined company will be jointly controlled by Vodafone and the Aditya Birla Group. Under the agreement, Vodafone will own 45.1 percent of the merged company, on the condition that it transfers around $579m in cash to the Aditya Birla Group upon completion of the merger. The Aditya Birla Group will own 26 percent, but will hold the right to acquire more. The companies have agreed to move towards equalising their shareholdings over time, and have established that Vodafone is to sell down shares in the combined company if shareholdings remain unbalanced after four years.

Vodafone CEO Vittorio Colao commented: “The combination of Vodafone India and Idea will create a new champion of digital India, founded with a long-term commitment and vision to bring world-class 4G networks to villages, towns and cities across India. The combined company will have the scale required to ensure sustainable consumer choice in a competitive market and to expand new technologies – such as mobile money services – that have the potential to transform daily life for every Indian.”