Amity Law School

ASSIGNMENT :
TOPIC: IDEA VODAFONE
MERGER

Subject: Competition Law

Submitted by: Shrey Tiwari

A3221514088
:Ketan Rana
A3221514005
Merger of Kumar Mangalam Birla-owned Idea Cellular
with Vodafone India will not only create a telecom
giant but has wide-ranging implications for the industry,
services, the staff and consumers. The merger will push
more merger moves in the telecom sector. Bharti Airtel
has already bought India assets of Telenor and Reliance
Communication, Aircel, Tata Teleservices and MTS are
in talks for merger.

Vodafone and IdeaNo. 2 and No. 3, respectively

will become the No. 1 player in the Indian telecom
market, pushing the present No. 1 Bharti Airtel to No.
2. The combined subscriber count of the merged entity
would be nearly 39 crore, substantially higher than
Airtel's 27 crore and Jio's present number of 7.2 crore.
It would have a revenue market share of nearly 40 per
cent compared with Airtel's near-32 per cent. It would
have the strongest retail footprint in the industry as we.

The combined subscriber count of the merged entity

would be nearly 39 crore, substantially higher than
Airtel's 27 crore and Jio's present number of 7.2 crore.
It would have a revenue market share of nearly 40 per
cent compared with Airtel's near-32 per cent. It would
have the strongest retail footprint in the industry as well
as robust spectrum holdings.
Messier price wars
Aggressive entry of Reliance Jio has launched a big
price war. With its free services, Jio has upset the
bigger players. The Vodafone-Idea merged entity will
only add fuel to the fire. Since the merged entity will
have more resources, the telecom price war is going to
get messier. Idea-Vodafone merger may lead to more
consolidation. Reliance Communications, Tata
Teleservices and Aircel are already in talks for merger.
Airtel has bought India operation of Telenor. Reliance
is surely going to face stiff fight from the new biggies.
The consumer will be the king.
Higher prices in long term
Though the consolidated entities would fight the price
war for a year or two, prices are going to increase in the
long term. With fewer companies in the sector, there is
a higher chance of consensus on prices. Moreover, as
the new biggies offer better consumer experience, it
cannot come at low prices.

Good for industry

Overall consolidation in the debt-ridden telecom
industry will lead to better financial health and
sustainability of companies. Since consolidation will
leave only three big companies in the industry, there
will be less competition and bigger revenues.
Layoffs
Vodafone-Idea merger will result in duplication of
resources across the country which might require job
cuts too. Vodafone CEO Vittorio Colao said the merger
will create more opportunities for his India staff but
KM Birla, the chairman of the merged entity, hinted at
downsizing but not on a large scale.
Service quality
The Vodafone-Idea merger and the other consolidations
in the telecom sector will lead to pooling of vital
resources and infrastructure, which will inevitably lead
to better service quality and customer experience. A
merged entity will also have reduced financial
challenges, which will encourage it to spend more on
quality of service.

Idea approves merger with Vodafone India,

to create India's largest telecom Network .

Kumar Mangalam Birla owned Idea CellularBSE -0.88

% said its Board has approved of a merger with
Vodafone India and its wholly owned subsidiary
Vodafone India Mobile Services, which will create
India's largest mobile phone company with about 400
million customers, 35% customer market share and
41% revenue market share. Vodafone India's business
barring its investments in Indus Towers will vest in the
new entity, which will be renamed at a later stage, the
companies said a statement Monday. Vodafone will own
45.1% in the combined entity after transferring 4.9% to
the promoters of Idea Cellular for Rs 3,874 crore in
cash post the merger. Kumar Mangalam Birla and other
promoters of Idea Group will hold 26% and the rest will
be owned by the public, said the statement. Prior to
completion of the transaction, Vodafone and Idea intend
to sell their standalone tower assets and Ideas 11.15%
stake in Indus Towers to reduce leverage in the
combined company. Vodafone will also explore
strategic options for its 42% stake in Indus Towers;
potential options include either a partial or a full
disposal.
Vodafone will contribute Rs 2,500 crore ($369 million)
more net debt than Idea, upon closure of the merger.
Based on Idea's net debt of Rs 52,700 crore at
December end, Vodafone would contribute Rs 55,200
crore of net debt to the merged entity.

This landmark combination will enable the Aditya

Birla Group to create a high quality digital
infrastructure that will transition the Indian population
towards a digital lifestyle and make the Governments
Digital India vision a reality," said Aditya Birla Group
Chairman, Kumar Mangalam Birla.
Vodafone Group Chief Executive, Vittorio Colao said,
"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."

"We look forward to working with the Aditya Birla

Group to create value for all stakeholders.
he merger should be completed within 24 months, that
is in 2018, subject to approvals from shareholders,
creditors, stock exchanges, SEBI, the telecom
department and Competition Commission of India.

Lessons from the Idea-Vodafone merger .

The merger of Vodafone and Idea Cellular will be
watched keenly by management gurus the world over. It
is not often that an Indian company and the subsidiary
of a multinational corporation agree to come together.
Both are large organisations with distinct cultures. It
will be interesting to see how the merged entity will
integrate the two cultures. It has a challenge on its
hands -- studies suggest a majority of mergers fail in
this crucial aspect.
What they will also watch out for is control of the
company. To begin with, the Aditya Birla group will
own 26 per cent of it, while Vodafone will get 45.1 per
cent. In four years, the Indian partner has the option to
buy shares from Vodafone with a view to equalise
shareholdings.
The agreement provides equal representation for the
two on the merged company's board.
The fact is that the days of equal partnership are long
over. It will need deft interpersonal skills on the part of
both to keep the show going.
And it will have two brands at its disposal: Vodafone
and Idea.
There is some speculation that both the brands will be
kept alive -- Vodafone for the urban market and Idea for
the rural market. That may be unwise.
Two brands will lead to extra expenditure and mixed
messaging. If the whole idea behind the merger is to
achieve synergies and cut costs, there is no reason why
both the brands should continue.
At one time, Bharti Airtel had two brands: Touchtel for
landline telephony and Airtel for mobile. It soon
realised the folly and decided on Airtel for all services:
Landline, mobile, DTH, payments bank.
Also, the significance of brands is often over-played in
telecom.
In the past, several brands, including national ones like
Hutch and regional ones like Spice and Escotel, have
vanished without causing a ripple in the market. Their
subscribers without a murmur of protest moved on to
the brand of the acquirer.
Of course, there will be sizeable synergies when the
operations are merged, though the announcement that
the full benefits will accrue from only the fourth year
has somewhat dampened sentiments.
Vodafone and Idea Cellular have about 300 MHz of
spectrum each for voice calls. Of this, 400 MHz is good
enough to handle the voice traffic from the merged
entity's 400 million subscribers -- the remaining 200
MHz it can deploy for data. The subscribers are going
to love it.
The merged entity will have on its books debt of over
1 lakh crore, but it will come down after the tower
assets get sold.

subscribers -- the remaining 200 MHz it can deploy for

data. The subscribers are going to love it.
The merged entity will have on its books debt of over
1 lakh crore, but it will come down after the tower
assets get sold.
The merger comes at a curious time.
Reliance Jio's offer of free data ends on Friday. It will
be interesting to see how many of its 100 million
subscribers convert to its tariff plan.
Called Prime, the plan is really attractive: 30 GB of data
every month for 303, plus an annual membership fee
of 99 (voice calls, of course, are free). However, most
networks have come out with similar plans.
By all accounts, most Reliance Jio subscribers are also
on another network; given the uniformity in tariffs, it is
possible that all may not choose to go for Prime.
The battle of networks has entered its most decisive
phase.
Everybody is bracing up for a tough few quarters
ahead. The industry's revenue is in decline, thanks to
the tariff war -- by up to 5 per cent quarter on quarter, if
some experts are to be believed.
This is bound to impact the government's telecom
revenue in the days to come because it collects a whole
lot of levies from the networks, based on their (adjusted
gross) revenue: Spectrum user charge (6 per cent, on
average), licence fee (8 per cent), and contribution to
the Universal Services Obligation Fund (5 per cent).
Also, there won't be too many takers for spectrum in the
days to come. Bharti Airtel is well stocked for at least a
couple of years. The Vodafone-Idea combine has no
shortage of airwaves. Besides, the industry is groaning
under a debt of over 3 lakh crore. The banks are
worried about their exposure to the sector.
With their revenues under squeeze, it is difficult to
figure out from where the networks will find the money
to take part in spectrum auctions.
Maybe the government will wake up to the crisis in
telecom once its revenues get hit.
The prime minister has clearly slipped into election
mode, and his government will need money to create a
favourable impression on voters in the next couple of
years.
To ensure that the flow of money from telecom keeps
going, the government must ensure that the sector stays
healthy. Several suggestions have been made to provide
relief to the networks, but none of those so far has been
taken up by the government.