The biggest deal of this year has been signed between 2 telecom sector giants mainly Vodafone and Idea Cellular. On Monday, Aditya Birla Group Chairman Kumar Mangalam Birla joined hands with Vittorio Colao, CEO of Vodafone group in order to manage their India Operations for a whooping amount of $23 billion. They have decided to merge their business after the price war that had started after the entry of Reliance Jio who forced the top telecom companies to slash their prices by approximately 50% and compromise with their profits at a lower level.
Currently the number one position is managed by Bharti Airtel group with a customer base of 324 million customers followed by Vodafone with a customer base of 184 million customers and Idea at number three with customer base of 161 million customers in India. With this merge it is assumed that they would be able to manage the number one ranking with the clubbed customer base.
Entry of Reliance Jio in the telecom sector was a fierce blow for its competitors which offered free 4G services to its customers for months. Even the upcoming plans of Reliance Jio are comparatively cheaper and had forced all the major telecom competitors like Airtel, Vodafone and Idea to slash down their prices and face a cut in their profit share. The total investment done by Reliance in Jio was $20 billion.
Both the companies have been in talk about the merger since January, 2017 and are expected to complete the merger in 2018. After this announcement, the share market had seen fluctuations in the share prices of Idea with a sudden rise of 14.3 percent and immediate fall of again 9%. Vodafone would manage 45.1 percent of the merged entity and out of the remaining part, Aditya Birla Group, the majority owner in Idea would me managing 26 percent of share and rest of the shareholders would manage the remaining part.
Vodafone has been in tax controversies in the past and owes a tax amount of $2 billion and has some pending cases against them. Vodafone CEO Vittorio Colao ensured that the pending cases and controversies won’t have any adverse effect on the deal. It’s not only Vodafone and Idea who had joined hands to stay alive in the telecom battle but there are other mergers as well happening between the other players.
Bharti Airtel is in conversation with Telenor for purchasing their India operations while on the other hand Reliance communications is in process of merging their operations with 2 small time player namely Malaysia’s Maxis and Russia’s Sistema.