What does Idea-Vodafone mega merger mean for the telecom industry?

The Idea-Vodafone deal will become India’s largest mobile operator with a market share of 35% and a subscriber count of 430 million.

Vodafone India and Idea Cellular has received a final nod for their merger by the department of telecommunications (DoT). The merger will create Vodafone Idea Ltd. making it the largest carrier in the country through subscribers and revenue market share. The newly formed entity will become India’s largest mobile operator overtaking Bharti Airtel. The new CEO of the venture will be Balesh Sharma while Kumar Mangalam Birla will be the non-executive chairman.

According to sources, the approval of the development was issued on Thursday through a letter to both the companies. “Bank guarantees for deferred spectrum payments that Vodafone owes to DoT will be amended by the banks concerned and will be transferred to Idea Cellular, since that will be the entity that will hold the licenses,” a DoT official told reporters. The official also added that the approval letter says that the new entity will have to fulfil the outcomes of pending cases in the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) and other courts.

Reportedly, Idea Cellular and Vodafone India agreed to pay up ₹7,268 crore on Monday in order to get the final approval. Vodafone India paid ₹3,926.3 crore (in cash) as spectrum liberalization charge while Idea Cellular paid ₹3,322.4 crore as a bank guarantee for one time spectrum charges. However, both the companies kept the option to challenge the demands in the future by paying under protest.

How the mega merger brings a change in the telecom industry

The Idea-Vodafone merger will come with its own set of challenges as it has already not had a very smooth beginning. The biggest challenge of all will be the debt burden.

Aruna Sundararajan, Telecom Secretary

However, Telecom Secretary Aruna Sundararajan told PTI that the merger is a “big-milestone’ and will bring positive growth and stability to the Indian Telecom Market. “We expect that with this merger, the market will begin to stabilise. We expect to see robust growth in the telecom sector with the emergence of three strong private sector players, and one public sector player,” Aruna told PTI. She added that the merger may dominate the Indian telecom sector while pointing out that other countries like US and China operated with three players and that India was no different.

Vodafone Idea Ltd will need to focus on customer service and experience, as much as on customer acquisition. Airtel, on the other hand, will need to strengthen its network capability.

The long awaited merger is a big milestone in the history of mergers in India. Reliance Jio, backed by Mukesh Ambani entered the sector announcing tough competition and starting a war. Idea-Vodafone merger will create enough competition in the sector while being good news for the customers.

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