Idea-Vodafone proposed merger: Merged entity will need to dispose of Rs 18,000 cr of excess spectrum

KOLKATA: The Vodafone-Idea Cellular merged entity would need to dispose of nearly Rs 18,000 crore of excess spectrum for the mega consolidation deal to clear anti-trust hurdles, analysts at Credit Suisse said.

The Swiss brokerage expects the merged entity to breach spectrum caps in the 900 MHz and 2500 MHz bands in four and 12 circles respectively, building “a 60% probability” of the deal actually going through. “Anti-trust restrictions would require the Vodafone-Idea merged entity to let go (some) Rs 18,000 crore of excess spectrum, including over Rs 6,000 crore of such airwaves in the premium 900 MHz band alone in Maharashtra, Gujarat, Kerala & Haryana,” it said in a note seen by ET.

Telecom merger and acquisition (M&A) rules require a merged entity to hold up to 25% of the total assigned spectrum and up to 50% in a specific band in a service area. This apart, the rules also entail a merged entity’s combined customer market share and revenue market share (RMS) does not exceed 50%.






The Swiss brokerage said the merged entity would also need to fork out Rs 4,200 crore to the government towards spectrum liberalisation fee coupled with a one-time spectrum transfer fee on the assumption that Vodafone India’s airwaves would be transferred to Idea. Earlier this week, UK’s Vodafone Group Plc said it was in talks to merge its Indian unit with Kumar Birla-owned Idea Cellular in a cashless deal which would potentially create the country’s biggest telecom company by customers and revenue market share. The British telco had also said the deal would lead to deconsolidation of Vodafone India.

Credit Suisse, however, ruled out the possibility of the mega merger reducing competitive pressures in the short-to-medium term as it expects newest telecom operator, Reliance Jio Infocomm, to remain fiercely aggressive until it grabs over 30% market share, a phenomenon that would “continue to drag down the financials of incumbents Bharti Airtel, Vodafone India and Idea Cellular over the next 15 to 18 months”.

Jio’s free services have already hammered Bharti Airtel, which reported a 55% fall in its third quarter net profit to Rs 504 crore, its worst in four years, while No 2 carrier, Vodafone India, reported a 1.9% drop in service revenue in the December quarter to Rs 10,556 crore, hit by competitive headwinds unleashed by Jio’s entry since September. Third largest carrier, Idea, is slated to perform a lot worse, with some analysts estimating it to report its first ever net loss.