Vodafone-Idea Cellular today formally announced the much-anticipated merger, a move that will result in the creation of India's biggest telecom company.
The merged entity is now the market leader in terms of wireless subscribers. Earlier, Vodafone and Idea were in the second and third spot respectively, while Bharti Airtel was number one.
"Highly complementary combination will create India's largest telecoms operator` with the country's widest mobile network and a strong commitment to deliver the Indian government's 'Digital India' vision," the press release said.
Read more: It's complicated: Regulatory hurdles that Vodafone-Idea merger could face
As per India Ratings, the merged entity is likely to bring in Rs 80,000 crore worth of revenue and will reduce its operational cost by eliminating the duplication of spectrum and infrastructure capex.
The merger is also expected to improve the combined EBITDA margin by 250-350 basis points due to cost savings - mainly on network and marketing expenses, says Fitch Ratings.
"The combined entity will also have a more balanced subscriber mix, as Vodafone is strong in urban areas whereas Idea focuses more on the rural mass market," the report said.
With 205 million Vodafone users and 190 million Idea Cellular users this new entity will have a subscriber base close to around 395 million.
The combined market share of 43 percent -- Vodafone 23 percent and Idea 19 percent -- is going to be 10 percent higher than the closest competitor Bharti Airtel. In addition, their base share will exceed the limit of 50 percent in at least nine circles.
Read more: Vodafone-Idea merger: Three biggies will now drive India's telecom sector
Reliance Jio's massive investment of USD 25 billion and an unforeseen offering of free voice and data service for six months disrupted the entire pricing structure and the telecom space in general. This also accelerated the pace of industry consolidation and has led to exit of many small players in the recent days.
Apart from Vodafone and Idea joining hands to survive in this market, Bharti Airtel recently subsumed Telenor and Reliance Communication had joined forces with Aircel and is now in talks with Tata Teleservices as well.
Vodafone will own 45.1 percent of the combined company after transferring a stake of 4.9 percent to the Promoters of Idea and/ or their affiliates (together Promoters of Idea) for Rs 38.74 billion in cash concurrent with the completion of the amalgamation, The promoters of Idea will hold 26 percent of the company and the balance will be held by the public, Idea Cellular said in a press release to the BSE.
The completion of the deal is expected by CY2018.
Disclosure: Reliance Industries, which owns Reliance Jio, also owns Network18, which publishes Moneycontrol.com.
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