DoT: Vodafone – Idea Merger Only Possible After Payment of Bank Guarantees Worth Nearly Rs.13,600 Crores

The government feels that the Vodafone Idea merger is important for stabilizing the telecom sector

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To create the Vodafone India’s Merger with Idea Cellular a success, the Department of Telecommunication is asking for banking payments and guarantees that would worth around Rs 13,600 crore (which is nearly $2 billion). This payment is needed by Vodafone India Ltd.’s spectrum payment to make the merged company become the largest mobile network provider in the country. Further, it came to notice from the letter that was issued by the department to Idea Cellular that the merged company has to lower its adjusted gross revenue based market share in select states of India.

To put light on it, the letter from the department has asked the merged entity to reduce the market share with regard to the adjusted gross revenue in Gujarat, Maharashtra, and Kerala to less than 50% within one year of the approval date. Anonymous senior official states there are other conditions that are to be satisfied before getting the final approval from the department.

Merger Important for Stabilization of the Telecom sector

However, the government feels that the merger is important for stabilizing the telecom sector. The telecom sector will be much stabilized once the merger between Vodafone India and Idea Cellular is completed by settling the pending formalities that are levied of. On this note, Aruna Soundarajan, Telecom Secretary, said that this will be an important step in stabilizing the sector. The merger was planned after facing a huge tariff war and margin reductions introduced through the new genie of mobile networks, Reliance Jio.

Vodafone – Idea Merger: Demands of the Department

The top officials of Vodafone met the telecom minister of the country Manoj Sinha and Aruna Sundararajan on July 9, 2018, and signed a deal that was a conditional approval by the department of telecom. On this note, Sundararajan says “We have raised the demand from them. They (Vodafone executives) met me and said they will remain a strong investor in India”.

In addition to the aforesaid demands, the department has also demanded a payment of Rs 3,976 crore and Rs 3,342 crore for one-time spectrum charge of Vodafone India and joint bank guarantee, respectively.  These demands and formalities are to be met before giving a final nod for the merger.

The Vodafone India officials are staying positive in this regard, and they show a strong interest in creating the merger company.

Vodafone – Idea Merger: Other Miscellaneous Demands

1. Idea Cellular will have to compensate the bank guarantees payments by Vodafone Mobile Service Ltd. and Vodafone India Ltd. in the place of the annual installments equal to Rs 2,005 crore, Rs 2,937 crore, and Rs 1,484 crore for the spectrum won in the year 2104, 2015, and 2016, respectively.

2. Idea Cellular will have to ensure an undertaking to pay all demands including the unpaid past demands.

3. Idea Cellular will claim responsible to clear all demands from any wings of the department of telecom.

4. Upon merger, there will be a lock-in situation for the shares owned by Vodafone in Idea Cellular.

There are yet more demands that need to be met for the final approval of the merger.

After the merger is successful, the merged entity will become the nation’s largest telecom company that would be worth over Rs 1.5 lakh crore ($23 billion) with a subscriber base of nearly 430 billion and a 35% market share. This merged entity is believed to have the capacity to offer 4G spectrum across all the telecom circles of the nation.

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