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Merger Delay Piles Pressure on Vodafone and Idea

Merger Delay Piles Pressure on Vodafone and Idea

The unexpected holdup of Vodafone India and Idea Cellular’s merger could see the operators face churning customers and tumbling revenues, reports India’s Economic Times.

India’s DoT (Department of Telecommunications) last week declined to grant final approvals for the merger while it considered whether to issue Vodafone with a bill for INR47 billion ($683 million) in unpaid spectrum fees. The charges were made in connection to Vodafone’s 2015 merger of its five Indian businesses.

The operators had been aiming to close the deal by 30th June. Conditional approval was expected this week according to the ET, but if the charge is levied against Vodafone then this could be delayed by another month - and even further if either side takes legal action.

This would create significant issues for the operators, with PhillipCapital analyst Naveen Kulkarni noting that a delay of just two months could risk the merged entity losing its standing as Vodafone and Idea haemorrhage subscribers to rivals Bharti Airtel and Reliance Jio. In addition, the operators would have to stall their plans to upgrade the quality of their networks and prepare for launch.

Rajan Mathews, director general of the Cellular Operators Association of India, said the delay would cause issues with spectrum optimisation but would also seriously hamper the smooth combination of the two operators, particularly if staff made redundant during the merger have to be kept on the books in the meantime.

Speaking anonymously, an executive at one of the companies told ET that: “The delay in merger closure is an unforeseen spanner. It may have been triggered by third-party vested interest.” The delay could seriously damage the operators’ 4G efforts by freezing as much as $10 billion of capex and cost synergies.

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