Vodafone India and Idea Cellular have received the approval of the Competition Commission of India to merge, with the deal set to close before the end of 2018.
Shardul Amarchand Mangaldas and Co, which is representing Vodafone in the deal, described the CCI’s clearance as a “welcome development” for M&A in India, saying that it would bring about greater investment in the telecoms sector.
Approval from the CCI is the first regulatory clearance that the merger must receive before it can go through. There are several more official hurdles that the deal must pass.
Vodafone India and Idea are the second and third largest operators in the market respectively. Their combined subscriber bases will provide the merged entity with almost 400 million subscribers for a 37% market share, meaning that it will surpass current market leader Bharti Airtel, which has held onto the top spot for several years.
When the merger deal was first announced in March this year, Vodafone Group CEO Vittorio Colao said that combining the assets of both operators would allow them to compete more effectively in a fiercely competitive market. Following the price war instigated by Reliance Jio’s market entry in September 2016, market unrest forced Vodafone to write down the value of its Indian operations, although Colao recently noted that the market has begun to settle.
Jio entered the market offering free or heavily discounted voice and data services, causing a collapse in operator revenue and prompting operators to demand that the Telecoms Regulatory Authority of India introduce a price floor to prevent providers from offering services for less than the price of delivery.
However, Jio hit back at these challenges during a meeting with TRAI, which the regulator called in order to gather feedback on interconnection charges. The newcomer has claimed that the Big Three (Bharti Airtel, Vodafone India and Idea Cellular) profited by as much as $15 billion by inflating prices and exploiting inadequate regulation after TRAI failed to act on proposals to reduce prices that were put forward in 2011.
Since Jio’s entry to the market, its discounted services have attracted the ire of India’s established operators, with smaller operators such as Aircel and Reliance Communications losing a large chunk of their subscriber base as Jio accrued 100M subscribers within its first 170 days of operation.
While the Big Three have seen only a slight drop in subscriber numbers, their revenues have been affected, and they have made clear that they consider Jio’s tactics to be in violation of market rules governing fair competition. In particular, the newcomer offered new subscribers six months of free service – three months more than allowed under current regulations.
Jio has countered this by arguing that the offer consisted of two separate three-month promotions, alongside its claim that the Big Three saved INR1 trillion ($15.5 billion). Airtel dismissed this latter claim, while Idea alleged that connecting free calls made by Jio’s customers had in fact lost money for the larger operators.