Vodafone, Idea in $23 billion deal to create new Indian telecom leader

Mon Mar 20, 2017 12:00pm EDT
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By Devidutta Tripathy and Sankalp Phartiyal

MUMBAI (Reuters) - Britain's Vodafone Group (VOD.L: Quote) and Idea Cellular (IDEA.NS: Quote) agreed on Monday to merge their Indian operations in a $23 billion deal, creating the country's biggest telecoms business after the entry of a new rival sparked a brutal price war.

The combined entity would have almost 400 million customers, overtaking market leader Bharti Airtel (BRTI.NS: Quote) to account for about 40 percent of revenue of the world's second-biggest mobile phone services market by users after China.

The deal shows how India's mobile industry is being transformed by the launch of Reliance Jio Infocomm's 4G mobile broadband network last year.

Built at a cost of more than $20 billion by India's richest man, Mukesh Ambani, Jio has offered free services for months. That has forced India's three biggest operators - Bharti, Vodafone and Idea - to slash prices and accept lower profits, and sparked a wave of consolidation.

Vodafone, the world's second-largest cellphone operator, had previously sought to leave joint ventures it did not control but Chief Executive Vittorio Colao said the group had to be realistic in such a challenging market.

"This improves the industry structure and it also equips us and Idea to be much more competitive in the future," he told reporters. "I have no doubt that the Indian market will remain competitive but nothing can be free forever and we will be in a better position."

The two companies, which said in January that they were in talks, will have to shed spectrum in some areas to meet India's rules, although Colao said it would be "small". The deal is expected to close in 2018.

Shares in Idea rose as much as 14.3 percent after the news but then fell 10 percent to 97.70 rupees as traders said the implied deal price for Idea was well below the stock's closing price of 108.10 rupees on Friday. Vodafone shares were up 0.7 percent at 1415 GMT.   Continued...

Kumar Mangalam Birla (L), chairman of Aditya Birla Group, shakes hands with Vittorio Colao, CEO of Vodafone Group, after a news conference in Mumbai, India March 20, 2017. REUTERS/Danish Siddiqui