Vodafone Looks for Dominance in India -- 2nd Update
March 20 2017 - 7:57AM
Dow Jones News
By Stu Woo in London and Karan Deep Singh in New Delhi
Vodafone Group PLC said Monday that it would merge its embattled
Indian business with a local rival, a move that would create
India's largest wireless company and could strengthen the British
telecommunication giant's standing in a cutthroat market.
Vodafone and Idea Cellular Ltd., which are respectively India's
No. 2 and No. 3 mobile operators, would overtake Bharti Airtel Ltd.
as the country's leading carrier. The two sides said in January
that they were exploring a merger.
For Vodafone, the combination represents a risky doubling down
on India, a large and promising market that has nonetheless proven
to be much more expensive than the British carrier initially
expected. Flush with cash from the 2014 sale of its Verizon
Wireless stake, Vodafone has spent heavily around the world,
including in India. But in November, it took a EUR5 billion ($5.4
billion) write-down there, stung by intense competition.
That competition cranked up even further late last year, when
Mukesh Ambani, the country's richest man, started offering almost
six months of free mobile services to promote his new carrier. Some
cellular plans in India already were going for less than $3 a
month. Vittorio Colao, chief executive of Vodafone, the world's
second-biggest mobile operator by subscribers, has called Mr.
Ambani's promotion "unprecedented" and difficult to plan
against.
Mr. Colao said in a news conference Monday that the two
companies would continue to operate under their current brands
indefinitely but would eventually work under the same name. Mr.
Colao said he didn't expect major regulatory hurdles to the
deal.
The planned combination would create India's largest
wireless-network operator with almost 400 million customers and
bolster Vodafone's position in one of the world's largest and
most-promising telecom markets.
Mr. Colao said in November that 700 million people in India
don't have cellphones, while 600 million people do. He said of
those 600 million, only 250 million have smartphones. That means
carriers are jostling to get into position to sell lucrative data
plans to potentially hundreds of millions of future smartphone
owners.
Vodafone will initially own 45% of Idea after the merger. The
companies expect to save about $2 billion annually by the fourth
year after the merger. Vodafone's 42% stake in Indus Towers isn't
part of the deal.
Mr. Colao said in a news conference last month that the merged
company's subscriber base would be added to Vodafone's subscriber
base, so Vodafone's standing as the world's No. 2 carrier wouldn't
be affected.
Vodafone and Idea are a good match, said Shiv Putcha, a
Mumbai-based analyst with research firm IDC, because they own the
rights to cellular airwaves in different parts of the country and
don't overlap much in the regions and customers they serve.
Vodafone gets the added bonus of using the merger as a sort of
back-door listing. It has been planning an initial public offering
in India for years but hadn't been able to get the timing right.
Vodafone's parent company will also benefit because it will own a
minority stake in its Indian operations, so the $8.2 billion in
debt it holds will be taken off its books.
The merger fits with Vodafone's strategy of being the clear No.
1 or No. 2 player in each of the 26 countries it competes in.
Idea shares, which surged earlier this year when news of the
merger talks came out, fell 7% Monday to 100 rupees. Vodafone
shares were down 0.2% in early trading Monday.
Kenan Machado in Hong Kong and Debiprasad Nayak in Mumbai
contributed to this article.
Write to Stu Woo at Stu.Woo@wsj.com
(END) Dow Jones Newswires
March 20, 2017 07:42 ET (11:42 GMT)
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