Idea-Vodafone merger: With regulatory hiccups, deal will take a year to come through

The merger of Idea Cellular with Vodafone India, the biggest and most complex deal in the Indian telecom industry’s history, is also fraught with regulatory challenges that could delay the entire process.

While these will not derail the merger they will require the constant attention of the companies.

Idea and Vodafone expect the merger to be completed in 2018, following receipt of regulatory and statutory approvals.

The two major hiccups would be over the revenue market share a merged entity can hold in a circle; and maintaining the spectrum cap.

This is in addition to the number of regulatory and statutory approvals starting with market regulator SEBI, banking regulator RBI, bourses, Competition Commission of India (CCI), Department of Telecommunications (DoT) and Foreign Investment Promotion Board.

The deal also needs shareholders’ and creditors’ approvals.

“There is no cap on the revenue market share, but according to the old regulations, if the combined revenue market share crosses 30-35 per cent, then the CCI and DoT will have to look into to see if there is any negative impact on the telecom market. If you go up to 30-35 per cent, prima facie there is no concern, but anything beyond that will have to be reviewed closely,” said Cellular Operators’ Association of India (COAI) Director-General Rajan S Mathews.

“However, this is based on the revenues from voice. Tomorrow, these could change to data tariff. Therefore, we should look into these things going forward,” he said.

Following the deal, there are at least six markets — Maharashtra, Gujarat, Kerala, Haryana, Madhya Pradesh and West Bengal — where the combined entity would exceed 50 per cent revenue market share.

Another issue is on the spectrum front. “Earlier, regulators were also of the opinion that there is no reason to take back spectrum as the companies will have to reacquire it at some point in time. Further, the government taking back spectrum does not generate any revenue and hence the regulator is of opinion that spectrum need not be taken back, unless there is a negative impact on the industry,” Mathews said, adding there will not be any major concerns.

M&A rules also prohibit any entity from holding more than 50 per cent of the spectrum assigned in any single band.

According to analyses by various research firms, the merged entity may have to surrender 12.8 MHz of 900 spectrum worth $1 billion.

“I think regulatory shouldn’t be seen as a headwind in any industry…

“So now the regulator has a real chance to prove they are neutral, that they regulate what needs to be regulated and they allow good sustainable competition,” said Vodafone’s Global CEO Vittorio Colao.

“A rationalisation of spectrum and market share is expected from the companies, and we don’t think there will be any interference from the regulators unless there are some real complications,” said Rishi Tejpal, Principal Research Analyst at Gartner.