The Indian telecom industry has been in the grip of consolidation ever since the trading of spectrum licenses was legalized in October 2015. In the interest of increasing competition, innovation, and facilitating businesses, the Department of Telecommunications (DoT) liberalized the spectrum and allowed telecom companies to transfer their airwaves rights, subject to certain restrictions [1]. Videocon Telecommunications took the lead and monetized its spectrum rights by selling it to Idea in several circles soon after the liberalization move. Market consolidation in the telecom industry is not peculiar to India. In the United States, Direct TV was acquired by AT&T to reduce customer churn and new customer acquisition costs. As market players chose to offer quad-play services to customers, consolidation became the most efficient option in the saturated US mobile phone market. In Europe, Iliad-Telefonica-Hutchison have come together to synergies its operations and consolidate the quad-play market in Italy. Recently, Vodafone Idea has revealed its new integrated brand identity – Vi (read as ‘We’), using just the initials of both Vodafone and Idea. It is now shorter, simpler, and references both brands.[2]


On 20th March 2017 Board of Directors of Vodafone India and Idea jointly announced the merger between them. The approval of the merger was given by the Department of Telecommunication in July 2018. The National Company Law Tribunal gave the final approval to the Vodafone-Idea merger on August 30, 2018. On 31st August 2018, the merger was completed and the Board of Directors decided to name their newly merged entity as Vodafone Idea Ltd. The Vodafone-Idea Ltd is headed by Kumar Mangalam Birla as the Chairman, with CEO of the company as Balesh Sharma. On analysis of the market share of revenue and subscribers, the merger made this entity the largest company in the Indian telecom sector. Under the terms of the agreement, Vodafone’s stake is 45.2% of the total market shares in the merged entity, the Aditya Birla Group stake is 26% and the rest of the shares are held by the public. It was later decided that both the brands will continue to operate under their ongoing brand names. [3]

Vodafone Idea Limited became a Pan-Indian integrated GSM operator providing 2G, 3G & 4G mobile services under brand names of Vodafone and Idea. The Vodafone Idea merger created a wave across the telecom industry of India. It was a strong reaction to the competition of Reliance Jio and Airtel. This gave way to a string of mergers and acquisitions by the rival companies to hold their position in the telecom sector. The merger also leads to a conversion of multiple telecom service provider industries into a three-fold competition between Vodafone-Idea Ltd, Airtel, and Reliance Jio.

Specifics About The Merger

The merger includes a different percentage of shares for Vodafone and Idea while the rest belongs to the public shareholders. Approximately, Vodafone will have 45.1% of shares of the joint venture after passing the ownership of 4.9% to Aditya Birla Group for 3,900 crore post the completion of the merger. The requisites for the merger were that it required approval from both the telecom service providers for the appointment of CEO and COO. The chairman of the merged entity would be Kumar Mangalam Birla and the chief financial officer would be appointed by Vodafone. From a total of 12 members of the Board, 3 members each would be nominated by the promoters and rest of the members would be independent. Vodafone India and Idea Cellular Ltd made an agreement to complete the merger within 24 months [4]. On 31st August 2018 the merger was completed and the joint venture was renamed as Vodafone Idea Ltd. This transaction required various approvals from government authorities including SEBI, dept. of Telecom and Reserve Bank of India among others. The Department of Telecommunications (DoT) has given the green signal for the merger of Vodafone India and Idea, the largest Merger and Acquisition agreement in the sector, which has displaced Bharti Airtel from top position after over 15 years. The approval conditions, which were given over a year after the agreement, were announced in March 2017 which included an advance payment of Rs 7,268 crore. The demand is split between a bank guarantee of Rs 3,342 crore to cover what Idea owes on account of one-time spectrum charges and cash of Rs 3,926 crore by Vodafone towards the market price for non-auctioned airwaves. Promoters Aditya Birla Group infused Rs 3,250 crore in Idea Cellular, which separately raised Rs 3,000 crore ahead of a planned merger with Vodafone India. Following the equity infusion by Idea’s promoters, their stake in India’s third largest telecom operator rose to 47.2% from 42.4% now. Idea contributed its assets which included standalone towers with 15,400 tenancies and a stake in Indus towers Ltd of 11.5%. The proposed capital raising by Idea, the sale of its standalone towers to American Tower Corp. and the potential sale of its 11.15% stake in Indus Towers Ltd had augmented the firm’s long-term capital resources. The entry of Reliance Jio Infocomm Ltd in September 2016, with free services for almost seven months and cheap tariffs, had eroded margins and impacted the revenue of rivals. The contribution of Vodafone will be Vodafone India along with standalone towers with 15,400 tenancies without including 11.5% stake in Indus Towers. According to the agreement between Idea and Vodafone, Vodafone India’s funding and contribution of net debt to the merger will depend upon the net debt of Idea Cellular upon completion of the merger[5]. Vodafone will contribute more amount of net debt, about Rs 2,480 crore than Idea at the completion of the merger. Post-termination of both companies, the combined entity will be a joint venture between Vodafone and Idea, which will account for the under the equity method, controlled by both Aditya Birla Group and Vodafone.

Legal Issues Regulatory Hurdles- TRAI

The new entity will face regulatory challenges, largely concerning the transfer of allocated airwaves and exceeding spectrum holding and market share limits in six circles each. The combined entity will exceed revenue market share limits of 50% in Gujarat, Haryana, Kerala, Maharashtra, Madhya Pradesh, and Uttar Pradesh (West). The new entity will exceed spectrum caps in six circles. The Mergers & Acquisition Guidelines released by the DoT in February 2014 provide certain conditions that must be met before approval can be given for the merger of telecom companies[6]. With regard to overshooting market share limits and breaching the caps on spectrum holding postmerger, the Guidelines mandate that the merged entity must fall in line within a year of closing. Approval of the TRAI is required before the license held by the merging entities can be subsumed in the resultant entity. Within 30 days from the filing of a merger application before the National Company Law Tribunal (NCLT), the companies must file an application before the licensor. Paragraph 3(g) of the Guidelines provides that spectrum in excess of 50% in any circle in which the entity has a minimum 50% market share must be reduced. There are two ways of diminishing the spectrum held. The merged entity can choose to surrender it to the TRAI without a refund or it can transfer it to a rival company[7]. Both Idea and Vodafone will have to reduce the excess spectrum in the 900 MHz and 2500 MHz bands across Gujarat, Maharashtra, Haryana, Kerala, and Uttar Pradesh (West) circles so that the combined entity does not breach the spectrum holding cap. Spectrum liberalization costs are expected to have a Net Present Value (NPV) impact of approximately Rs 3,000 crore. The new entity would hold a 1,850 MHz spectrum. Around 1,645 MHz of it is a liberalised spectrum acquired via auctions and the rest of it was allotted to the company without auctions so the company will have to pay the market fee for it. Bharti Airtel can capitalize on this by increasing its revenue share, subscriber share, and spectrum share in each band in each circle within the prescribed 50% limit as Vodafone and Idea attempt to reduce theirs.

Listing By Way Of Reverse Merger

A reverse merger occurs when a larger company merges into a smaller company. It is commonly adopted for tax benefits because the smaller company’s relatively smaller tax liabilities alone get carried forward. A reverse merger can also be used as a tool for a backdoor listing in Stock Exchange without going for an Initial Public Offer (IPO). The deconsolidation of Vodafone India and its merger into Idea results in its indirect listing in the National Stock Exchange (NSE). Vodafone has an interesting history of indirect listing in the Indian Stock Market. Vodafone Essar was indirectly listed on the Bombay Stock Exchange (BSE) in 2011 after Essar Telecommunications Holdings (Essar) which held 11%, was merged with the listed company, India Securities Ltd (ISL). Essar underwent a reverse listing into ISL and became public. Vodafone objected to the reverse merger of Essar into ISL since it believed that ISL is illiquid and it did not want its Indian venture to become a subject of a false market. However, the Madras High Court cleared the merger and rejected Vodafone’s plea. The back-door listing of Vodafone Essar happened by virtue of S.43A of the 1956 Companies Act. Under the provisions of S.43A, a private company in which more than 25% of the paid-up share capital is held by body corporates that are not private shall be deemed to be a public company[8]. The 1956 Act does not create a distinction between body corporates incorporated abroad and those that are incorporated in India. Hence, the shareholding of the paid-up equity of Vodafone Essar easily exceeds the 25% limit after Essar was merged with a listed company. Therefore, Vodafone Essar was deemed public. Vodafone soon bought out Essar’s 33% stake and it was removed from BSE. In 2012, it was planning to list its Indian operations, but it dropped the idea. By 2014, Vodafone India acquired 100% shareholding in its Indian venture. In August 2016, Vodafone Group was again preparing to file a draft prospectus for the planned IPO of its Indian business for an estimated $2.5 billion issue, but it did not materialize [9]. Finally, Vodafone will enter the Indian stock market through its reverse merger with Idea, which is a listed company. Additionally, via the SEBI Board Meeting of January 14, 2017, further guidelines were issued to regulate the merger of an unlisted company with a listed entity. It is mandatory for qualified institutional buyers of the unlisted entity and the public shareholders of the pre-merger listed entity to own 25% shareholding in the new entity. The listed company must seek approval from its public shareholders when their voting share is falling more than by 5% when the consideration is not in the form of listed shares and the listed company acquires shares in the unlisted company from its promoters. The idea is working towards complying with the conditions laid down in the SEBI Board Meeting. The pricing formula as per SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009[10] (as amended subsequently) are also being strictly followed. The idea is currently engaged in the process of obtaining the consent of its public shareholders through e-voting. Once the process is completed, a compliance report along with the merger scheme will be filed before SEBI and the NSE.

The step-by-step process involved in the backdoor listing of Vodafone [11]

  1. Transfer of 4.9% shares in Vodafone to AB Group. Shareholding of other Idea Shareholders to be proportionately reduced as per merger ratio to allot shares in the Joint Venture Company (JVC).
  2. Draft Scheme of Arrangement under Sections 230-234 of the Companies Act, 2013.
  3. Idea shall obtain a no-objection letter from NSE for the draft scheme of arrangement.
  4. NSE shall forward the draft scheme of arrangement to SEBI.
  5. SEBI shall provide its observations to the draft scheme of arrangement within 30 days and send it to NSE.
  6. Idea shall place the observation letter of the stock exchanges, in the explanatory statement or notice or proposal accompanying resolution seeking approvals of the Scheme.
  7. Idea shall file a draft scheme of arrangement before NCLT obtaining a no objection letter from NSE, which shall be placed before NCLT.
  8. Indirect listing of Vodafone India, which has now merged into Idea to form JVC, occurs.

Unaddressed Issues & Potential Risks

The companies did not identify a way to resolve the deadlock. In the case of equal joint ventures, it is generally advisable to devise mechanisms for solving an impasse. Otherwise, it might be inevitable to deter the effective Board function.

For instance, the equal division of powers concerning the appointment of Key Managerial Personnel (KMP) could create conflict. In the past, where clear terms of appointed existed, there have been huge controversies as seen in the merger between HDFC Life Insurance Co. Ltd and Max Life Insurance Co. Ltd, which created India’s largest private insurer. For example, the equal division of powers over the appointment of Key Managerial Personnel (KMP) might create conflict. There have been huge controversies in the past where clear terms of appointment existed, as seen in the merger between HDFC Life Insurance Co. Max Life Insurance Co. & Ltd. Ltd which created the largest private insurer in India.

During the lock-in period, the shareholder agreement does not contemplate modes for further capital infusion, nor post the four-year period. This is important because the new entity will be highly leveraged and it may not be feasible to finance debts. There are several considerations to the additional capital contribution by the JV parties. To maintain equality of shareholding, both parties will need to add the same amount of value. When the JV entity needs it, the liquidity and the capacity of the JV parties may not allow equal capital infusion.

Furthermore, the merger agreement does not mention the rights of the JV parties’ intellectual property in the foreground and context. In their absence, the clauses on allowances are often noticeable. The JV parties have announced their intention to synergize operations, but the integration of the supply chain and other vertical elements is not clear.

Vodafone Idea rebranded as ‘Vi’

Vodafone Idea Ltd on Monday rebranded itself as ‘Vi’, creating a unified identity two years after the merger of erstwhile Vodafone India Ltd and Idea Cellular Ltd. [12]

The company termed the rebranding as the final step towards integrating the two brands, which have had vastly different appeals among customer segments. The decision came days after the Supreme Court ordered telecommunications operators to pay 10 percent of this year’s cumulative adjusted gross revenue (AGR)-related duties, and the remaining 10 installments of payments, beginning next fiscal year[13]. The fund-raising will throw a lifeline to cash-strapped VIL, which has suffered massive losses, as it has been losing subscribers and average revenue per user (ARPU), and faces outstanding AGR dues of about Rs 50,000 crore. The company reported a staggering net loss of Rs 73,878 in the fiscal year ended March 2020-the highest ever recorded by any Indian firm-after statutory duties were assigned to the Supreme Court. It reported a net loss of Rs 25,460 crore for the June(2020) quarter after making additional provisions to pay past statutory dues and had said its ability to continue as a going concern hinges on the Supreme Court allowing more time to pay dues. The apex court has rejected the demand for a 20 year time for telcos to clear a combined Rs 1.6 lakh crore in past dues but allowed the liability to be cleared in 10 years. Following the SC verdict earlier this month( September 2020), some analysts had been of the view that Vodafone Idea may struggle to pay its dues in the 10 years that the Supreme Court granted to telecom companies, although Bharti Airtel may be able to meet the payment schedule.[14]

The company is also looking to raise up to 25,000 crores. This is to meet government dues, pay interest, and invest in operations. Vi will initially raise hybrid debt through convertible bonds, according to reports. Meanwhile, this merger kicks off a journey to bring world-class digital experience to 1 billion Indians on the 4G network. The operator will increase tariffs, which will improve its average revenue per user. This, along with the Supreme Court ruling that allows VIL to pay its AGR dues over the next 10 years, should help it to stay afloat in the near term.


Over the last three years, the two companies have maintained separate brands. In a press statement issued by the company, Vodafone Group CEO Nick Read called the rebrand an “important next step.”[15]Vodafone Idea also mentioned that its 4G network now reaches 1 billion Indians, double the coverage at the time of announcement. The company has also invested in dynamic spectrum refarming (DSR), massive MIMO, small cells, cloud, and open RAN technologies to provide better services to users.

The company has been facing several challenges. It has to make a massive payout as part of Adjusted Gross Revenue (AGR) dues. Further, it has been losing market share. Vodafone Idea’s subscriber base dropped from 408 million at the time of the merger to 280 million at the end of June this year. Vodafone Idea has claimed several times that it will be forced to exit the Indian market unless it gets some relief from the government. The recent judgment which allows ten years to telcos to clear AGR payments helps Vodafone Idea. This rebranding close to the AGR judgment signals that the company is here to stay. The rebranding as Vi comes close on the heels of Vodafone Idea’s announcement to raise funds of up to INR250 billion ($2.4 billion) through a mix of debt and equity instruments. At the same time, the Vodafone Group said recently it will not infuse further equity in the company. These funds will be used to clear dues and upgrade their networks. The network expansion and modernization will help the company move 2G subscribers to 4G, allowing it to boost its average revenue per user (ARPU), which is the lowest among the private telcos.

The company official also hinted at a tariff hike to bolster its financial position. Vodafone Idea’s ARPU of INR114 ($1.50) is much lower than Bharti Airtel’s of INR157 ($2.13) and Reliance Jio’s of INR140 ($1.90).[16]



[1] 0_13-Trading-WPC.pdf (last visited Mar 26, 2017).
















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Author – Anjali Krishna