• Vodafone India and Idea have merged, creating the largest telco in India
• 400 million customers, 35 per cent market share, 41 per cent revenue share
• Yet another of its regional businesses deconsolidates into a JV
• Reduces Vodafone Group net debt by $8.2 billion

Vodafone announced this morning that it will combine its subsidiary Vodafone India with Idea in a deal valued at $23 billion, creating the largest telco in the country by revenue and subscriber numbers. According to Vodafone, the new entity (whose name and brand is still to be determined) will have almost 400 million customers, a 35 per cent market share and a 41 per cent revenue share. That moves it above Bharti Airtel and puts it way ahead of disruptive newcomer Reliance Jio – although whether it can now compete better against Jio’s seemingly irresistible offer of free services is still to be seen.

The deal excludes Vodafone’s 42 per cent stake in Indus Towers (a venture between Vodafone, Idea and Bharti), but the UK telco says it will explore strategic options for its 42% stake in Indus Towers; potential options include either a partial or a full disposal. Prior to completion of the transaction, the plan is for Vodafone and Idea intend to sell their standalone tower assets and Idea’s 11.15 per cent stake in Indus Towers to reduce leverage in the combined company.

Vodafone and Idea are, as you would expect, selling the merger as providing a strong commitment to deliver on the Indian government’s “Digital India” strategic vision. They also promise that “sustained investment by the combined entity” will accelerate the pan-India expansion of wireless broadband services using 4G, 4G+ and future 5G technologies, support the introduction of digital content and IoT services, as well as expand financial inclusion through mobile money services.

“The combination of Vodafone India and Idea will create a new champion of Digital India founded with a long-term commitment and vision to bring world-class 4G networks to villages, towns and cities across India,” said Vittorio Colao, CEO of Vodafone Group. “The combined company will have the scale required to ensure sustainable consumer choice in a competitive market and to expand new technologies – such as mobile money services – that have the potential to transform daily life for every Indian.”

The combined new company will hold 1,850MHz of spectrum, including about 1,645MHz of liberalised spectrum acquired through auctions. It will comprise 34 3G carriers and 129 4G carriers across the country’s various metro circles.

“This landmark combination will enable the Aditya Birla Group to create a high quality digital infrastructure that will transition the Indian population towards a digital lifestyle and make the Government’s Digital India vision a reality,” added Kumar Mangalam Birla, Chairman of Aditya Birla Group. “For Idea shareholders and lenders who have supported us thus far, this transaction is highly accretive, and Idea and Vodafone will together create a very valuable company given our complementary strengths.”

Their accountants believe cost and capex synergies will come to around $10 billion after integration costs and spectrum liberalisation payments, with estimated run-rate savings of $2.1 billion by the fourth full year post completion. Vodafone will own 45.1 per cent of the combined company with the Aditya Birla Group (who own Idea) owning 26 per cent with the right to acquire more shares from Vodafone with a view to equalising the shareholdings over a five-year period. Vodafone India will be deconsolidated by Vodafone and reported as a joint venture, reducing Vodafone Group net debt by approximately $8.2 billion. The transaction is expected to close during 2018, subject to regulatory and competition approvals. 

Today’s news is the latest in a series of strategic rethinks for Vodafone’s business around the world. Since 2014, when it completed the sale of its 45 per cent stake in Verizon Wireless to its former partner for $130 billion, Vodafone has been apparently unsettled by its global ambitions.

The Group’s Dutch operations are now, as of last December, a 50:50 joint venture with Liberty Global and operate as VodafoneZiggo. It also now runs a 50:50 venture with Hutchison in Australia. It has a 65 per cent stake in South Africa with Vodacom and  a 40 per cent stake in Kenya’s Safaricom. In Egypt Vodafone has a 55 per cent stake alongside Telecom Egypt.

Vodafone Group’s core European markets are (in order of revenue generation) Germany, the UK, Italy and Spain. Plus the Group reports “Other Europe”, which includes Albania, Greece, Hungary, Ireland, Malta, Portugal, Romania and Turkey. However, what will happen in the UK is open to speculation, as it appears that talks are once again underway with Liberty Global to create some kind of merged company (and no doubt deconsolidated from the publically listed Group).

The Group also separately reports India (although not for much longer), Vodacom in Africa and “other Africa, Middle East, Asia Pacific”, which include DR Congo, Tanzania, Ghana, Lesotho, Mozambique, Nigeria, Qatar and New Zealand. It also has 48 “Partner Market” agreements (where it does not hold an equity stake) and a couple of MVNOs in South America.

That’s quite a mixed bag. So the question is, how does the India JV move fit with Vodafone’s stated 2016 strategy of being “a converged communications leader, investing to provide our customers with differentiated network access and excellent customer service”? Is Vodafone happy with the joint venture approach (which didn’t exactly work out well in the US), or is it the only realistic and economic way it can maintain its global footprint?

Odds are, though, that the Idea deal won’t be the last JV “buy-out” that Vodafone negotiates this year.