Vodafone India has merged with telecom company Idea Cellular to become India's largest mobile player this week.
On Monday, March 20, Vodafone Group PLC announced that they would combine their Indian branch of business with the local competition to create India's biggest wireless company. Vodafone is currently in second place in the Indian mobile market with 204.7 million subscribers, followed by Idea Cellular, who have 190.5 million.
However, together they would overtake the country's leading carrier Bharti Airtel Ltd., who currently boasts 265.8 million subscribers.
The move poses opportunity and risk in equal measure for Vodafone, as the promising Indian market has been an expensive venture for the British company, already. Indeed, the mobile giant didn't hesitate to splash the cash around the world after the sale of its Verizon Wireless stake.
Vodafone subsequently took a $5.4 billion write-down on its Indian branch as a result of some stiff competition. But their difficulties with local companies didn't end there.
At the end of 2016, India's richest man Mukesh Ambani, offered almost six months of free mobile services in an effort to plug his new carrier, which Vodafone's chief executive Vittorio Colao admitted was an "unprecedented" move.
Colao confirmed that Vodafone and Idea Cellular would continue to use their current brands but unite under one name; He could not foresee any regulatory issues as of yet.
The union will create India's largest mobile network with 400 million customers. In turn, the move secures Vodafone's position as one of the world's largest telecom markets. Vodafone will retain 45% of Idea Cellular after the merger and both companies are hoping to annually save $2 billion by year four of the merger.
It certainly is a lucrative, albeit unpredictable, mobile landscape in India: 700 million people don't have cell phones, but 600 million do, and only 250 million of these have smartphones, according to Colao. It's no wonder carriers are competing with each other to sell lucrative data plans to potential smartphone users.
Meanwhile, Idea would be bumped up to Vodafone's subscriber base to ensure its No. 2 standing in the market wouldn't be altered.
It certainly appears to be a win-win situation for Vodafone. The parent company will now own a stake in Indian business which eradicates the $8.2 million debt in its books. Furthermore, the move is fitting with Vodafone's aim to become the No. 1 or No. 2 player in every country it sells in.
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