Vodafone-Idea deal shows our commitment, say company heads

Kumar Mangalam Birla, chairman of the diversified $41-billion Aditya Birla Group andVittorio Colao, chief executive of Vodafone Group Plc., talk about the merger of Vodafone’s India unit with Idea Cellular to c;reate the country’s largest telecom firm with 400 million customers. Excerpts:

Markets have not reacted too well to the announcement, with Idea shares falling on Monday.
Mr. Birla: I think there is some miscommunication, misunderstanding about the price at which ABG is going to buy shares from Vodafone, which, I think, is causing this. I assume that when you have such large transactions, it takes the market some time to grasp it completely. If the management had spent hundreds of hours to put together a scheme like this, obviously the market will take some time to understand it. I think it is a knee-jerk reaction.

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We believe this is based on business fundamentals. We’ve got complimentary assets in terms of presence in different markets. Vodafone is more dominant in metros ... we are more in urban and rural areas. We together will have a combined market share of about 40%, combined customer share of about 30%, and a pool of spectrum of about 1850 MHz.

We hope to play a much more aggressive and significant role participating in Prime Minister’s digital India vision, and contribute more significantly to the government’s financial inclusion vision.

I think it is the business logic that has fundamentally driven this combination. I believe this is something that will c;reate immense value.

There is speculation that the transaction was expedited because of concerns about Jio.
Mr. Colao: You always talk about Jio. Poor Airtel. They are the market leaders. They are very strong and ahead of the competitors. It is not just about Jio.

There is, to be honest, also Aircel, BSNL. It is not just a Jio market. It is a very competitive market that will continue to be so. Why are we going together? Over time, as Kumar said, we’ve built companies that are very complimentary, different geographic focus but very well run ... very complimentary with respect to spectrum. Together, we will be number one or number two in all Indian circles with the exception of J&;K.

There will not be a single circle where we will have less than 10% market share. Which means that we can make money in each circle, and reinvest money in each circle.

It is not Jio. It is the history of the company, which is why Mr. Birla and I have been in contact for many years, having conversations thinking about the future. I think more than Jio, it is the arrival of data — what’s happening in Europe. The same type of logic is driving our consolidation in Europe. Data is very capital-heavy and requires a lot of companies to go together. This was natural because we were so complimentary.

When Vodafone arrived in India, it had said India was a jewel in its crown. Have things changed for you to consider a merger?
Mr. Colao: India is a bigger jewel now. I always say that India has been wonderful for Vodafone from a market point of view, from brand point of view and from customer point of view. However, it has not been good from the regulatory point of view because spectrum has been sold at prices that are too high. Also, competition and competition rules have been managed in a very erratic way. Hopefully, this move will c;reate a better industry ratio.

You have said regulatory issues remain a concern for Vodafone. Do you see regulation as a major headwind given the perception about the way TRAI and DoT are dealing with them?
Mr. Calao: I think regulatory issues shouldn’t be seen as a headwind in any industry. Regulation should help an industry develop in an orderly way. I am confident that by going together, now we have a strong player ... together with others and not alone in the competitive industry. The regulator has a real chance to prove that they are neutral, regulate what needs to be regulated, and they allow good sustainable competition.

With the consolidation taking place in the industry, do you foresee an end to the tariff war?
Mr. Birla: You still have five pretty solid players. You still have a very competitive market. It still remains an intensely competitive market.

While you say you are equal partners, why is the transaction structure so complicated?
Mr. Birla: The fact is that we — Idea and Vodafone — have been valued equally by the valuers. Idea has promoter shareholding but we also have minority shareholders.

The structure of the deal is such that Vodafone and the promoter of Idea group, which is the Aditya Birla Group, have equal shareholdings. That’s why the deal is structured the way it is.

Mr. Calao: Agreement starts with 45% (Vodafone), 26% (Idea) and we will meet somewhere in between because the spirit of the partnership on the first day is equal partnership.

We will not go to the excess shares. And when how many shares Birla group wants, the rest will be disposed.