An unexpected delay to final regulatory approval for Vodafone India’s merger with Idea Cellular could result in customer losses, revenue declines and other complications, analysts told The Economic Times (ET).
Last week, India’s Department of Telecommunications (DoT) said it was mulling a demand for INR47 billion ($683 million) in backdated spectrum charges from Vodafone before clearing its alliance with Idea Cellular.
The companies had hoped to complete the deal by 30 June. The charges, levied in 2015, relate to the merger of Vodafone’s five India-based business units into one company.
ET said conditional clearance of the deal, first announced in March 2017, was expected this week, but there could be a further month-long delay if the regulator moves ahead with the spectrum fee demand. The interruption could last longer if courts are brought into the matter.
Naveen Kulkarni, telecoms analyst at PhillipCapital, told ET even a two month delay could see the combined entity suffering reductions in revenue market share, and risk losing key customers to rivals Bharti Airtel and Reliance Jio. Plans to scale-up network quality and go-to-market strategies could also be be pushed back.
Also commenting, Rajan Mathews, director general of Cellular Operators Association of India, said the delay could also hinder integration of the companies, lead to difficulties optimising spectrum assets and cause HR issues, as staff who would have lost their jobs in the tie-up may have to be retained for a certain period of time.
Other unnamed market watchers said the delay would hold up an estimated $10 billion of capex and cost synergies, which was critical for the combined entity to stay competitive on 4G, where Airtel and Jio currently lead.
An unnamed executive at one of the two merging entities suggested to ET the delay was a result of some foul play: “The delay in merger closure is an unforeseen spanner. It may have been triggered by third-party vested interest.”