by shonu bhadoria

2. CASE STUDY
IDEA – VODAFONE MERGER 2017-18
PARTICIPANTS :
MMS I YEAR
Ahsan Choudhury
Mehek Shaikh
Lt Col Shonu Bhadoria

3. PREVIEW
Part I – Overview of the Telecom industry
Part II – Disruption by Jio
Part III - Vodafone Idea merger
Part IV – Challenges to the merged entity
Part V - Fallout on the Telecom industry

4. Part I
Overview of the
Telecom industry

5. Overview : Telecom Industry
❑ The telecom market split into three segments
▪ Mobile (wireless)
▪ Fixed line (wired)
▪ Internet services
❑ Telecom subscriber base expands substantially
❑ Surging telecom revenues
❑ Wireless segment dominates the market
❑ Internet subscribers increasing at a fast pace

6. Part II
Disruption by Jio

7. DISRUPTION BY JIO
 Reliance acquired 95% stake in Infotel in 2010
 Jio started operations on September 5, 2016
❑ Invested over 1.9 lakh crore
❑ Disrupted the market by manipulating TRAI-framed guidelines
❑ Price cuts and ensuing price war
❑ 4G VoLTE voice call revolution
❑ JioFiber - Disrupting the wired broadband sector
❑ Jio phone - Creation of a new 4G 'smart feature' phone segment

8. Part III
Vodafone
Idea merger

9. MERGERS TO SURVIVE
Vodafone and idea merger in 2017

10. VODAFONE & IDEA- BENEFITS FOR ALL STAKEHOLDERS
A new champion of ‘Digital
India’
• Accelerate 4G/ 4G+/5G services across
India
• Sustained and efficient investment to
create a world class Indian telecom
infrastructure
• Stronger financial inclusion through
mobile payments
• Improved mass-market digital services
in urban and rural areas
Creating shareholder value
• Stronger, listed asset in India, with a deep spectrum position to deliver the capacity to
compete
• Improved returns on capital from higher scale and substantial opex and capex
synergies
• De-leveraging of the combined company’s and Vodafone Group’s balance sheets
• Improved returns to all shareholders of both companies
Clear customer benefits
• Complementary footprint creates
leading network coverage and
capacity
• Scale ensures attractive prices and
long- term, sustainable consumer
choice
• Improved offerings for large
enterprises, small businesses and
the public sector
• Best-in-class customer experience
across all segments

11. VODAFONE AND IDEA: THE LARGEST INDIAN TELCO
Largest telecom operator:
#1/#2 RMS in 21 out of 22
circles1
Highly complementary footprint and
coverage
• Metro, urban and rural markets
• Broadest coverage: 273k 2G sites2,
189k 3G/4G sites2
Competitive spectrum portfolio
and broadband coverage
• 1,850 MHz3, premium 900 MHz in 17 circles
• 163 3G/4G carriers3, up to 250mbps in
12 circles
Extensive distribution channels and
unparalleled service infrastructure
• Over 2m retailers
• 19k branded stores and 28k contact
centre agents
Full digital services to Indian
consumers and businesses
• Mobile payments, IoT, advanced
enterprise offerings and entertainment
services
Substantial cost and capex synergies
• Estimated NPV of US$10bn
• $2.1bn annual run rate in 4th year

12. VODAFONE AND IDEA POST COMPLETION
• Vodafone will own 45.1% of the combined company after transferring a 4.9% stake to the Aditya Birla Group for US$579 million in
cash, concurrent with completion of the merger. The Aditya Birla Group will then own 26.0% of the combined company
• Aditya Birla Group has a right to acquire up to a 9.5% additional shareholding from Vodafone
• Standalone towers and Idea’s 11.15% stake in Indus Towers to be monetized
Idea 26%
Mobility
• Both mobility
businesses
Towers
• Standalone towers (tenancies)
– Idea: 8,886 (15,418)
– Vodafone: 10,926 (15,846)
• Idea’s 11.15% stake in Indus
Payments Bank
• Idea Money
• Vodafone M-Pesa
• Aditya Birla Idea Payments
Bank
Other Subs / JVs
• You Broadband
• Firefly Networks
• Other subsidiaries
Public Vodafone 45.1%
Merged
entity
28.9%
Indus Towers 42%

13. PARTNERSHIP WITH INTERNATIONAL EXPERTISE
&TELECOMS
Technology
• Key shaper of technology
standards, key GSMA decisions,
chairmanship of the NGMN
Alliance
• Innovator in mobile
payments (M-Pesa in 10
countries)
Enterprise
• Leader in enterprise mobility
internationally, PoPs in 73
countries
• Global leader in IoT
• 49 partner markets
Procurement
• Best-in-class purchasing
capability reflecting
leading multi-country
scale
Leading conglomerate
• One of India’s most
respected and largest
conglomerates with over
150 years of heritage
• Aggregate revenues of US$41bn
Diversified profile
• Proven track-record of
building leading businesses
across diverse industries and
geographies
Global presence
• Operations across 30+ countries
• Over 120,000 employees
belonging to 42 different
nationalities
Joint Management Team &
Governance
• Each Party to have 3 director
appointment rights, 6
independent directors
• K. M. Birla to be Chairman as one
of 12 Board members
• Vodafone to appoint the CFO
• CEO and COO selected jointly on
a ‘best person for the role’
principle, shortly before closing

14. Total spectrumholdings
post Oct-2016auction(MHz)1
958
1,489
1,235
984 958 891 883
387
891
LARGEST CUSTOMER BASEWITHACOMPETITIVE
SPECTRUM PORTFOLIO
205
320
205 191 183
100
72
53
191
Vodafone-
Idea
395
Customer market share(Q3FY2017)
35% 28% 18% 17% 16% 6% 5%
Spectrum
Vodafone-
Idea
Shareof spectrum1
27% 22% 18% 14% 13% 6%
1,850
13%9% 14%
Customers Asat Q3FY2017 (m)
2 2 3
8

15. 2.0
3.3
2.0 1.8
0.5
n.a.
1.8
MARKET LEADER INREVENUE ANDEBITDA
Vodafone-
Idea
3.8
Scopeformarginimprovement throughincreasedscaleandsynergies
5.4
6.7
9.8
6.7
5.4
3.4
2.7
1.9
Vodafone-
Idea
12.1
Grossrevenuemarket share(FY2016)
40% 32% 22% 18% 11% 6%9%
FY2016 (US$bn)EBITDAGrossrevenue1 FY2016 (US$bn)
2 3
9

16. DIGITAL CHAMPIONENABLEDBYCOMBINEDNETWORKAND
SPECTRUM
141
Vodafone-
Idea
249
185
141 132
132
Significant spectruminvestments…
Spectruminvestment Apr-2010todate
21.0
13.0 11.8
9.2
7.1
4.4
2.7
Vodafone-
Idea
Enablingleadingspectrumcapacity
Numberof broadbandcarriers(3G+4G)1
Largest numberof sites
GSMsites1
(US$bn) (#)
1. Informationforother operatorsbasedon company estimatesandmay differfromactualdeployment; spectrumholdingsareshown onapro-formacombined basisand may need tobereducedtocomply with M&Aguidelines;basedoncurrent footprint,2Gsite
numberslikely tofall post completion duetorationalisation
2. IncludesUninor
3. Broadbandsites
(000s)
10
163
150
74 73
Vodafone-
Idea
22% 21%
351 343 255 233
10%
Vodafone-
Idea
16% 15%
Premiumspectrumposition
Spectrummarket sharein <900 MHzbands1
(%)
Spectrum holding (MHz)
17%
118135283 165
2 2
223
138
10%
8% 7%
273

17. SUBSTANTIAL COST ANDCAPEXSYNERGIES
Synergyareas Description
~US$2.1
billionrun-
ratecost
andcapex
synergies
in4thyear
NPVof cost andcapex synergies ~US$10.5bn
1. Includestotal integrationcostsamounting to c.US$2 billion;excludesspectrumliberalisationcosts,estimatedat US$0.5 billion NPV.TheNPVof cost andcapexsynergiesafterspectrumliberalisationandintegrationcostsisUS$10.0 billion
Network& IT • Rationalisation of combined site requirements (more than 20%) following network consolidation
• Avoidance of duplicative 4G network expansion and upgrades,re-deployment of over-lapping
equipment
• Material longer-termIT savings due to scale benefits,infrastructuresharing and system combination
Customer service
&
customer
acquisition
• Service centres, back officeand distributionefficiencies
• Scale efficiencies with channel and service partners
G&A and other • Rationalisation of combined marketing costs
• Streamlining of overlapping activities

18. LIMITED REGULATORY DIS-SYNERGIES
~500
<0
?
Dis-synergyareas Description NPV(US$m)
?
12
Liberalisation
of spectrum
• Liberalisationcost on Vodafone India spectrum in 13 circles
Breachof
spectrum
caps
• Need for spectrumsurrender or sale where spectrum caps are breached
• Opportunitytosell excess spectrumor hand it back to the government
Potential breach
of revenue
market share
caps
• Potentialrevenue loss as a result of breaches in revenue
market share caps (<50% compliance test, to be measured 12
months post closing)
Potential breach
of customer
market share
caps
• Potentialrevenue loss as a result of breaches in customer
market share caps (<50%compliance test,to be measured 12
months post closing)

19. TRANSACTIONOVERVIEW
1. Basedonthefullydilutednumber of sharesof Ideaasat31 January2017
2. Basedonthefollowing valueequation:(Ideamarket capitalisationof US$3.9bn / 50%)x45.1%+US$579m (receivedfor4.9%stakesold)+VodafoneIndianet debt contributionof US$8.2bn basedonIdea’snet debt asat 31 December 2016;Idea’smarket
capitalisationbasedon30 tradingdayVWAPasat 27January2017 (implied sharepriceof INR72.5);Idea’snet debt basedonproformaadjustmentsaspertransactiondefinitions
3. LTMEBITDAasat 31December 2016
4. Ideamobilevaluationcalculatedexcluding its11.15%stakeinIndusTowers(valuedat 8.8xLTMEBITDA,asperBhartiInfratel multipleasat17 March2017 close)
• Vodafone to combineitssubsidiary Vodafone India(excluding its42%stake in IndusTowers) withIdea Cellular
• Immediately post merger,Vodafone to receivea50%stake inVodafone-Idea (approximately 3,630m shares)
• Concurrent withcompletion, Vodafone will transfer a4.9%stake in thecombined company toAditya BirlaGroup for
US$579m in cash
Proposed
transaction
• Vodafone: 45.1%
• Aditya BirlaGroup: 26.0%
• Idea’sminorityshareholders: 28.9%
• Equalisation mechanism to align the shareholdings of Vodafone and the Aditya BirlaGroup
over time
Ownershipsplit
• Transaction subject to prior regulatory approval andIdeashareholder
approval
• Completion anticipated duringcalendar 2018
Timeline
• Vodafone Indiavalued at an enterprise valueof US$12.4bn2
– Implied6.4xLTMEBITDA3
– Based on Ideamarket capitalisation of US$3.9bn (6.3xLTMEBITDAexcluding Idea’sIndusTowersstake)4
– Vodafone tocontribute $369 millionmorenet debt than Ideaat closing (approximately $8.2 billion asat 31
December 2016)
Valueequation
• Vodafone India'sstandalone towersto bepart of transaction, with theaim of sellingthem before
closing
• Vodafone to retain its 42%stakein IndusTowers
• Exploring strategic optionsincluding afull or partial sale of Vodafone’s stake in IndusTowers
Towermonetisation
options
13

20. EQUALISATION MECHANISM: VODAFONE AND ADITYA
BIRLA GROUP
45.1%
26.0%
• Aditya Birla Group can buy up to 9.5% from
Vodafone to equalise its shareholding at
35.5%
• Valuation of US$14.1 billion for 100% of the
combined companies’ equity, equivalent to
INR130 per Idea share
• Neither party can sell any shares to 3rd
parties
• Vodafone to sell shares to
equalise its shareholding
with Aditya Birla Group
over a 5 year period
Standstill period
Year Year Year
1 2 3
Year
4
Years
5 - 9
• Aditya Birla Group can
commit to buy the
remaining balance up to
9.5% at market price from
Vodafone
• Must inform Vodafone at
the start of the year how
many shares it will buy
and complete the
purchase within 12
months
• Vodafone can sell shares
not reserved for the Aditya
Birla Group from the start
of the year
14

21. Part IV
Challenges to the
merged entity

22. CHALLENGES TO MERGED ENTITY
 Operational integration -tough and
costly call
 Consolidation of ecosystem partners
 Seamless execution to counter Jio’s
market disruptive moves
 Differ significantly in terms of billing
systems, network vendors and culture
 Realignment of existing agreements
and contracts.
 Complex and costly termination of
existing contracts
 IT, CRM ,Tower partners & equipment
providers
 Integrating marketing teams
 Adjusted market revenue share > 50% in
7 circles
 Average spectrum market share 20%
But breaching 25% limit in 3 circles
 Subscriber market share cap of 50%
breached in 2 circles
 Brand identity IDEA v/s VODAFONE
 Organisational challenges
 Human resource management
 Unequal partnership
 Higher capex to compete effectively with
Jio and Airtel

23. Part V
Fallout on the
Telecom Sector

24. FALLOUT ON TELECOM SECTOR
 Lower tariffs for consumers
 Better quality of services for consumers
 Wider 4G network coverage
 Telecom to be data centric
 Reduced fixed costs for telcos
 Improved margins
 Intense competition to gain and retain market share
 Price war to continue
 Gradual price rationalisation
 Jio will mature soon

26. TELECOM SUBSCRIBER BASE EXPANDS
SUBSTANTIALLY
205.86
300.49
429.72
621.28
846.32
951.34
898.02
846.32
996
1058.86
1194.58
1206.71
18.3
26.2
37
52.7
70.9
70
83.36
78.7 77.5879.38
74.02
92.98
93.4
40
30
20
10
0
60
50
90
80
100
0
200
400
600
800
1,000
1,200
1,400
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
*FY18
Telephone Subscriber (in million) Teledensity
 India is currently the 2nd largest
telecommunication market and has the 3rd highest
number of internet users in the world.
 India’s telephone subscriber base expanded at a
CAGR of 19.22 per cent, reaching 1,194.58 million
during FY07–17.
 Tele-density (defined as the number of
telephone connections for every 100 individuals)
in India, increased from 17.9 in FY07 to 93.40 in
FY18*.
Visakhapatnam port traffic (million tonnes)Growth in total subscribers
Note: CAGR - Compound Annual Growth Rate; *Data till September 2017
Source: Telecom Regulatory Authority of India
8

27. .4
.9
.2
2
5
239.0
267.0
302.4
342.7
422.2
431.21
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY181
NUMBER OF INTERNET SUBSCRIBERS INCREASING
AT A FAST PACE
 The number of Internet subscribers
in the country increased at a CAGR
of 41.62 per cent, with the number
reaching 431.21* million in June, 2017
from 8.6 million in 2006.
 The number of internet subscribers
in the country is expected to double
by 2021 to 829 million. Overall IP
traffic is expected to grow 4-fold at a
CAGR of 30 per cent by 2021.
Visakhapatnam port traffic (million tonnes)
500
450
400
350
300
250
200
150
100
50
0
Note: CAGR - Compound Annual Growth Rate; BSNL - Bharat Sanchar Nigam Ltd, Internet live stats, 1As of June 2017, 2CAGR is till FY17, * As per latest available data
Source: Telecom Regulatory Authority of India, Business Monitor International, Aranca Research Including Internet Access by Wireless Phone Subscribers,
15
Internet subscriptions (in Million)
42.47%

28. SURGING TELECOM REVENUES
19.6
23.3
32.1
33.2
33.3
37.7
40.8
39.1
38.8
41.7
39.2
42.6
15.4
0
5
10
15
20
25
30
35
40
45
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY181
 Indian telecom sector’s revenue grew
at a CAGR of 7.31 per cent from US$
19.6 billion in FY06 to US$ 42.6 billion in
FY17. During Q1 FY18, gross revenues
of telecom sector in India reached US$
9.9 billion.
 Revenues from the telecom equipment
are expected to grow to US$
26.38 billion by 2020.
Visakhapatnam port traffic (million tonnes)Telecom Sector Revenue (US$ Billion)
2CAGR 7.31%
Note: CAGR - Compound Annual Growth Rate; FY – Indian Financial Year (April – March); Figures mentioned are as per latest data available, 1Up to September 2017, 2CAGR is till FY17
Source: Telecom Regulatory Authority of India, Aranca Research
9

29. WIRELESS SEGMENT DOMINATES THE MARKET
56.7%
41.3%
1.7% 0.3%
Urban Wireless
Urban Wireline
Rural Wireless
Rural Wireline
 In September 2017, India’s telephone
subscriber base reached 1,206.71
million
 In September 2017, the wireless
segment (98.04 per cent of total
telephone subscriptions) dominated the
market
 Urban regions accounted for 58.41
per cent share in the overall telecom
subscriptions in the country, while rural
areas accounted for the remaining share
Visakhapatnam port traffic (million tonnes)Composition of telephone subscribers (*FY18)
Source: Telecom Regulatory Authority of India; *Data till September 2017
10