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22 March 2017 Editorial


22 MARCH 2017

Growth by merger: On the Vodafone-Idea deal

Both Vodafone and Idea stand to gain much from the merger in a tough market

The Vodafone Group's decision to merge its India unit with the Aditya Birla Group-controlled Idea Cellular is a classic case of two companies recognising truth in the adage that ‘the whole is greater than the sum of its parts'. Of the two mobile operators, Idea functioned in its early years as a three-way joint venture involving the Tata Group, U.S. telecommunications behemoth AT&T, and the Aditya Birla Group. The proposed deal represents a welcome chance to resurrect its flagging fortunes. The last three quarters proved a brutal testament to the ravages that heightened competition could wreak on a middle-of-the-pack firm's operational finances. In Vodafone's case, the planned merger offers the global telecom major an opportunity to downsize its engagement with a market in which promise has outweighed performance, without actually exiting it. To that extent, it is a win-win for both parties. Set to vault the combined entity to the top of the heap in India's 1.13-billion subscribers strong mobile phone services market, the ‘merger of equals', as the two companies described it, will enable Vodafone to straight away net about ?3,900 crore on consummation of the deal by selling a 4.9% stake to the Aditya Birla Group, leaving its holding in the new company at 45.1%. Idea's controlling shareholders will have an opportunity to increase the 26% stake they will have at the start of the relationship by acquiring more shares from Vodafone over the next four years. The two firms expect to see substantial cost savings as the projected synergies from capital and operational expenditure help focus on meeting the challenges of a fast-evolving market amid a tariff war with the current leader Bharti Airtel and the ambitious recent entrant Reliance Jio.

Nevertheless, the merger, however grand the scale, could well end up being less than adequate to help staunch the flow of red ink amid an industrywide slide in average revenue per user and the steadily escalating cost of bidding for fresh wireless spectrum. With mobile number portability having made it easier for customers to switch networks on account of service quality levels or pricing, Vodafone and Idea have their work cut out in the lead-up to the merger, which they expect to close in 2018. For Vodafone, the prospect of having to meet a huge bill of about ?21,000 crore, were it to lose its arbitral challenge to a tax claim dating back to the transaction that paved its entry to the Indian market, must surely have been a significant consideration in tipping its hand. As the company's Chairman Gerard Kleisterlee wrote in the 2016 annual report: "While India represents an excellent long-term investment opportunity, the present regulatory challenges are hampering economic development... and this is exacerbated by other ongoing regulatory and fiscal burdens." Time alone can tell whether this will end up as a truly successful marriage.



Managing Manipur: On the importance of a stable government

The BJP-led coalition wins a trust vote in the State under controversial circumstances

In Manipur, a State troubled by ethnic strife and continuing insurgency, and dependent on Central financial transfers to run the economy, the importance of a stable and cohesive government cannot be understated. A fractured verdict reducing the Congress party, that had been in power for 15 years, to 28 seats and three short of a majority in the 60-member Assembly, has resulted in a new coalition led by the Bharatiya Janata Party taking power. The BJP will be pleased with its best-ever electoral performance in the State, winning 21 seats and leaving the Congress party second in terms of vote share. By winning the vote of confidence, the BJP-led government, with N. Biren Singh as the Chief Minister, has secured a crucial victory. But the circumstances leading to this victory and the manoeuvres that were undertaken to achieve this have dimmed the aura of the feat. For instance, an independent MLA who had reportedly assured the Congress of his support went missing for a few days after the election results. Governor Najma Heptulla then showed undue haste in inviting the BJP to form the government, despite the Congress being the single largest party. The election of the Speaker and the trust vote were inexplicably conducted as voice votes, even as a Congress legislator, Th Shyamkumar, who had switched sides just a day after the election results, reportedly voted in favour of the ruling coalition. A division of votes would have ascertained how the votes went.

The trust vote behind him, Mr. Singh faces the difficult task of managing the contradictions within the coalition. Seven of the nine ministerial berths announced so far have been given to the smaller parties, and other aspiring legislators are expected to be given roles as parliamentary secretaries, a tactic that was also used by the outgoing Congress Chief Minister, Ibobi Singh, to ensure support. That said, Mr. Singh has started his tenure on a positive note as the nearly five-month-long blockade of the valley imposed by the United Naga Council was finally called off after the offer of tripartite talks among the Centre, the State and the UNC was reiterated by the new government. While conducting negotiations with the UNC, the government should avoid taking a drastic step to reverse its predecessor's decision to bifurcate the Senapati district, a move that will be opposed by the Kuki community. It should also stay true to Prime Minister Narendra Modi's promise that there will be no compromise of Manipur's integrity in the accord being negotiated between Naga insurgents and the Central government. Ethnic strife is a tricky issue to negotiate, but the BJP-led coalition could make a fresh start by delivering a clean administration, a promise that won it new adherents, many of whom were disenchanted with the previous Congress regime.

Kukis and Nagas are the major tribe conglomerates in Manipur.










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