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Vodafone CEO: India merger will go smoother than Australian JV

British mobile operator Vodafone Group Plc has moved to reassure investors that its Indian merger would succeed where its Australian tie-up in 2009 with Hong Kong's Hutchison Whampoa disappointed.

The $23.2 billion megamerger between the Indian operations of Vodafone and Idea Cellular Ltd will combine India's second- and third-largest operators to create an industry giant with more than 390 million customers and a 43% market share.

During a Feb. 1 earnings call Vodafone CEO Vittorio Colao described the operations in India as a better fit than the Australia merger and insisted the transaction in the south Asian country would provide stronger results.

After years of bleeding money and customers, a series of network failures and poor brand sentiment at the 50:50 joint venture in Australia led to subscriber losses as high as 1.2 million for the year 2013. The group saw its first lift in subscriber numbers in four years in 2014 as part of a three-year turnaround strategy.

"Don't forget that in Australia ... there was a very different positioning and to some extent head-on positioning of the two brands," Colao told analysts. "We are more complementary here than in Australia and we are confident that we'll do a good job."

Vodafone's merger with Idea is a response to competitive pressure following the 2016 launch of low-cost rival Reliance Jio. Aggressive pricing by Reliance, a massive conglomerate owned by India's richest man, Mukesh Ambani, led to a surge in Vodafone's losses, forcing the operator to take a €5 billion write-down on its India business.

The new rival's free services in particular weighed heavily on customer usage at India's three biggest operators — Bharti Airtel Ltd., Vodafone and Idea — forcing all three telcos to slash prices and accept lower earnings, sparking a wave of consolidation in one of the world's fastest-growing mobile markets.

The intense price competition in India resulted in total revenue at Vodafone's India operations declining 26.6% to €1.06 billion for the quarter ended Dec. 31, 2017, while service revenue declined 23.1%.

Colao said: "While the competitive and regulatory environment in India remains intense, we continue to make good progress in securing the required approvals for the merger with Idea Cellular and we have taken steps to strengthen the combined company's financial position."

The deal between Vodafone and Cellular was approved by India's National Company Law Tribunal in January and is expected to close during the first half. The deal received approval from the Competition Commission of India in July 2017 and a conditional approval from the Securities and Exchange Board of India in August 2017.

Overall, Vodafone reported a 3.6% decline in total group revenue to €11.8 billion. Growth was up in Germany, Spain and South Africa and the rest of Africa, the Middle East and Asia-Pacific. The group took a hit in its Italian and U.K. markets, where service revenue fell 0.4% and 4.8%, respectively.