Mumbai: Vodafone Group Plc is nearing an initial agreement to merge its Indian operations with Idea Cellular Ltd, in a deal that would create the largest telecom company in one of the world’s most competitive markets, people with knowledge of the matter said.

The two firms plan to announce a preliminary agreement as soon as this month, according to the people, who asked not to be identified because the information is private. The initial accord is unlikely to spell out the merged entity’s shareholding structure because the due diligence has not yet been completed, the people said.

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Carriers in India are seeking to consolidate after Reliance Jio Infocomm Ltd, backed by billionaire Mukesh Ambani, introduced free services in September, undermining industry revenue. The competitive pressure is creating an alliance between the country’s No. 2 provider, Vodafone India, and its third largest, Idea, controlled by Aditya Birla Group.

Billionaire Kumar Mangalam Birla will be the chairman of the new entity, according to the people. Vodafone could decide to sell part of its stake in the merged company, while the Birlas would likely offer to buy shares from other investors after the merger to bring their holding to about 26%, according to the people.

There is no certainty an agreement will be reached, they said. The Telegraph reported earlier this month that Vodafone and Idea were nearing a deal, citing unidentified people. A spokeswoman for Idea declined to comment, while a representative for Vodafone didn’t respond to an email seeking comment.

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Talks with Idea’s controlling holder could lead to Vodafone merging its Indian business into Idea and deconsolidating the unit, the UK-based carrier said in a January statement. The deal will exclude Vodafone’s 42% stake in Indus Towers Ltd, the carrier said. Aditya Birla and Vodafone would have equal rights in the new company, Idea said in a January exchange filing.

A transaction may require the carriers to shed some spectrum and subscribers to ensure regulatory approval under India’s competition rules. Vodafone and Idea are weighing options on excess airwaves—including selling or sharing them, people with knowledge of the matter said last month. Bloomberg

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