Vodafone India and Idea CellularNSE 7.33 % have paid the Department of Telecommunications (DoT)Rs 7,268 crore that was sought as a key condition for approving their merger, thereby clearing the final obstacle in the largest M&A in the sector which will create India’s biggest telecom operator.

“Idea has submitted its compliance to the DoT’s conditional approval letter dated July 9 2018, for the merger of Vodafone India Ltd and Vodafone Mobile Services Ltd with Idea Cellular Ltd, including the payment of Rs 3,926.34 crore (in cash) and bank guarantee of Rs 3,322.44 crore,” an Idea spokesperson told ET.

“With this we hope to get final approval from DoT for the merger at the earliest,” the spokesperson added.

While Kumar Mangalam Birla-owned Idea has given bank guarantee on account of one-time spectrum charges, UK-headquartered Vodafone India has given cash towards market price for non-auctioned airwaves held by India’s second-largest operator.

A person familiar with the matter, however, said the payment has been made “under protest” and the new combined entity has the option of challenging the dues sought in court later.

The merger entails transfer of licenses of Vodafone India and its subsidiary Vodafone Mobile Services Ltd (VMSL) to Idea Cellular — which will be the listed entity — which should be the next step for the department, now that it has got the requisite monies. The new entity will be named Vodafone Idea Ltd.

“The payments will now ensure that the merger goes through. It will have its own economies of scale, it will have a lot of tax benefits, claim much more depreciation, so the accounting positives will come in. Given that (Idea) stock was trading at all-time low of Rs 50, this will be a shot in the arm in the near term,” said Sanjiv Bhasin, executive VP, markets and corporate affairs, at brokerage IIFL.

Shares of Idea Cellular closed atRs 52.65, up by 3.13% on the BSE on Monday.

The DoT till now had only given a conditional nod to the merger and rejected appeals from the operators to recalculate their dues.

India’s No 2 and 3 operators have grudgingly given into the DoT’s demands because they are well past the June-end deadline.

The delay has held up critical unlocking of an estimated $10 billion of cost and capital expenditure synergies that the combined entity needs to stay competitive on the 4G front, where Reliance Jio and Airtel have taken the lead. 

Together, Vodafone Idea will have 37.5% revenue market share and 39% customer market share, or about 440 million subscribers, making them the largest telco in India, replacing Bharti AirtelNSE -0.60 %, and a stronger entity in the face of intense competition.

“It’s the right thing to do in current circumstances — since every delay in merger could have a time value impact. Finally, India is a 3+1 operator market from an almost nine operator market 24-30 months ago,” said Prashant Singhal, telecom, media and technology leader for emerging markets at EY.

ET had earlier reported that Vodafone India was in talks with local and overseas banks to raise Rs 4,000-5,000 crore, which could be used to make these payments. According to sources, Idea Cellular, however, may use its own money to finance the guarantees.

The telco had cash reserves of Rs 5,659.6 crore as of March 2018. Vodafone is scheduled to announce its June-end results on July 25, while Idea Cellular will announce its results on July 30. 

“Now, it will be a three-pronged attack with Jio, Airtel and Idea-Voda, where all three are capable of raising money. So, overall, the worst may be over and over time as prices stabilise, you could see Idea-Vodafone also report better average revenue per user (ARPU) and profitability in the next three to six quarters,” he said. “There is enough room for all three to survive. At Rs 350 for Bharti Airtel and Rs 50 for Idea, all the negatives have been priced in.” 

The DoT had also placed other conditions amongst which Idea needs to replace Vodafone’s bank guarantees worth Rs 6,452 crore held by DoT with its own. This is on account of spectrum payments that fall due over the next one year. 

The KM Birla Group-owned Idea will have to pledge that the telco, as the license holder of the merged entity, will be responsible for paying one-time spectrum charges of VMSL — that are presently stayed in the telecom tribunal — when the tribunal takes a final decision.

For any future dues, including those from other pending cases around spectrum usage charges and licence fee, penalties will need to be paid by the merged entity. The new entity will need to pay any dues arising from the completion of the merger of Vodafone’s six subsidiaries with VMSL in 2014 and 2015.

However, the payment of Rs 7,268 crore was critical and sources have said that since these were agreed upon by the two telcos, the rest of them should follow suit.