British telecoms giant Vodafone will merge its Indian subsidiary with domestic rival Idea Cellular to create the country's largest telecoms operator, it was announced Monday.

"Vodafone Group PLC and Idea Cellular today announced that they have reached an agreement to combine their operations in India," the companies said in a statement.

"The combined company would become the leading communications provider in India with almost 400 million customers, 35 per cent customer market share and 41 per cent revenue market share," it added.

Vodafone will own 45.1 per cent of the combined entity, after it transfers 4.9 per cent to the Aditya Birla Group, Idea's parent company, for 579 million dollars.

The Aditya Birla group will hold 26 per cent, while the balance will be held by the public, it said in a statement to the Bombay Stock Exchange.

The merger of Vodafone India and Idea, India's second- and third-largest telecoms networks respectively, will push the country's telecoms leader, Bharti Airtel, with 269 million subscribers, to the second spot.

The joint venture will have a combined value of 23.2 billion dollars and the merger is expected to be completed within two years.

Kumar Mangalam Birla, the chairman of the Aditya Birla group, will also be the chairman of the new entity. He has ruled out any major downsizing at the telecom after the merger, broadcaster NDTV reported.

"This landmark combination will enable the Aditya Birla Group to create a high quality digital infrastructure that will transition the Indian population towards a digital lifestyle and make the government's Digital India vision a reality," Birla said.

The Digital India initiative aims to universalize mobile and internet access in the country.

Stocks of Idea, however, tanked by as much as 15 per cent after deal was announced and were down more than 8.5 per cent in afternoon trading.

The move comes after weeks of speculation that the firms were in talks to strike a deal to take on a new operator, Reliance Jio, which has disrupted India's telecoms market and sparked a price war.

Launched in September by Reliance Industries, India's leading private conglomerate, Jio has notched up a 100 million subscriber base on the back of its free voice and dramatically cheaper data service plans.

The aggressive entry of Jio has led to a consolidation of the telecom industry in India, one of the most competitive telecom markets in the world.

Recently, Bharti Airtel, informed the bourses that it will acquire Telenor India's operations, after the Norwegian telecom company said it was leaving the Indian market.

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