Bharti Infratel aims to acquire Indus Towers to create telecom tower behemoth

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New Delhi: In a move that will create a giant in India’s telecom tower industry, Bharti Infratel Ltd on Monday said that it aims to buy the stake it doesn’t own in its Indus Towers Ltd unit from Vodafone India Ltd, Idea Cellular Ltd and a private equity firm.

The company said that its board has decided to “explore and evaluate acquisition of stake in one or more tranches in Indus Towers Ltd with the aim of making it a subsidiary or wholly owned subsidiary of Bharti Infratel Ltd”.

Indus Towers is a joint venture between Vodafone India, Bharti Infratel and Idea Cellular. Vodafone and Bharti Infratel own 42% each while Idea owns 11.15%. US private equity firm Providence owns the balance 4.85%.

Indus Towers is the world’s largest telecom tower operator with more than 123,000 towers and with Bharti Infratel’s 39,264 towers, its reach and strength will be unmatchable. Post acquisition, Bharti Infratel will control 40.8% of telecom towers in India.

The move to acquire Indus Towers was anticipated in the wake of a merger between Vodafone India and Idea Cellular, which aims to create India’s largest telecom company.

The Vodafone-Idea merger—expected to be completed in 2018—does not include the tower assets of Vodafone in Indus or the towers that the company owns on a standalone basis so that Vodafone India’s valuation could be brought down on a par with that of Idea Cellular for the merger to go through.

However, Idea’s tower assets are a part of the merger deal.

Once the Vodafone-Idea merger is completed, quite naturally, Idea and Vodafone will have more stake in Indus than Airtel, which meant one of the two companies, either the merged entity or Airtel would have to exit the tower operator.

According to the shareholders’ pact, Airtel, Vodafone and Idea need to agree to any of their partners’ moves to sell down or exit the venture.

Bharti Infratel also reported its financial results for the September quarter on Monday. Net profit for the quarter declined 17% to Rs630 crore from Rs774 crore in the year-ago period.

Analysts on an average had expected the company, which is majority owned by Bharti Enterprises, to post a profit of Rs741 crore, according to Thomson Reuters data.

The mobile tower industry has emerged as an independent business to harness the potential for sharing of infrastructure.

The business model arose from the need to achieve economies of scale and to reduce capital investment costs for providing mobile services. A tower infrastructure company essentially leases it to telecom service providers, enabling them to minimize duplication of investments and economize on costs of operation and maintenance, thereby improving profitability.

However, rising data growth in the industry augurs well for the tower companies, and with telco operators looking to sell their tower assets to fund capital expenditure or deleverage their balance sheets, “this could lead to the emergence of an independent tower industry”, according to Morgan Stanley Research.

“We believe that waning operator influence on these companies will remove the discounting on tower rentals, as seen in a few tower operators, in the long term,” Morgan Stanley said in a 22 October report.