“With over Rs 253 billion in revenues (for the financial year 2017-2018), the combined company will be well placed to invest on a national basis,” a joint statement said. Bharti Airtel said it will engage with potential investors to evaluate a strategic stake sale in the new tower company.
If both Idea and Providence sell their stakes, Airtel will be the largest shareholder in the new company, with a 37.2 per cent stake. Vodafone will have 29.4 per cent, Providence 1.1 per cent, and public shareholders have the rest. If Idea and Providence choose to get new shares, Airtel will have a 33.8 per cent stake, followed by Vodafone (26.7 per cent), Idea (7.1 per cent) and Providence (3.1 per cent). The public shareholders will have the rest.
According to Credit Suisse, an immediate benefit of the deal would be saving on distribution taxation tax — the current annual outgo for this is Rs 5 billion for Indus Towers.
Consolidation has picked pace in the mobile tower business in recent times. After the Bharti Infratel and Indus Tower merger, there will be only three major players (and a smaller one, BSNL). Earlier there were nine players.
Yet, according to analysts, in the next 12 months, with the Vodafone-Idea merger and other closures of telecommunication companies, as much as a fifth (20,000) of the 100,000 tenancies on the towers will not be there. This will put pressure on revenues, over the next 24 months. “The tenancy ratio will go down from the current 1.5-1.7. But with the data revolution there will be requirement for more towers in the long run,” said a source.
The new entity will lock horns with Reliance Jio, which will have over 162,000 towers after buying Reliance Communications’s tower assets. The only pure-play non-telecommunication company to remain in business will be ATC. With a majority stake in the erstwhile Viom Networks, in which the Tatas still have a stake, and after its recent acquisition of the Vodafone and Idea tower assets, ATC will command over 78,000 towers. That is less than half of the two big boys in the game. At present, there are 500,000 telecom towers in the country.
State-owned BSNL, with 65,000 towers, is also an important player. It has the government’s permission to spin off this business into a separate entity. Two other players — GTL and Tower Vision, together controlling 32,000 towers — might eventually sell their assets, say analysts.
The tower business has the advantage of being a predictable annuity one, as it is based on signing long-term tenancies. Also, in case telecommunication companies
move out, they have to pay compensation.
Tenancies are likely to bounce back by 2020 due to an increase in the data business. Since Jio’s disruptive entry, incumbents are working overtime to invest in increasing their coverage of 4G and VOLTE across the country. Also, the launch of 5G requires substantial bandwidth available only in the higher bands of spectrum. This would also require a huge increase in tower infrastructure.
BNP Paribas said the merger will benefit all the companies.
“In view of Idea’s high leverage, we believe it could opt for the cash option. Vodafone India will now have a stake in a listed company instead of Indus,” it added.
claim monetisation will help incumbents in the pricing war, and also for new investments in as well as for acquiring spectrum for 5G, to be rolled out in the next two years.
Bharti Airtel is also planning to invest Rs 240 billion this financial year for the roll-out of its 4G and VOLTE services across the country. Some analysts said even Reliance Jio, which uses its towers only for its own network, might try to monetise the business by bringing in tenants or divesting stakes to independent operators.
The new Indus Towers board will have 11 members — three each from Bharti Airtel and Vodafone, one from KKR or Canada Pension Plan Investment Board as well as four independent members. KKR and CPPIB last year bought a combined stake of 10 per cent in Bharti Infratel. On Wednesday, the Bharti Infratel board has reappointed Akhil Kumar Gupta as executive chairman for five years with effect from August 1.