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American Tower Becomes an Indian Power Through $1.2B Deal With Vodafone, Idea

Iain Morris

Merging Indian mobile operators Vodafone and Idea are to sell their towers to infrastructure giant American Tower in a $1.2 billion deal aimed at strengthening their balance sheets ahead of a tie-up.

American Tower Corp. (NYSE: AMT) currently operates about 149,000 towers worldwide and will acquire 10,235 towers from Vodafone India and 9,900 from Idea Cellular Ltd. It will then lease capacity on those towers to the Indian operators, which previously said they would divest their towers as part of their merger agreement. (See Vodafone, Idea Strike $23B Deal to Form India's Biggest Telco.)

The Boston-based infrastructure company said the transactions would generate about $320 million in property revenues and $120 million in gross margin during the first full year following completion of the deal, which is expected in the first half of 2018. It made $5.8 billion in revenues and about $4 billion in gross margin in its most recent fiscal year.

A tie-up between what are currently India's second- and third-biggest operators will eclipse Bharti Airtel Ltd. (Mumbai: BHARTIARTL) to become the country's new market leader. (See Indian M&A: And Then There Were 5?)

Consolidation in the Indian telecom sector has been triggered by the market entry of an aggressive new player called Reliance Jio about a year ago. Offering free and heavily discounted services to Indian consumers, RJio has forced older players to join forces or even to consider quitting the market entirely. (See RJio Disrupts Again With Low-Cost 4G Phone and RJio Onslaught Makes Going Tough for Indian Telcos.)

Pressure from RJio has taken its toll on both Vodafone and Idea. Yet to report figures for the July-to-September quarter, Vodafone suffered a 13.9% year-on-year fall in revenues in the April-to-June period, to about €1.39 billion ($1.62 billion), due to price-based competition.

In an earnings release published earlier today, Idea revealed that its revenues fell nearly a fifth in the July-to-September quarter, to 74.7 billion Indian rupees ($1.14 billion), compared with the year-earlier period. Its net loss also widened from INR8.2 billion ($130 million) to INR11.1 billion ($170 million) over the same period.

Idea had a net debt of about INR541 billion ($8.27 billion) on its books at the end of September -- more than 5.2 times what it made in earnings before interest, tax, depreciation and amortization (EBITDA) in its last fiscal year.

Most of Europe's big operators report net-debt-to-EBITDA ratios of between 2 and 2.5.

For all the latest news from the wireless networking and services sector, check out our dedicated mobile content channel here on Light Reading.

The deal with American Tower should help Vodafone and Idea from an efficiency perspective, allowing them to cut back on their "tenancy" arrangements they need to support services.

On completion of the merger, said Idea, around 6,300 colocated tenancies on the combined standalone tower businesses would be merged into a single tenancy.

Should the operators complete the towers deal before they finalize their own merger, Vodafone will receive $592 million and Idea will get $615 million from American Tower.

In what would be a separate towers deal, Bharti Infratel, the infrastructure arm of Bharti Airtel, was earlier this month reported to be planning on taking full control of a towers partnership with Vodafone and Idea called Indus Towers, which operates about 40,000 towers in India. (See Consolidation Coming to India's Tower Sector.)

Infratel and Vodafone each own stakes of 42% in Indus, while Idea has an 11.5% share of the business. The remaining shares are owned by a private equity company called Providence Equity Partners.

There is speculation that Airtel's ultimate plan is to sell all of its towers, including both Infratel and what is currently holds through Indus Towers, to a consortium of overseas investors.

Such consolidation in India's towers sector could leave the country with just a handful of big infrastructure firms in the next few years, with Infratel (possibly under new ownership), American Tower and government-backed Bharat Sanchar Nigam Ltd. (BSNL) poised to become the power brokers of the country's towers industry.

— Iain Morris, News Editor, Light Reading

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