Consolidation Coming to India's Tower Sector

Indian towers company Bharti Infratel is planning on taking control of Indus Towers by acquiring shares it does not already own.

Indus Towers Ltd. is a partnership between Infratel owner Bharti Airtel, Vodafone India and Idea Cellular Ltd. -- India's three largest operators. It currently operates about 123,000 towers in the country, making it one of the world's biggest tower ventures.

Because Infratel separately owns and operates about 40,000 towers, a takeover would create an infrastructure giant with about 36% of India's 450,000 towers.

In a stock exchange filing, Infratel said it had "decided to explore and evaluate acquisition of stake in one or more tranches in Indus Towers, with the aim of making it a subsidiary or wholly-owned subsidiary of Bharti Infratel."

Bharti Airtel Ltd. (Mumbai: BHARTIARTL) today owns 42% of Indus Towers, with Vodafone and Idea holding stakes of 42% and 11.5% respectively. The remaining shares are owned by Providence Equity Partners, an investment group.

However, the ownership picture is set to change following a merger between Vodafone and Idea, which will become the country's biggest service provider. While that deal has yet to secure full approval from Indian authorities, it is likely to be finalized next year.

Although Idea's tower assets are included in this merger, Vodafone's are not. The two companies are now considering selling their towers as they focus on slashing debts and addressing the competitive challenge from Airtel and Reliance Jio, a disruptive new entrant whose aggressive tactics have triggered the current round of market consolidation.

Mergers and takeovers in the Indian telecom market are also changing the landscape of the tower industry. Canada's Brookfield Asset Management is now eyeing a number of telecom tower companies after the failure of its bid to acquire more than 40,000 towers from Reliance Communications, India's sixth-biggest operator, which plans to shut down some operations at the end of this month.

According to Indian press reports, Airtel's ultimate plan may be to sell its towers business, comprising both Indus and Infratel, to a consortium of overseas investors including US fund KKR, the Canada Pension Plan Investment Board, the Abu Dhabi Investment Authority and GIC Singapore. India's Economic Times recently reported this consortium could pay as much as $11 billion for Airtel's towers, without indicating the sources of its information.

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While consolidation has wiped out smaller telcos, bigger players are pumping funds into expanding and upgrading their networks, hoping to reduce subscriber churn. Reliance Jio aims to increase its number of towers from 175,000 to 250,000 in the next few months. Airtel is also investing in infrastructure to make sure it can provide a competitive service to customers. But an eventual sale of its towers would also help it to reduce debts and strengthen its balance sheet in readiness for a fight with the country's other big players.

For all the travails of the Indian operators, the take-up of data-related services has been a relative bright spot for the tower industry. Government projects such as Smart Cities and Digital India could also provide a boost. Nevertheless, a reduction in the number of telcos, and subsequent drop in tower tenancies, could make conditions difficult in the short term.

The long-term potential could explain why global investors have become interested in the market. A likely scenario is that consolidation in the towers sector leaves India with three strong players in the form of Infratel, government-backed Bharat Sanchar Nigam Ltd. (BSNL) and American Tower Corp. (NYSE: AMT), as smaller companies like Ascend and Tower Vision are acquired.

— Gagandeep Kaur, contributing editor, special to Light Reading

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