Bharti Infratel, Indus Towers planning merger to create telecom tower giant

Mumbai: Bharti Infratel Ltd and Indus Towers Ltd—two of India’s largest telecom tower firms—are planning to merge their businesses, three people aware of the matter said.

Vodafone India Ltd and publicly traded Bharti Infratel Ltd hold 42% each in Indus Towers. Idea Cellular Ltd owns 11.15% and US-based private equity fund Providence owns 4.85%.

Bharti Infratel was earlier planning to acquire a controlling stake in Indus Towers and make the latter a subsidiary.

According to that plan, Bharti Infratel was to acquire the stake it didn’t own in Indus Towers in an all-cash transaction and later sell the combined business to external investors.

“Both Vodafone and Idea wanted cash from the deal; now they want to stay invested in their tower business as they expect valuation of the business to go up in the near term. Also, the companies do not need cash at the moment,” said a person aware of the matter.

Vodafone India and Idea Cellular are set to merge this year to create India’s largest telecom operator, surpassing Bharti Airtel Ltd.

The merged entity of Vodafone India and Idea now expect to have additional cash of about Rs21,000 crore in the first year, which includes Rs6,750 crore raised by Idea through sale of shares to institutional investors, Vodafone’s investment of Rs6,750 crore and about Rs8,400 crore from savings in operational and capital expenditure, another person with direct knowledge of the matter said.

A Vodafone India spokesperson declined to comment while an email sent to Idea remained unanswered.

A Bharti Infratel spokesperson said, “As a policy, we do not comment on market speculation. Being a responsible corporate, we always make appropriate disclosures to the stock exchanges and our stakeholders as and when required.”

The decision to merge the two tower companies comes in the wake of Airtel’s announcement that it would list its Africa business to raise money.

The new arrangement will also give freedom to each of the stakeholders in the merged tower entity to sell their stakes at their convenience.

“It is all about financial benefit. Everybody is working on this. It is being done internally,” said this person.

The valuation of a tower whose tenancy rates used to be Rs50 lakh has now declined to Rs30-35 lakh, according to a Mumbai-based analyst with a brokerage.

The number of tower tenancies in India has also fallen from 500,000 to 400,000.

“There has been a price correction of about 20% in the industry,” the analyst said, requesting anonymity, citing examples of the tower sale by Vodafone India and Idea Cellular, who agreed to sell their standalone telecom tower businesses to ATC Telecom Infrastructure Pvt. Ltd in November.

“The tower sale was earlier pegged at Rs50 lakh per tower. However, Idea/Vodafone got about Rs40 lakh per tower from ATC in the deal,” the analyst said.

There would be a further price correction in the tower business after Vodafone and Idea complete their merger, which will lead to a decline in the number of towers required for the merged entity to function.

“The minute this merger (Idea-Vodafone) gets announced, the valuation of towers will go down further,” said the first person cited earlier, adding that valuation of tower business will start to go up when telcos will start investing massively to ramp up infrastructure to meet data demand, which is expected to go up from around 20 petabytes a day to about 120 petabytes a day in the near term.

“Once the telcos start announcing their capex, valuation will start growing up,” the person added.

The merged entity of tower companies will have 240,000 towers.

Airtel, Vodafone, Idea want government to postpone 5G spectrum auctions till FY2020

The telecom sector wants the government to put off auction of 5G spectrum till 2019-20 to give time for a devices ecosystem to develop and allow the industry to overcome its financial stress and consolidate completely.

The government “must not rush into any spectrum auction this year” as the industry is reeling under acute financial duress, and auction of any spectrum band, including 5G, must be initiated “only once all consolidation has been announced and locked down”, said Rajan Mathews, director general at Cellular Operators Association of India (COAI).

COAI is the apex industry grouping representing top telcos Bharti Airtel, Vodafone India, Idea Cellular and Reliance Jio Infocomm.

Telcos are particularly at odds with sector regulator Trai’s recent suggestion for National Telecom Policy 2018, urging the government to swiftly identify and make available new spectrum bands in the backhaul and access segments for growth of 5G networks.

“Given that regulatory and technical standards for 5G are still under deliberation at the global level, 5G spectrum should be auctioned only after the ecosystem is developed, which is why, FY2020 may be an appropriate time to do so as there will be better use cases and apps for 5G, for which at least a year to 18 months are required,” Mathews told ET.

Scheduling an auction of 5G airwaves in FY20, he said, would also “allow for a better understanding of the value of 5G spectrum and the resultant price to bid”.

Telcos’ reluctance to participate in another mega auction in the near term comes even as the government plans to put up a whopping 3,000 units of radio waves, including 5G bandwidth, in the next spectrum sale, timelines for which remain undecided.

Telecom secretary Aruna Sundararajan on Wednesday said spectrum supporting 5G services and fiberisation of networks would be part of National Telecom Policy 2018, which is being formulated by the telecom department, and the draft would be put out for public consultation in three weeks.

Telecom minister Manoj Sinha, too, had recently told Parliament that 5G airwaves in the 3300-3400 MHz and 3400-3600 MHz bands would be part of the next spectrum auction.

The government has sought suggestions from the Telecom Regulatory Authority of India (Trai) on the reserve price and related issues such as when the next auction of spectrum in seven frequency bands, including 5G airwaves, should be held.

A senior industry executive, who did not wish to be named, said the government should ideally allow the telecom market to settle down in the wake of recent mergers and acquisitions as it is only “post-consolidation that telecom companies would look at any additional spectrum needs after they put their networks together”.

Telcos’ call to delay the next spectrum auction comes at a time when the sector is plagued by fierce price wars and saddled with debt upwards of Rs 7-lakh crore.

Over the past 15 months, incumbents Airtel, Vodafone and Idea have seen a sharp fall in their revenue and profits in the face of price competition since Jio’s entry in September 2016. This has led to consolidation in the industry, leaving Bharti Airtel, Jio and the emerging Vodafone-Idea combine as the only major private players.