ATC to buy Voda­fone, Idea tow­ers for $1.2 bn

Con­sol­i­da­tion in sec­tor will make the buyer sec­ond-big­gest player


Asub­sidiary of Amer­i­can Tower Cor­po­ra­tion (ATC) on Mon­day signed an agree­ment to buy 20,000 mo­bile tow­ers owned by Voda­fone In­dia and Idea Cel­lu­lar for $1.2 bil­lion (~7,850 crore at the cur­rent ex­change rate), kick­ing off a phase of con­sol­i­da­tion.

ATC Tele­com In­fra­struc­ture, ear­lier known as Viom, will be pay­ing ~39 lakh per tower. Ac­cord­ing to ex­perts, this is quite an at­trac­tive price for the buyer. Canada-based Brook­field was in the race to buy Voda­fone-Idea’s tele­com as­sets, ac­cord­ing to sources.

The price per tower is sim­i­lar to what ATC had paid two years ago when it bought a 51 per cent stake in Viom Net­works (42,000 tow­ers) from the Tatas and Kano­rias for ~7,635 crore. It had then paid ~35 lakh per tower.

A state­ment by Voda­fone and Idea said if the deal went through be­fore the pro­posed merger of the two com­pa­nies, Voda­fone In­dia would re­ceive ~3,850 crore ($592 mil­lion) and Idea would re­ceive ~4,000 crore ($615 mil­lion). DSP Mer­rill Lynch is the sole fi­nan­cial ad­vi­sor to Idea for the deal.

Tower com­pa­nies claimed the cur­rent val­u­a­tion in the mar­ket, es­pe­cially with about 260,000 tow­ers up for sale, var­ied from ~30 lakh to as high as ~70 lakh, de­pend­ing on ten­ancy, as well as the length of the con­tract with a telco.

How­ever, ac­cord­ing to Mor­gan Stan­ley, the com­bined ten­ancy ra­tio of the Voda­fone-Idea tow­ers at 1.7 is ex­pected to go down to 1.4, af­ter re­mov­ing of over­lap­ping sites once the com­pa­nies merge.

Af­ter the merger, as many as 6,300 colo­cated ten­an­cies of the two op­er­a­tors on some tow­ers will be­come sin­gle ten­an­cies, in two years, with­out exit penalty. Thus, the ten­ancy will be much lower than that of ATC In­fra­struc­ture (2.2) and Bharti In­fratel (2.4).

Ten­ancy, ex­pressed as a ra­tio, is the num­ber of com­pa­nies that have put up ac­tive in­fra­struc­ture or an­ten­nae on a par­tic­u­lar tower.

With this deal, ATC will com­mand over 80,000 mo­bile tow­ers across In­dia, with a mar­ket share of 19-20 per cent. That will make it a clear sec­ond-largest player in the busi­ness, but it will still be only half the size of the num­ber one player, ex­pected to be formed with the In­dus Tow­ers and Bharti In­fratel com­bine.

Bharti In­fratel has al­ready pro­posed ac­quir­ing a ma­jor­ity or full stake in the coun­try’s largest tower op­er­a­tor, In­dus Tow­ers, mak­ing it a sub­sidiary. Stakes of Idea, Voda­fone, and oth­ers will also be bought out.

It then plans to sell a con­trol­ling stake in Bharti In­fratel to a con­sor­tium led by KKR. The com­bined en­tity will have a lit­tle more than 160,000 tow­ers.

ATC has faced a set­back with two of its clients — Tata Te­le­ser­vices and Te­lenor — sell­ing their busi­nesses to Bharti Air­tel. They ac­counted for 40 per cent of ATC In­fra­struc­ture’s rev­enues. Air­tel has pro­vided no as­sur­ance it would con­tinue to use ATC’s tow­ers.

Sources said Bharti would con­tinue to keep at least half the tow­ers, as it needed to ex­pand its ca­pac­ity, es­pe­cially to take on new en­trant Re­liance Jio.

ATC also has an as­sur­ance that Tata Te­le­ser­vices will pay about ~7,000 crore for the resid­ual life of the tow­ers — the term ends in 2023 — in case Bharti does not con­tinue with ten­an­cies. It could tell an­a­lysts to ad­just the bal­ance by giv­ing a part of its stake in ATC In­fra­struc­ture to ATC.

ATC is also on a look­out for other ac­qui­si­tions, a strat­egy it has used ef­fec­tively to grow its busi­ness in the coun­try. It is also one of the con­tenders to buy out about 37,000 tow­ers to be sold by GTL In­fra­struc­ture and Tower Vi­sion, two of the smaller play­ers in the busi­ness.

Also, the US in­fra­struc­ture com­pany has shown an in­ter­est in talk­ing to Re­liance Com­mu­ni­ca­tions, whose 43,600 tow­ers are up for sale, even though they de­clined to com­ment on the is­sue.

With its ear­lier deal with Brook­field to buy a 51 per cent stake in the tower busi­ness for ~11,000 crore now called off, a key el­e­ment in Re­liance Com­mu­ni­ca­tions’ debt-re­struc­tur­ing plan in­cludes the sale of its tower as­sets for part-pay­ment of its ~40,000-crore debt.

The val­u­a­tion of tower com­pa­nies has fallen sub­stan­tially — in 2010, ATC bought the tow­ers of Es­sar at a value of ~45 lakh. GTL had also picked Air­cel’s tow­ers at a sim­i­lar rate.

How­ever, Brook­field, which had agreed to pay ~49 lakh for each tower to RCom, de­cided not to go through the deal as the ex­pected ten­an­cies from Air­cel and even RCom have not fruc­ti­fied.

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