Tower Business - Value unlocking for telecom companies

With the offloading of 5% stake in Reliance Tower Infrastructure Ltd by Reliance Communications to 7 financial investors valuing the tower business of the company at astonishing Rs.27000 crore, the analysis has now shifted as to how the tower business would contribute in the growth of telecom companies.

India has 120,000 tower sites, having 136,000 BTS (Base Transmitting Station) of different telecom companies. Bharti Airtel has the largest tower portfolio with 39281 tower sites and 1.26 occupants per tower. Reliance Communications (R-Com) has 13000 towers. All other operators’ towers have lower occupancy ratios and face challenges in facing competition from larger players.

It is estimated that by 2010, India would have have 42.5 crore mobile subscribers thus creating demand for 4.5 lakh BTS, with major demand coming from rural areas. Estimates say that Bharti would have 33% market share followed by R-Com with 18.3% market share.

Investment banks have put valuation of Bharti Infratel (tower business of Bharti Airtel) at $8.5 billion and contribute 12.5% to Bharti’s core valuation. While for R-Com, tower business contributes 10% to company’s valuation.

Reliance Communications is unlocking value by going for listing of its tower business and Flag Telecom. It is also betting on developing SEZ land and starting a BPO business. R-Com’s tower plans could also scale up considerably if its GSM plans gets going.

Thus, the tower business of telecom companies will put them follow a rapid growth path leading to higher valuations.

Though some concerns remain like changes in regulations, financial burden owing to highly capital intensive nature of tower business, increasing competition and huge capex in case of likely 3G spectrum allocation.