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Busy Times - New players boost growth in infrastructure sharing

February 15, 2010

The entry of six new players in the hyper competitive Indian telecom market has been a boon for more than just the consumers. Telecom infrastructure companies have also cashed in. In addition to the renewal of existing tower-sharing contracts, last year witnessed a fresh round of lucrative telecom infrastructure-sharing contracts being signed between the new entrants and tower operators

.Prior to this, the valuation of the tower companies was witnessing a steady decline on account of the growing competition in the tower space to attract tenants. The global economic crisis also had a negative impact on the industry, which witnessed a nearly 40 per cent reduction in the projected tower construction plans of telecom companies. According to industry estimates, about 200,000 of the total 496,000 towers planned by 2011 are not expected to be constructed.

However, with the market on an upswing and telecom operators wanting to cover the maximum possible area with their telecom infrastructure, the scenario is changing.

Recent developments

The past year witnessed several key infrastructure-sharing tie-ups. Shedding its earlier reluctance to share infrastructure, Bharat Sanchar Nigam Limited (BSNL) is now looking at infrastructure sharing in a big way. The public sector unit has joined hands with companies like Datacom Solutions, Sistema Shyam TeleServices Limited (SSTL), Tata Teleservices Limited (TTSL) and Aircel for tower-sharing contracts spanning 10 years.

Private players are also very active on the infrastructure-sharing front. In August 2009, Reliance Communications entered into a 10-year agreement with S Tel for sharing of towers, transmission lines for base transceiver stations and fibre backbone for intercity connectivity across six circles.In September 2009, the company won a $300 million tower and optic fibre cable network-sharing contract from Aircel.

The consolidation trend continued throughout the year. In end-2009, one of the most awaited deals in the industry was completed when GTL Infrastructure won the bid for Aircel's 17,500-strong tower portfolio. GTL outbid other contenders such as the Tata-Quippo combine, the American Tower Company (ATC) and Crowne Castle. Along with the towers, GTL will also acquire Aircel's related broadband infrastructure.

The deal was viewed as a positive development by analysts and industry experts, who were of the opinion that GTL got a fair deal. In comparison to the huge enterprise valuations at which investors in Bharti Infratel and Reliance Infratel picked up stake (right before the financial meltdown), the deal valued Aircel's tower portfolio at a "deemed fair" enterprise value of Rs 84 billion. In addition, GTL would have Aircel as the anchor tenant.

In early 2009, ATC bought over Xcel Telecom's 1,700-strong tower portfolio for around Rs 4-Rs 5 million per tower. ATC was also reportedly in negotiations to acquire Gurgaon-based Independent Mobile Infrastructure, which was present in 10 circles with about 400 towers. However, the talks were inconclusive.

Infrastructure solution providers

Meanwhile, telecom infrastructure solution providers such as Nu Tek India, Acme Tele Power and Delta Energy Systems, which provide products and services such as green shelters, power interface units, line conditioner units, heat exchangers, battery-life enhancers, and lightning and surge protectors, displayed a mixed performance. Off to a bright start in May 2009, Spanco Telesystems and Solutions, TVS Interconnect Systems (a TVS group firm) and Acme Tele Power emerged as the frontrunners for BSNL's Rs 300 billion infrastructure contract. Spanco was the lowest bidder (L1) for the west zone, TVS for the south zone, and Acme for the north and east zones, for the passive cellular infrastructure (tower) contract. Power company KEC was the second lowest bidder (L2) for the west zone. While 50 per cent of the contract will be awarded to L1 bidders, the rest will be split between L2 and L3 bidders.

Meanwhile, the power management solution providers gained substantial clout since the telecom industry collectively started focusing on how to solve the power problem for base transceiver stations. Delta Energy Systems has launched its remote management system for base stations in India, which can be operated using wind, solar and diesel energy. The organisation has also set up a research and development centre in India in Bangalore.

However, Nu Tek India, provider of end-to-end turnkey and installation services such as civil works and maintenance for infrastructure service providers, which registered impressive growth in 2009, has slowed down somewhat. In May 2009, the company was mulling over acquiring a Nigeria-based telecom infrastructure service provider for $50,000 but talks were inconclusive. Moreover, the company's financial performance was lacklustre, registering a decline in its net profit from Rs 97.06 million in the quarter ended December 2008 to Rs 27.48 million in the same quarter in 2009.Moreover, Nu Tek India's revenues increased only slightly from Rs 401.11 million to Rs 452.8 million during the same period.

The road ahead

All in all, the journey ahead for telecom infrastructure players is slated to be an interesting one. Challenges remain in the sector, which need to be ironed out.Authorities recently started sealing telecom towers in certain areas, leading to a controversy as there is currently no policy on tower installation and the setting up of towers is a state subject. However, to address this concern and others, the Telecom Regulatory Authority of India is planning to come up with a consultation paper on "Telecom tower requirements, design, structure, right of way and methods to ensure safe mobile radiation".

Moreover, the opportunities in the telecom infrastructure industry are multifold. Research firm Pennanen estimates that 5,000 base stations are being added in India every month, making it one of the most dynamic telecom markets.Active infrastructure sharing has still not taken off in the country, something that is slated to pick up in a major way in the coming months.

There are also several important deals in the pipeline. In September 2009, ATC restarted negotiations to buy a majority stake in Essar Telecom Infrastructure Private Limited (ETIPL). According to sources, ATC has signed a non-binding term sheet for due diligence and has valued ETIPL's 4,000 towers at $425 million. The move comes three months after talks between ATC and ETIPL failed over valuation differences. According to the new offer, ATC is valuing ETIPL's portfolio at nearly Rs 5 million per tower.

Further, Bharti Infratel, Reliance Infratel and Indus Towers are all looking to launch their initial public offerings in 2010. Clearly, the telecom infrastructure industry is looking at busy times ahead.


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