The phenomenal mobile subscriber growth in the country has led to a similar expansion in the telecom infrastructure space. The number of telecom towers in the country has doubled in the past one year with existing and new operators aggressively expanding networks. However, the focus is now gradually shifting from infrastructure building to efficient utilisation of infrastructure. A rapidly increasing subscriber base, spectrum constraints, low rural average revenue per user (ARPU) and the need to optimise capex and opex have all led to a compelling business case for infrastructure sharing. This is reflected in the increasing number of deals being signed in the telecom infrastructure space in the country.

Existing operators are pulling out all the stops to capitalise on their infrastructure. Apart from signing infrastructure sharing deals, the operators have been hiving off their tower infrastructure into separate units. Bharti Airtel, Reliance Communications (RCOM) and Tata Teleservices Limited (TTSL) were the first ones to do so, while the latest ones to join the fray are Vodafone Essar, Aircel and Bharat Sanchar Nigam Limited (BSNL).

Tower sharing deals
 Till end-2008, there were a limited number of tower sharing deals in the Indian telecom industry. However, 2009-10 has witnessed a surge in such deals, which mainly involve new telecom licensees gaining access to the existing operators’ infrastructure. The following are some of the recently signed contracts in the tower sharing space…

In July 2009, Reliance Infratel, RCOM’s tower subsidiary with over 50,000 towers, signed a 10-year tower sharing deal with UAE-based operator Etisalat’s Indian venture, Etisalat DB. Under the agreement, Etisalat DB will be able to use the towers and transmission infrastructure owned by Reliance Infratel. As a result, the new entrant will be able to roll out services in 15 of the 23 circles at a faster rate, thereby optimising costs and gaining a time-to-market advantage. Reliance Infratel, on the other hand, will gain Rs 100 billion in revenue through the deal.

In August, RCOM signed an end-toend infrastructure sharing agreement with new operator, STel. The deal covers telecom towers, transmission for base transceiver stations (BTSs), and fibre backbone for intercity connectivity. At present, the agreement covers six circles ?? Orissa, Bihar, Himachal Pradesh, Jammu & Kashmir, Northeast and Assam ?? where STel will launch GSM services before the end of 2009.

RCOM also signed a $300 million agreement with Aircel. The scope of the agreement is not just limited to telecom towers, it also includes voice carriage and bulk bandwidth. The deal will give Aircel access to Reliance Infratel’s countrywide tower infrastructure as well as to the extensive optic cable fibre backbone of RCOM’s pan-Indian telecom network.

This was followed by the award of a $400 million (Rs 20 billion), 16-month tower sharing contract by new entrant Datacom Solutions to Aircel in September. Under the contract, Datacom will get access to 5,000 of Aircel’s 15,000 towers in various circles. Datacom is in the process of starting its own tower business besides considering similar deals with other operators.

September also saw BSNL sign tower sharing agreements with TTSL and Aircel. Predominantly a CDMA operator, TTSL is expanding its GSM-based services, and the 15-year agreement to use BSNL’s towers in 21 telecom circles will speed up its GSM network rollout and save costs. Under the second deal, Aircel will gain access to more than 45,000 towers owned by BSNL for a period of 10 years. The financial terms of the deals have not been disclosed.

Tower subsidiary deals
 RCOM pioneered the trend of hiving off the tower business amongst Indian operators with the demerging of its tower operations into Reliance Infratel. RCOM is now preparing to become the first telecom operator to list its tower subsidiary on the stock markets. It has already filed the draft red herring prospectus for Reliance Infratel’s initial public offering (IPO). RCOM will offer 10 per cent stake in the tower subsidiary, and is expected to raise Rs 50-Rs 60 billion ($1-$1.3 billion) through the IPO.

Aircel is in talks with independent tower companies to sell its tower business, which will help the operator minimise the operational outlay. So far, Aircel has shortlisted four players ?? US-based American Tower Corporation (ATC), Crown Castle International, Bharti Infratel and the TataQuippo joint venture ?? for selling its tower business in a deal estimated to be worth $1.5-$2 billion.

The telecom tower business has attracted significant interest from private equity (PE) funds as well. There are reports about PE players such as Apax Partners and Carlyle showing interest in buying stake in Quippo Telecom Infrastructure. Quippo, which is promoted by the Srei Group, is looking to raise about Rs 14 billion by selling 15-20 per cent stake in the company.

With growing interest from all quarters, the telecom tower space has emerged as a hotspot for operators as well as investors. The rising number of infrastructure sharing agreements between operators has led to higher tenancy ratios on towers. This trend is expected to gather further momentum in the coming months, leading to higher valuations for tower businesses.