The tower unit of Bharti Airtel, Bharti Infratel will wrap up its merger with one of the biggest tower companies of India, Indus Towers in the first quarter of the new Financial Year in 2019, reported ET Telecom. In an analysts' meet, the company’s management also talked at length about new areas of growth like fibre sharing, small cells, data centres and Wi-Fi offloading. Bank of America Merrill Lynch also remarked in its report, that the “deal is expected to be completed latest by April-May-19.”
Analysts Hope for Marginal Benefit Post Merger
Analysts said that although the merger might increase the capex benefits and drive profitability for the merged entity but apart from that there is no significant benefit to the merger. Edelweiss in its report said that the two companies operate on a large scale and have no functional overlap regarding their operations which means that there is going to be a marginal benefit when it comes to the merger.
It is worth noting that by the merger of the two companies, Bharti Airtel and Vodafone Idea will co-own the largest tower firm of India. Currently, the merger of the tower companies is awaiting approval from the National Company Law Tribunal (NCLT) and the Department of Telecommunications (DoT). Also, the analysts have asserted that the two major telecom operators Bharti Airtel and Vodafone Idea who will have combined ownership in the newly merged entity, will bring down their respective stakes to strengthen their balance sheets.
Another brokerage firm, UBS said, “Bharti and Vodafone will have equal governance and management rights in the merged entity with no lock-in which should pave the way for eventual independence.”
Merged Entity to Become Biggest Tower Firm of India
To recall, it was in last year that Vodafone Idea and Bharti Airtel agreed to merge their tower entities, Bharti Infratel and Indus Towers to make the greatest tower entity in the world outside China. The company will have 163,000 towers across 22 telecom service areas in India. Currently, the stakeholding in Indus Towers is made up by Bharti Infratel (42%), Vodafone (42%), Aditya Birla’s Idea group (11.15%) and Providence (4.85%). Post-merger, Bharti Airtel and UK’s Vodafone Plc which is the parent company of Vodafone India will hold 37.2% and 29.4% stakes respectively.
Bharti Infratel’s management is hoping that as the growth of mobile data goes up, there will be demand for an additional tenancy which in turn will shoot up opportunities for the tower firm. Credit Suisse in its report said, “Management expects strong mobile data growth to lead to tenancy demand. Demand could come across macro towers for coverage and densification in the near term, and through small cells over a long term.” The analysts from Credit Suisse also added that the company’s management expects the telcos to reach 300,000 tenancies as opposed to the current figure of 180,000 to 220,000 each.
The tower firms are hoping for better growth opportunities in the longer term with fibre sharing, small cells, Wi-Fi offloading and more. The strong balance sheet and larger capex will help the merged entity in navigating these terrains. Bharti Infratel is also on the task of mitigating prising risk which will arise from the renewal of tenancies between FY20-23 by Master Services Agreements (MSA), on the condition that the telcos agree on renewing at least 33% of tenancies for at least a period of five years, UBS told.