Global Insight Perspective | |
Significance | The venture will be one of the biggest independent telecoms infrastructure companies in India. |
Implications | Business opportunities in the infrastructure-sharing segment are on the rise, as new 2G licensees and future 3G/WiMAX winners will seek network sharing to lower network costs and speed up service roll-out. |
Outlook | With rising competition, small players in the infrastructure-sharing segment will need to seek consolidation to remain competitive. |
Under the terms of the strategic partnership, independent infrastructure-equipment-rental company Quippo Telecom Infrastructure Limited—promoted by the Kanorias of SREI Infrastructure Finance Limited—will make an upfront cash payment of approximately 24 billion rupees (US$490 million) for a 49% stake in Wireless-TT Info-Services Limited (WTTIL)—the tower arm of Tata Teleservices. Quippo Telecom will also transfer its passive telecom tower portfolio of approximately 5,000 towers to WTTIL. The combined entity will, therefore, have a portfolio of over 18,000 towers, with an enterprise valuation of approximately 130 billion rupees. Tata Teleservices will retain 51% stake in the merged entity, while management rights in WTTIL will be handed over to an independent management led by Quippo Telecom. QTIL will, therefore, possess the ability to nominate key professionals such as the managing director and chief financial officer and representation on key committees. The board of directors will comprise representatives from both companies, led by an independent chairman. WTTIL aims to grow into an entity with over 50,000 towers by 2012.
Outlook and Implications
- Consolidation in Infrastructure Segment: Telecoms operators in India will be increasingly seeking network sharing to reduce their network costs and accelerate service roll-out, boosting business opportunities for infrastructure companies like WTTIL. "We view this as a big opportunity since the new entrants in telecom will need to share the passive infrastructure as it will be expensive for them to set up their own. Also, with 3G and broadband wireless access (BWA) auctions around the corner, it gives such companies a lot of opportunities to grow," Tata Teleservice’s managing director Anil Sardana was quoted by Business Standard as saying. WTTIL will be competing with Indus Towers, an infrastructure joint venture between Bharti Airtel, Vodafone Essar, and Idea Cellular. Indus owns about 80,000 towers (see India: 10 December 2008: Bharti, Vodafone, Idea in Deal to Share Mobile Infrastructure). Reliance Communications has also hived off its infrastructure arm, Reliance Infratel, which has around 40,000 towers. The likes of Idea Cellular and BSNL are also preparing for the spin-off of their tower units.
- Strategic Direction of Tata Teleservices: The creation of the tower joint venture will allow Tata Teleservices to focus on its core telecoms service operations while reaping benefits from the growing infrastructure-sharing businesses. The deal follows a strategic agreement between Tata Teleservices and NTT DoCoMo in November 2008, under which the Japanese mobile giant would acquire a 26% stake in Tata Teleservices for US$2.7 billion (see India: 13 November 2008: NTT DoCoMo to Acquire 26% Stake in Tata Teleservices for US$2.7 bil.) The transaction marks a key step in the strategic evolution of Tata Teleservices, as it moves towards a pan-India dual network presence. The country's second-largest CDMA operator is aiming to launch a nationwide GSM service in the coming months, following a similar move by larger CDMA rival Reliance Communications last week (see India: 31 December 2008: Reliance Communications Launches Nationwide GSM Services). Tata Teleservices has earmarked US$2 billion for its GSM rollout and has placed GSM network equipment orders with Nokia Siemens Networks, Huawei, and ZTE and for transmission with NEC.