Strong signals

What makes Bharti Infratel a strong incumbent in the telecom tower business


On March 28, 2017, American private equity heavyweight KKR and Canada Pension Plan Investment Board bought a 10.3% stake in Bharti Airtel’s tower arm, Bharti Infratel for a consideration of Rs.6,193 crore. It is the second time that KKR has placed its bet on Bharti Infratel. It had made an investment of $250 million for a 2.5% stake in the company in 2008, which it finally exited with a more than 70% gain in 2015.  The stock is currently at Rs. 353 (as on 21st April) trading almost 9% higher than the private equity firms’ acquisition price.

Bharti Airtel plans to use the money from the stake sale to reduce the debt on its books and counter the increasing competitive pressures thanks to the price war unleased by Reliance Jio. In fact the entire telecom industry is undergoing a consolidation and change of business model after the disruptive 4G launch of Reliance Jio. This is also expected to drive consolidation in the tower business as telcos involved in a merger will cut down on tower locations where both companies are tenants in a bid to rationalise costs driving weaker tower companies out of business. Tower companies help mobile operators increase their network coverage by providing cell sites that  connect two callers.

 In fact, the news of an impending merger between Vodafone and Idea had initially sparked off concerns that the combined entity cutting down on common tower locations would have an adverse impact on Bharti Infratel. But analysts believe that the exits may not be as sudden and sharp as the Street fears and telco-owned companies like Bharti Infratel will be least affected. According to them, the Idea-Vodafone merger may at the most result in just 30,000 exits for Bharti Infratel over FY18-FY23, moderating the tenancy growth to an average of 7% each year against an earlier estimate of 9%. The fear might also have been overdone as Bharti Infratel has stringent exit conditions where in a 10-year contract telecos have to pay 100% of the residual contract if they exit before five years and 35% of the residual contract value if they leave after five years. 

Bharti Infratel presently owns 38,997 towers on a standalone basis. After factoring in its 42% stake in Indus’ tower business, Bhart


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