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Good opportunity for new telecom service providers

Good opportunity for new telecom service providers
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First Published: Wed, Aug 12 2009. 01 15 AM IST

Updated: Wed, Aug 12 2009. 12 37 PM IST
Independent telecom tower companies, such as American Tower Corp. and Crown Castle International Corp., may soon have a larger role to play in the industry, if one of them wins the bid for Aircel Cellular Ltd’s tower business. According to news reports, American Tower and Crown Castle are among the four bidders that have been shortlisted by Aircel.
The other two bidders are Bharti Infratel Ltd and a combine of Tata Teleservices Ltd (TTSL) and QuippoTelecom Infrastructure Ltd.
Telecom sector analysts say that Quippo’s acquisition of a 49% stake in TTSL’s tower business for Rs2,400 crore has been delayed, owing to funding constraints.
A TTSL spokesperson told Mint , “There is no substance to this. The deal is in the process of completion.”
Nevertheless, sector analysts say that Quippo may not have enough cash to be able to win the Aircel bid, which according to reports, could be worth between $1 billion and $1.6 billion (Rs4,790-7,664 crore).
Financial services firm India Infoline Ltd’s equities desk said in a recent report: “We understand from conversation from industry sources that Quippo, which by this time was expected to have completed the acquisition of 49% stake in Tata Teleservices’s tower company, has not been able to complete this step. We understand the proposed acquisition has run into financing problems, given the tough credit conditions in recent months.” Another analyst echoed these comments.
Bharti Infratel may not find Aircel’s tower portfolio as attractive as the independent telecom tower firms, considering it already has a nationwide reach between itself and associate company Indus Towers Ltd. It may well bid to keep competition away, but as one analyst says, that would entail a high cost.
The independent tower companies are expected to bid aggressively since it will give them an opportunity to reach meaningful scale with one transaction. Earlier this year, American Tower bought Xcel Telecom (now ATC India Tower Corp.) for Rs700 crore, but this gave it access to only around 1,700 towers. Aircel has about 12,000 towers, which is expected to go up to 17,000 by the end of the year.
The pertinent question is how would an independent tower company with a large footprint change the business dynamics of the industry. India Infoline says that such a development will be negative for large listed telecom companies, as start-ups will find tower capacity easier to come by, with better service levels. The impact on lease rentals may not be too high since pricing is already competitive. And it’s not that supply will increase dramatically.
In fact, considering the number of new service providers who are soon expected to hit the market, demand for tower infrastructure will be relatively high, keeping a check on significant price cuts.
Write to us at marktomarket@livemint.com
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First Published: Wed, Aug 12 2009. 01 15 AM IST