With the state the equity markets are in, it’s not surprising that valuations of telecom tower companies have also crashed. At its peak, when tower companies Reliance Infratel Ltd and Bharti Infratel Ltd offloaded minority stakes, valuations were as high as Rs1.6 crore/tower.
Earlier this year, when Quippo Telecom Infrastructure Ltd merged its tower business with that of Tata Teleservices Ltd’s, the enterprise valuation/tower was around Rs45 lakh/tower.
The most recent deal where Boston-based American Tower Co. has agreed to buy Xcel Telecom Ltd for a reported valuation of Rs700 crore results in a valuation of Rs41 lakh/tower.
This is based on news reports in the US that put Xcel’s owned infrastructure at 1,700 towers. According to analysts, if the reported numbers are correct, the valuation is close to the replacement cost.
From the perspective of American Tower, which had about $200 million (Rs1,028 crore in cash at the end of 2008), the acquisition at replacement cost saves it both effort and time in building up its Indian business. It already operates towers in the US, Mexico and Brazil.
The key question, of course, is how viable is the business model of independent tower firms. In each of the previous deals involving tower firms, there was at least one tenant.
In Bharti’s case, there were three tenants thanks to the firm’s tie-up with IdeaCellular Ltd and Vodafone for sharing towers.
In the Tata-Quippo deal, Tata Teleservices was an existing tenant.
It’s not known if Xcel has any tenants already or if it has agreements in place with upcoming operators such as Unitech Wireless Ltd and Datacom Solutions Ltd. One of the reasons for the relatively low valuation could be that it doesn’t have similar strong commitments as far as tenancy goes.
But the fact that firms such as American Tower see value in the independent tower business and have entered India will ensure that there will be a competitive pressure on pricing by telecom companies. New operators, after all, have a wide array of infrastructure providers to choose from.
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