Bharti Infratel, the Telecom Infrastructure company is reportedly planning to acquire the standalone towers of Idea and Vodafone for a total of USD1.6bn.
Idea has 9,000 towers with a tenancy of 1.6x and Vodafone has 11,500 towers with a tenancy of 1.5x. We understand that deployment of cash has been a priority at BHIN; we believe acquiring these towers would make strategic sense, as it would enable the company to expand its tower portfolio with little compromise to tenant quality given that Idea and Vodafone are both well-run telecom companies with significant telecom revenue market share, at 18.2% and 23.2%, respectively (as of March 2015 quarter). It remains to be seen if Vodafone and Idea are keen to sell 100% of their ownership in the towers (they have not commented); for the purpose of this note we assume they are.
We highlight that the growth opportunity for BHIN from this transaction (if completed) would be related more to data. We note that the C circles, where these towers are largely located, are dominated by Bharti, Vodafone and Idea; other new GSM entrants have been struggling in these markets. We believe any upside in the value of the towers would be driven by data growth in the form of extra loading; although we may not see more than 40% loading in the medium term given affordability issues in these markets.
