The telecom industry right now is going through a phase of mergers and acquisitions, that might lead to the emergence of 3-4 stronger infrastructure players.

Very recently, American Tower Corporation (ATC) announced agreements to acquire 20,135 telecom towers held by Vodafone India and Idea Cellular for about ₹7,850 crore i.e. round about $1.2 billion.

This deal, which is expected to be completed in the first half of 2018, will further strengthen up ATC’s position as the second-largest telecom tower company with about 80,000 towers. Also, this new deal comes at a time when market leader Indus Towers, with 1,23,073 towers, is being acquired by Bharti Infratel. Even right now, Reliance Communications is also looking for a buyer for its tower assets. So, Idea Cellular and Vodafone’s exit will mean that there will be no mobile operator left in the tower segment other than Reliance Jio.

To this, Amit Sharma, Executive Vice-President, and President, Asia, ATC, regarded that, “Operators exiting tower space is an excellent trend. India was behind the world in this regard and is finally catching up. Operators need to focus on their core customers while managing towers is a b2b business”.

For ATC which was formerly known as Viom, the transactions are expected to generate about ₹2,100 crore in property revenue and about ₹800 crore in gross margin in the first full year of operations. For Idea Cellular, the deal will allow it to use the proceeds to strengthen its balance sheet. It will be acquiring around ₹4,000 crore from the deal.

More on the deal:

According to Idea Cellular Managing Director Himanshu Kapania, “This is part of our early announced intention to hive off non-core assets. We are starting with the towers. We need to strengthen our balance sheet”.

From this deal, Vodafone India will be obtaining, ₹3,850 crore. Vodafone India’s standalone tower businesses are operated by Vodafone Mobile Services and Vodafone India, with a total of 10,235 towers and with a tenancy ratio of 1.52 as of June 30, 2017. Again, Idea Cellular has a portfolio of 9,900 towers with a tenancy ratio of 1.80 as of September 30.

Talking more about the merger, about 6,300 co-located tenancies of the two operators on the combined tower business will further collapse into single tenancies over a period of two years without the payment of exit penalties.

To this Prashant Singhal, Global Telecom Leader at EY India regarded that,“Consolidation is imminent in the telecom infrastructure space. We expect there to be 2-3 companies in the tower space”.