Bharti in talks to buy Idea & Vodafone towers for $1.6 bn

Cash-rich Bharti Infratel is in advanced talks with British telecom major Vodafone and the Aditya Birla Group's Idea Cellular to buy out their telecom towers at a valuation of up to $1.6 billion (Rs 10,080 crore).

Bharti Airtel, Vodafone and Idea, India's top three cellular service providers, jointly own stakes in unlisted telecom tower company Indus Towers, apart from having their own tower arms. Banking sources said Vodafone might sell 11,000-12,000 towers and Idea Cellular 9,000 to Bharti Infratel.

The acquisition is attractive as Vodafone's tenancy ratio is around 1.5 in towers in Madhya Pradesh, Assam, the northeast, Jammu & Kashmir, Himachal Pradesh and Bihar. Idea's tenancy ratio is 1.6.

Bharti Infratel is looking to pay between $60,000 and $120,000 per tower. The company is likely to fund the acquisition with equity and debt and will dip into its cash and investments worth Rs 6,800 crore.

"We keep evaluating options on an ongoing basis and are open to opportunities, provided there is a strategic fit," a Bharti spokesperson said. Its shares closed at Rs 447 on Wednesday, with a total market value of Rs 84,812 crore. These have climbed 70 per cent in the past year, providing more power to the company to buy out tower companies.

Vodafone declined to comment and Idea officials could not be reached.

The acquisition of Vodafone's and Idea's telecom towers would add five per cent to 11 per cent to Bharti Infratel's valuation, said an analyst with Nomura. The segment is dominated by Indus, Bharti Infratel, Reliance Infratel and Viom. Bharti Infratel wants to focus on non-Indus circles like Jammu & Kashmir, Himachal Pradesh, Madhya Pradesh, Bihar, Odisha, Assam and the northeast.

The sale of towers by Vodafone and Idea should be a win-win deal for both. The two companies acquired spectrum early this year and can use the proceeds for airwaves. Besides, with Reliance Jio planning to invest $18 billion for rollout of its voice and data services, the wireless telephony market is expected to witness intense competition. Competition from Jio will erode margins and subscriber lists of existing companies.

The proceeds of the tower sale will be used to upgrade infrastructure and systems to match services offered by Jio, which are based on fourth-generation cellular technology. Vodafone has 4G spectrum in five circles and plans to roll out services by the end of the year.

Idea, too, spent Rs 30,000 crore for spectrum this March. The sale of towers will help the companies repay loans taken to pay for spectrum in March.

Bharti Airtel might even look at buying out telecom towers in Bangladesh if it spots good opportunities for an investment, said a banker.