Telcos shed towers to focus on services

The hive-off helps companies enhance competitiveness and unlock shareholder value.

Indian telecom operators are shedding their infrastructure baggage and moving over to attend to more pressing requirements, like increasing subscriber base and improved customer focus.

Operaters like Reliance Communications, Tata Teleservices Ltd (TTSL) and Bharti Airtel had announced plans to hive off their businesses on one hand, telecom infrastructure and tower companies like GTL Infrastructure, American Tower and other international giants are coming in ready to build and maintain towers for others, on the other.

"Setting up towers and maintaining is not our core competency and we are in discussion with all leading players, who are best suited to do the job for us. We are looking at monitising our assets and invest in introducing a lot more services for the end consumers. We are yet to reach a final model, which we will adopt," TTSL CEO Darryl Green said.

According to industry sources, TTSL was expecting to monetise over Rs 1,000 crore by hiving off its 5,600 towers and passive infrastructure into a separate company.

But monetising and focusing on core competencies are not the only reasons for setting up separate companies. Hiving off also would help the companies remain asset-light and enhance competitiveness and unlock shareholder value.

Anil Ambani-controlled Reliance Communications was planning to transfer its wireless towers infrastructure "" both CDMA and GSM "" to a wholly-owned subsidiary, TowerCo, to lighten its assets. The company has 12,000 towers under its fold, valued at over $4 billion.

"This is the first in series of initiatives we will be taking to remain asset-light and enhance our competitiveness, ultimately leading to unlocking of further value for our nearly 2 million shareholders," chairman Anil Ambani said.

Hiving off towers into a separate company also helps telcos save on capex, mainly with the emergence of sharing of infrastructure. The Department of Telecommunications (DoT), in a consultancy paper on sharing of infrastructure, stated that 60 per cent of total investments in infrastructure was required for passive infrastructure (like towers) and outsourcing this business would reduce overall investments. Also, running and maintaining towers constitute 15 per cent to 20 per cent of the operating cost and hiving off or outsourcing would also mean a saving in overall cost of operations.

This is where companies like GTL come in. An independent telecom infrastructure provider, GTL plans to set up over 6,700 towers by the end of financial year 2008 at a cost of around Rs 2,030 crore.

The latest trend, analysts said, could also be termed as the emergence of outsourcing in Indian telecom sectors, with companies like GTL planning to rent or outsource mobile infrastructure to telecom operators in the country.

Says former BSNL CMD Prithipal Singh: "Sharing of infrastructure would be best suited for Indian companies as they can concentrate on their core competencies. This could also be termed as the emergence of outsourcing in telecom infrastructure space".

Bharti Airtel was also looking at unlocking shareholder value by separating its tower business. The GSM major has 35,000 towers and is expecting it to increase to 40,000 by the end of this financial year.

The Indian government's goal was to provide 250 million telephones by December 2007 and 500 million telephones by 2010. To meet these targets, there should be over 1.35 lakh towers by 2007 and 3.30 lakh by 2010. At present, there are 90,000 towers in the country.