Essar Tele Infra, Quippo likely to merge

Essar Telecom Infrastructure, the country’s second-largest independent telecom tower and infrastructure company, is in talks with the Tata-Quippo tower company for a possible merger, a person familiar with the discussions told ET. Both Quippo Telecom MD Arun Kapur and the Essar group spokesperson declined to comment on the matter. All standalone tower companies in India, except GTL, have less than 6,000 towers each and are exploring merger and buyouts options to take on the large players such as Indus Towers, Bharti Infratel and Reliance Infratel. Moreover, the standalone tower companies have been forced to cut back expansion plans as funding has dried up in the past few months.

American Tower Corp, a global major in the telecom infrastructure space, announced on Tuesday that it will acquire the Mumbai-based Xcel Telecom, which has about 1,700 towers, without disclosing financial details. Indus Towers, a joint venture between Bharti Airtel, Vodafone Essar and Idea Cellular in 16 circles, has about 90,000 towers. Bharti Infratel has just under 30,000 units and Reliance Infratel has about 47,000 towers.

Last year, Essar Telecom Infrastructure was on the ‘verge’ of merging with stand-alone tower company GTL Infrastructure, but the $2 billion deal fell though at the last minute. The two companies went to the extent of finalising the deal structure, which involved GTL Infrastructure buying Essar’s business and merging it with itself, before deciding against going ahead. “Since then, Essar has been looking to merge itself with another entity to bring scale into the business. This is exactly what led to the Tata-Quippo merger,” said an executive at a competing tower firm. In December 2008, Tata Teleservices hived off its tower arm, Wireless Tata Telecom Infrastructure (WTTI), and merged it with Srei group company Quippo Telecom Infrastructure (QTIL). QTIL made an upfront cash payment of Rs 2,400 crore and transferred its 5,000 towers to WTTI in exchange of a 49% stake and management control in the merged entity, which has over 18,000 towers with an enterprise valuation of about Rs 13,000 crore ($2.6 billion).

If the Tata-Quippo deal is taken as a benchmark, every telecom tower in the country should be valued at Rs 78 lakh. Essar Infrastructure has about 4,500 towers and with a conservative value of Rs 50 lakh per tower, its valuations will exceed Rs 2,000 crore. In 2007, Bharti Airtel and Reliance Communications attracted valuations of Rs 1.2-1.6 crore per tower while offloading stakes in their tower arms to buyout groups.