Bharti Airtel Ltd., India's largest mobile-phone operator, will spend $1 billion to expand transmission towers before joining rival Reliance Communications Ltd. in selling shares in the unit to investors.
Bharti Airtel plans to sell a stake in the wholly owned tower subsidiary, Chief Executive Officer Manoj Kohli said in an interview today, without giving a timeframe. The unit will grow to be the world's biggest by the end of the year, he said.
“A separate tower company gets a much better valuation than a single entity,'' said Mahesh Patil, who helps manage the equivalent of $1.5 billion in equity assets at Birla Sun Life Asset Management Co. in Mumbai. The incremental value creation in Bharti's case could be as much as $12 billion, said Patil, who has Bharti as his largest holding.
Reliance Communications, India's second-largest wireless operator, valued its tower assets at 270 billion rupees ($6.7 billion) when it sold a 5 percent stake, more than the entire company's market value when it went public last year.
India's government is encouraging carriers to share their infrastructure to expand coverage in rural areas. Bharti's tower spending is part of a plan to spend as much as $3.5 billion this year on network expansion to maintain its lead over Reliance and Hutchison Essar Ltd.
Tower Sharing
Bharti, about a third owned by Singapore Telecommunications Ltd., aims to have more than 65,000 towers by the end of March, from about 45,000 now, Kohli said. The company will share them with Hutchison Essar, controlled by Vodafone Group Plc, and Idea Cellular Ltd., owned by billionaire Kumar Mangalam Birla.
The legal process to set up an independent tower company will be completed by the end of October, Kohli said. The focus would be to cut energy costs, he added.
The sharing of towers will result in the greater spread of mobile-phone services and lower costs for users as carriers pass on cost benefits to customers, a unit of UBS AG said.
UBS Securities analysts Suresh Mahadevan and Lydia Chan revised their forecast for wireless penetration in India to 65 percent by March 2016 from 52 percent, mainly on account of sharing of passive infrastructure by rival carriers.
“This is likely to result in making the mobile services more affordable and available to end consumers,'' Mahadevan and Chan said in a note released in April.
Bharti shares declined 3.6 percent to 892.35 rupees at the 3:30 p.m. close of trading on the Bombay Stock Exchange today. Indian stocks fell the most in almost four months, mirroring a global decline. India's key Sensitive Index plunged 3.4 percent.
Lowest Rates
The world's lowest local mobile call charges, of about 2 U.S. cents a minute, helped India add a record 7.34 million mobile-phone users in June, beating growth in China. About 17 percent of 1.1 billion people use handsets primarily because of the lack of networks in rural areas.
Bharti is focusing on villages where 700 million people reside, Kohli said. The company has already slashed its lifetime prepaid connection fee by more than half to 495 rupees to lure lower-income users.
“We have a matchbox distribution strategy,'' Kohli said. “Wherever a matchbox sells in India, Airtel should sell.''
Attracting more rural customers would result in a drop in the average revenue per user, a key financial parameter, Kohli said. The decline won't be of concern as long as the company's profit margin on every minute of calls made by users can be sustained, he said.
More Users
Bharti's average revenue generated by each mobile subscriber in a month declined to 390 rupees in the April-June period from 406 rupees in the preceding quarter and 441 rupees a year earlier. That drop was offset by the rise in the average usage time, which increased to 478 minutes a month from 441 minutes a year ago, the company said.
First-quarter profit at Bharti doubled to a record 15.1 billion rupees ($375 million) from 7.55 billion rupees a year earlier, the New Delhi-based company said yesterday. The profit beat the median estimate of nine analysts Bloomberg surveyed. Sales rose 53 percent to 59.1 billion rupees.
Reliance Communications announces earnings on July 31.
Source: Bloomberg