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Accelerating consolidation in the industry to benefit top telecom operators, says CLSA

October 11, 2017

According to a report by CLSA, the accelerating consolidation in the telecom industry will benefit top operators but pose some risk to tower companies given the tenancy. The report stated that consolidation is expected to help top telecom operators with an opportunity to outpace the sector growth and improve share and profitability.

Further, the report also took note of the smaller exits in the sector besides the ongoing Vodafone-Idea Cellular mega-merger. It pointed that the scaling down or exit of business by smaller mobile operators will place in aggregate about 20 percent of industry cell sites at risk. Moreover, among the tower companies, GTL Infrastructure, American Tower Corporation (ATC) India and Reliance Infratel are likely to be most impacted as over 85 per cent of sites at risk are on their towers. Additionally, the report estimated that about 5 per cent of Bharti Infratel and Indus Towers’ tenancies could be at risk.

Meanwhile, Reliance Communications (RCOM) which is reeling under a debt burden of about Rs 460 billion recently called off merger talks with Aircel citing legal and regulatory delays. The two companies had signed binding agreements in September 2016 for the merger of their mobile business. RCOM’s Rs 110 billion tower deal with Brookfield is also being reworked following termination of wireless merger talks with Aircel.

On the other hand, Tata Group is planning to close down operations for Tata Teleservices Limited (TTSL) in 2017-18. TTSL is burdened by Rs 310 billion debt in addition to spectrum liability and incurring cash losses on a month-on-month basis. The report also pointed that despite valuable spectrum held by the Tata Group; there may be a few takers for the radio waves. This is because all incumbent operators have enough spectrum to service their data demand needs for next 3-5 years. However, the report did not completely rule out the possibility of Airtel and RJIL selectively acquiring spectrum in a few circles.


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