The consolidation in the telecom sector is likely to drive weak independent tower companies out of business placing incumbents like Bharti Infratel in a position of strength
On March 28, 2017, American private equity heavyweight KKR and Canada Pension Plan In-vestment Board bought a 10.3% stake in Bharti Airtel’s tower arm, Bharti Infratel for a consideration of ₹6,193 crore. It is the second time that KKR has placed its bet on Bharti Infratel. It had made an investment of $250 million for a 2.5% stake in the company in 2008, which it finally exited with a more than 70% gain in 2015. The stock is currently at ₹353 (as on 21st April) trading almost 9% higher than the private equity firms’ acquisition price.
Bharti Airtel plans to use the money from the stake sale to reduce the debt on its books and counter the increasing competitive pressures thanks to the price war unleased by Reliance Jio. In fact the entire telecom industry is undergoing a consolidation and change of business model after the disruptive 4G launch of Reliance Jio. This is also expected to drive consolidation in the tower business as telcos involved in a merger will cut down on tower locations where both companies are tenants in a bid to rationalise costs driving weaker tower companies out of business. Tower companies help mobile operators increase their network coverage by providing cell sites that connect two callers.
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