Ambanis' deal can trip tower majors - Daily News & Analysis

The deal between Reliance Jio Infocomm and Reliance Communications (RCom) – which gives the companies unlimited access to each other's technology, infrastructure and tower assets – may be good for the Ambani siblings, but for others in the telecom tower business, it signals difficult days ahead. "In our view, given the deal's potential size, there could be pricing pressure on tower rentals, which could be detrimental to tower company valuations as well," Ballabh Modani, Nitin Tiwari, Rumit Dugar and Udit Garg of Religare Institutional Equities said in a note on Tuesday. According to analysts, one player getting a chunk of business creates an unfair advantage in the market, which could push up competitive pricing intensity in the tower industry as every player seeks a part of RIL's 4G business. But slashing tower rentals is unaffordable for the tower industry, which is already reeling under losses, with minimal investment from telcos in the last two years. Though RIL has expressed interest in leasing towers from other players, too, industry sources said RCom will be the sole leaser of towers to RIL. "RIL was in discussions with Indus Towers – the largest tower company in the world today – to lease out 50,000 tower sites two years ago, at the time when it received its broadband wireless access spectrum. However, RIL was unwilling to pay Indus a fixed price of Rs20,000-30,000 per month for tower lease, and wanted the amount to be halved. Talks failed at that time since the parties were unable to come to a compromise and have never been resumed again," said a source, requesting anonymity. "Even RIL's proposed plan to launch its own low-cost base stations may not take off, as it costs a minimal of Rs10-12 lakh to set up a single tower," claimed another source. Interestingly, RCom has exactly 50,000 towers to date, which it has been trying to hive off for the past three years, in vain. These towers will no doubt be leased at a sizeable discount to RIL, but will help reduce RCom's Rs37,361 crore debt no less. To be sure, RIL has even expressed interest in acquiring RCom's towers going forward, as part of its 4G rollout. "We believe RCom's tower company net value accretion would be approximately Rs35/share based on assumptions of long-term tenancy of 2.35x with captive tenancy of 1.65x, capex recovery of 12%, and weighted average cost of capital of 11.3% and terminal growth rate of 3%, as the value of external revenues, after netting off contribution from captive tenancy," Citi analysts Gaurav Malhotra and Arthur Pineda said in a note on Tuesday. "This is besides the Rs1,200 crore one-time payment to RCom for its 1.2 lakh km of optic fibre, plus the annual network usage charge," the duo noted. "We compute a potential upside of Rs18/share for RCom from a tower-lease transaction with RJIL," Kotak Institutional Equities analysts Rohit Chordia and Shyam M said in a note. @berylmenezes via Business - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNELDQbar9sGnX6M_2Y9101ly6W5JQ&url=http://www.dnaindia.com/money/1818697/report-ambanis-deal-can-trip-tower-majors

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