MERGER AND ACQUISITION
Indus Towers Limited is an independently managed company offering passive infrastructure
services to telecom operators and other wireless services providers such as broadband service
providers.
Bharti Infratel, a telecom tower company provides shared telecom infrastructure to mobile
operators in India. It is a spin off from Bharti Airtel, India's largest leading mobile services
operator. Bharti Infratel partnered with its rivals, Vodafone and Idea Cellular, to form a joint
venture, Indus Towers, to pool and share the three companies' tower assets.
Main synergies from the merger of these two companies will come from the saving of the
dividend distribution tax and greater economies of scale. Further, these companies will
benefit given the consolidation taking place in the industry. When Infratel came out with the
results, their collocation collections have actually declined as the smaller telcos exited from
the market.
WHY MERGER?
Bharti Airtel Ltd., Vodafone India Ltd, and Idea Cellular Ltd. were looking forward to cut
their stake in the tower businesses, to fund their core business operations as these companies
were finding it difficult to pay their huge AGR (Adjusted Gross Revenues) dues to the
government. This was one of the reasons why Vodafone-Idea (Vi) sold its stake in Indus
Towers and exited out of the merger receiving a cash payout, which will help in paying some
part of its AGR dues. Another major reason of deciding to focus on core business operations
was the pressure created by Reliance Jio increasing market share. Their earnings were, thus,
shrinking and under pressure. This mega merger of Bharti Infratel Ltd. and Indus Towers Ltd.
is expected to help unlock value for both the companies.
MERGER AND ITS CONSEQUENCES
The merger of Bharti Infratel limited and Indus Towers limited got completed in November
2020. The combined entity is renamed ‘Indus Towers Limited’ with more than 1,69,000
towers across 22 telecom service areas in India. It has become the world's largest telecom
company outside China. After the merger, the emulsified entity also experienced the
expansion in paid up equity which was increased to Rs. 26,949,369,500 (2,694,936,950
equity shares of Rs. 10 each, fully paid up). Bimal Dayal has been appointed as the CEO of
the merged entity and seven directors have resigned from the Board of the company, with
effect from the conclusion of the Board meeting. The combined entity’s tower share in the
tower market will be close to 35 percent and It’s share in the tenant market will be close to
45-48 percent, according to the data compiled by Bloomberg Quint. Bharti Infratel along with
Idea cellular and Vodafone group gave its nod to merge Bharti Infratel ltd. with Indus Towers
ltd more than four years back in April 2018. But the merger was rescheduled five times.
Initially the date for the merger was in October 2019 which was then extended till December
and then again delayed till February 2020 and then due to lockdown and several other reasons
got delayed again and again.
Shareholding Pattern
Governance, Dividend Policy and Other Highlights
Strategy for the Merged Entity
Promote Nationwide Passive Infrastructure Sharing
Capitalize on opportunities due to data growth, Digital India, Smart Cities’ Initiatives
of government.
Increasing Revenue and Capital Achieving Cost Productivity
Achieving Cost Productivity Efficiencies
Organic Growth and Acquisition Opportunities
Porter’s Five Forces Analysis
Competition in the industry
The competition between the firms in any industry is powerful. The firms may adopt to
cutting and bring down the whole industry. Hence, the rivalry between firms affects the Indus
towers, and thus rivalry between the firms is a major aspect. This factor is dependent on-
price wars, corporate on price wars, corporate image, adoption of new technology, value
added services, and so on. The competition in the telecom industry is a stiff because of the
ever-ongoing price wars, short life of new innovations. Moreover, due to the deregulation and
increasing capital markets has opened the gates to new competitors for Indus towers. The
effects of this force are determined by the following
High Exit Barrier: exit barrier is high for the Indus towers, it increases the difficulty
of to leave the industry sector, due to its specialized equipment.
High fixed cost: Indus towers has high fixed cost, which makes the entry barrier also
very high for the industry. But the biggest entry barrier for this Indus towers is access
to finance. Undoubtedly, when the financing options are less, the rate of entry in the
industry slows.
More innovations; more competition: In this industry, companies focus their resources
on research and development and marketing more than anything else. Due of this, if
Indus towers launches a new innovation, the others attack with counter innovation. To
sum up, this is a main reason of rivalry in this industry.
Potential of new entrants into the industry
The potential and existing competitors, both, influence this industry’s profitability. The entry
of the potential competitors is based on the entry barriers of this industry. But the new
entrants are a weak force in any industry. The competition in the industry grows when the
entry barriers are less because it allows more new companies to mark their entry in the
industry. Undoubtedly, Indus towers has entered the industry with low prices, innovative
products, or even new features and benefits.
This industry has many entry barriers. Since, the telecom industry is capital-intensive in
nature, the biggest barrier becomes access to finance. The threat of entrants increases, when
the capital market is generous, and if there are fewer financing opportunities available in the
market, then this threat decreases considerably. Other entry barriers are the licensing and
operating regulations adapted by the government of India and so is the consolidation.
Another major reason of deciding to focus on core business operations was the pressure
created by Reliance Jio increasing market share. Their earnings were, thus, shrinking and
under pressure. This mega merger of Bharti Infratel Ltd. and Indus Towers Ltd. is expected to
help unlock value for both the companies.
Power of customers
Today’s market is becoming buyer-centric, thus giving the buyers/customers the power of
bargaining and to demand better and efficient products and services for the same price,
impacting the profitability of any firm. The behaviour and power of the buyer base is
dependent on the availability of alternatives, market awareness, preferences and so on.
Mostly, the size and the concentration of customers are the determinants of power of a buyer.
Due to privatization and increasing competition in the telecom industry, the buyers/customers
have various options to choose from and demand. Also, due to the decrease in the switching
prices, the increase in income along with the development of the IT technologies has resulted
in change of buying pattern of the costumers.
A reduced stake of Bharti Airtel and Vodafone Plc will make the merged entity more
independent and reduction in conflict of interest as customers and owner are same as of now.
The combined entity has become the second largest Tower infrastructure company in the
world after China and covers all 22 Tower circles in India. The merger of Bharti Infratel and
Indus Towers will help unlock value and achieve economies of scale.
Power of suppliers
The supplier power is the mirror of buyer power. If there is monopoly of supplier, then the
power has no limits. This force is also dependent on the level of switching cost and the terms
and conditions laid down by the supplier. Undoubtedly, without all the equipment such as,
the high-tech broadband, fibre-optic cables and wires, mobile handsets etc. the firms in this
industry, won’t be able to provide the required services and products to the customers. It may
appear that supplier have a upper hand with the telecom operators, but there are a large
number of suppliers and it helps to dilute the bargaining power.
The merger has built an engaged ecosystem of stakeholders- Company engaged its
stakeholders by effective coordination and communication between them. Stakeholders
include customers, employees, partners, shareholders and regulators. Company achieve
sustained business growth by using innovative technologies, robust balance sheet, investment
in greener solutions.
Threat of substitute products
A substitute of a product is the one which is similar to the product and not identical. As this
industry is ever-evolving, the threat of substitutes is always high, especially the services and
products from non-traditional telecom industries, like the cable TV and satellite operators
which compete for the buyers. The voice traffic of the wireless telecom operators has been
drastically reduced due to substitutes like IP telephone, E-mail and other instant messaging
platforms. But there are no commercially viable substitutes available as of today’s situation.
To sum up, in this industry, force of threat of substitute is determined by availability of very
close substitutes and low customer loyalty.
The merger of Indus towers and Bharti Infratel has come up with new product and services
designed around three core elements and aim to enhance uptime, coverage and service
quality while lowering operational costs for customers and minimizing our carbon
footprint.
1. Tower: For Mounting the Operator Antennae at an Appropriate Height
2. Power: For Providing Uninterrupted Energy Supply to Telecom Equipment
3. Space: For Housing Telecom and Power Equipment
4. Indus’ Smart City - Indus towers acquire the requisite space from residential and
commercial property owners – our landlords – for placing our passive infrastructure at
strategic locations. They engage with landlords throughout the lifecycle of hosting telecom
infrastructure on their premises.
5. NextGen Service Centric Tower Operations Center (TOC)
The Indus Tower Operations Center (TOC) is a state-of-art facility that is designed to cater
to one of the most fundamental requirements for company-wide operations.
6. Green Technology
They found that majority of energy in telecom tower shelters was being consumed by air
conditioners rather than active telecom equipment in order to keep instruments at the
ambient temperature. This set-in motion our Shut AC initiative that sought to replace air
conditioners with free cooling units, which consume less energy and are specifically
designed to control the internal environment of cell site enclosures.
