The Department of Telecom has moved a Cabinet note seeking permission to hive off the tower assets of Bharat Sanchar Nigam Ltd into a new company.

BSNL has 61,622 towers, which is the second largest tower portfolio among all telecom companies. Indus Towers, a joint venture between Airtel, Vodafone and Idea Cellular, is the largest player with 1.2 lakh towers.

“Establishment of a separate company for holding and managing the tower infrastructure assets of BSNL will enable the new company to unlock the true potential of the tower business and leverage it for expansion and spread of infrastructure,” the DoT note said.

According to DoT calculations, if the tower assets were considered as a separate entity it would have earned Rs 964 crore in 2012-13. Based on certain assumptions, DoT expects the EBITDA of the proposed tower company to touch Rs 2,357 crore by 2023.

Total asset base

The total asset base of the proposed company is estimated at Rs 7,226 crore with fixed assets of Rs 6,517 crore and net working capital of Rs 708 crore. Since the hiving off will impact BSNL’s top line, it has been proposed to incorporate Rs 2,500 crore as loans from BSNL at an interest rate of 12 per cent. The earnings by way of interest would neutralise the negative cash impact on BSNL, the note stated.

The transfer of assets to the new company would be liable to levy of Rs 475 crore worth of stamp duty. DoT has proposed to seek a waiver from the Delhi Government. The new tower company is expected to have a workforce of around 3,000 people.

Though BSNL had opened up its tower infrastructure for sharing in 2010, it did not get many tenants. On the other hand, private tower players, such as Bharti Infratel, have been able to unlock value by listing its shares on the stock exchanges.

Private companies have also been able to get into infra sharing agreements, which have helped reduce their costs.

In contrast, BSNL has only one per cent of the market for tower tenancies.

“There are several reasons for the low market share, which include lack of focussed marketing mechanism for customer acquisition, the perception that BSNL towers have a lower site uptime, pricing of infrastructure being more expensive than prevailing market rate, the perception of conflict of interest between BSNL and non-BSNL tenancies and perception of poor response to tenant complaints,” the DoT note said.

Hiving the assets into a separate company could bring in the required focus. Nearly 50,000 towers of BSNL are connected by optical fibre cable, which is useful for transmitting data services.

External tenancies

The following report in Business Line today indicates the government’s intention to separate the tower business of BSNL in to a separate company to make more profit. But essentially, what BSNL now gets from the tower business ie. about Rs.1,000 crores will be lost. However, in the note it is stated that compensation will be paid to BSNL through interest for which the loan given to the new company on behalf of BSNL. We have to getmore details in the matter:
According to DoT’s estimates, the market for external tenancies is expected to be in the region of 80,000-100,000 towers in the next five years. The proposed company could garner 16-18 per cent of the total market share.

The DoT has proposed to hive off the assets in phases. Under the proposed plan, the tower assets will be moved into an independent business unit within BSNL and operational activities, such as marketing, would be outsourced to private partners.

In the second phase, the unit will be converted into a wholly-owned subsidiary.

The entire process is expected to be completed in 12-18 months after the Union Cabinet approves the proposal.