Airtel to spend Rs 1.17 lakh crore with subsidiaries over next 5 years

Telecom operator Bharti Airtel has plans to spend about Rs 1.17 lakh crore through business transactions with its subsidiaries like Indus Towers, Nxtra and Bharti Hexacom, according to a regulatory filing.

Bharti Airtel has scheduled an Extraordinary General Meeting (EGM) on Saturday, February 26, 2022 at 03.30 P.M. (IST) through Video Conferencing (VC)/ Other Audio Visual Means (OAVM).

During the meeting, shareholders will vote on transactions regarding the approval of issuing shares to Google for its about Rs 7,500 crore investment in the company to buy 1.28 per cent stake and entering into Material Related Party Transactions with their businesses – Nxtra Data Limited, Bharti Hexacom Limited, Indus Towers Limited.

Nxtra Data Limited and Bharti Hexacom Limited are subsidiaries of Bharti Airtel whereas Indus Towers Limited is a joint venture.

According to the EGM notice, Bharti Airtel will spend Rs 88,000 crore in business with mobile tower company Indus Towers, Rs 15,000 crore for availing services of datacentre firm Nxtra and transaction of up to Rs 14,000 crore with Bharti Hexacom.

Bharti Airtel will invest up to Rs 17,000 crore on transactions with Indus Towers in the next 4 financial years and Rs 20,000 crore in 2025-26, the filing said on Saturday.

“Given the 5G developments globally, it is likely that 5G will soon start to become a reality in India also, slowly in the key cities and then going into the rest of India across the length and breadth of our current network. Therefore, considering the increased requirements of passive infrastructure during massive 5G rollouts, the Company proposing the higher amount of transactions of upto Rs 20,000 crore per annum with Indus Towers for FY 2025-26,” the notice said.

Voting will take place remotely, using an electronic voting system, which shall be available during Tuesday, February 22, 2022 (IST 09:00 AM) to Friday, February 25, 2022 (IST 05:00 PM).

Details of transactions with each company

Nxtra is a subsidiary of the Company. CA Cloud Investments (formerly Comfort Investments II) holds 10 equity shares of Rs. 10 each and 11 million Compulsory Convertible Preference Shares of Rs. 1000 each in Nxtra.

The nature, duration/ tenure, material terms, monetary value and particulars of the contract or arrangement are:

• Availing and rendering of service(s) including data centre services, maintenance and monitoring of cloud services and telecommunication and incidental services viz. Voice, Bandwidth, VAS and SMS etc, revenue collection services and other related services;

• Reimbursement of expenses including towards availing/ providing for sharing/ usage of each other’s resources viz. employees, office space, infrastructure including IT assets, related owned/ third-party services, taxes and selling of common products;

• Purchase/ sale/ exchange/ transfer/ lease of business asset(s) and/ or equipments to meet its business objectives/ requirements;

• Providing loan(s)/ advance(s) guarantee(s) or security(ies) for loan taken by Nxtra or making of investment(s) therein to meet its business objectives / requirements / exigencies;

• Selling or otherwise disposing of or leasing, or buying property(ies) to meet its business objectives/ requirements; and

• Transfer of any resources, services or obligations to meet its business objectives/ requirements.

The transactions are proposed to be undertaken during the duration/ tenure of next five financial years, from FY 2022-23 to FY 2026-27, such that the monetary value of such transactions, individually or taken together, does not exceed Rs. 3,000 crores per annum for each financial year.

The strategic advantages for the Company in transacting with Nxtra (justification as to why the business transactions with Nxtra are in the interest of the Company), are as follows:

• Nxtra has the largest network of data centres in India, serving the requirements of India’s fast growing digital economy and therefore, Nxtra is positioned to offer superior reliability, reach, flexible power configurations and carrier-dense ecosystem for a superior customer experience.
• Nxtra provides a world-class platform to the Company to enable Company carve its strategic digital roadmap and transform the way they create innovative edge solutions for a long-term business advantage.
• Switching the data centre infrastructure sites may not be prudent for the Company as switching of such sites comes with disruption in the core mobility network and its 5G readiness.
• With Nxtra scaling up use of green energy for its data centres and aiming to source 50% of the power requirements of data centres through renewable sources, the transactions related to procurement of environment-efficient data centre services completely align with Airtel’s overall GHG emission reduction goals.
• Nxtra, being the subsidiary of the Company, pools and shares services of group- wide common employees, infrastructure, assets and resources with the Company which drives operational synergy and optimization of common assets & resources for both, Nxtra and the Company.

Bharti Hexacom Limited (Hexacom) is a subsidiary of the Company, with 70% of its shareholding held by the Company and 30% of its shareholding held by Telecommunications Consultants India Limited.

The nature, duration/ tenure, material terms, monetary value and particulars of the contract or arrangement:

• Availing and rendering of service(s) including telecommunication services viz. Voice, Bandwidth, VAS and SMS etc and related services;
• Reimbursement of expenses including towards availing/ providing for sharing/ usage of each other’s resources viz. employees, office space, infrastructure including IT assets, taxes and related owned/ third-party services;
• Purchase/ sale/ exchange/ transfer/ lease of business asset(s) and/ or equipments to meet its business objectives/ requirements;
• Selling or otherwise disposing of or leasing, or buying property(ies) to meet its business objectives/ requirements; and
• Transfer of any resources, services or obligations to meet its business objectives/ requirements.

The transactions are proposed to be undertaken during the duration/ tenure of next five financial years, from FY 2022-23 to FY 2026-27, such that the monetary value of such transactions, individually or taken together, does not exceed Rs. 2,800 crores per annum for each financial year.

The strategic advantages for the Company in transacting with Hexacom (justification as to why the transactions with Hexacom are in the interest of the Company), are as follows:

Hexacom provides telecommunication services in North East & Rajasthan service areas under the Unified License granted by the Department of Telecommunications and accordingly, provides Voice, Bandwidth, VAS and SMS etc and related services to the Company to derive group-wide operational and financial synergies with the Company.

Hexacom, being the subsidiary of the Company, pools and shares services of group-wide common employees, infrastructure, assets and resources with the Company which drives operational synergy and optimization of common assets & resources for both, Hexacom and the Company.

Indus Towers Limited is a Joint Venture of the Company, with 41.73% of its shareholding held (directly or indirectly) by the Company.

The nature, duration/ tenure, material terms, monetary value and particulars of the contract or arrangement:

• Availing of service(s) including passive infrastructure services required for active services viz. IBS, WiFi etc. and/ or services, including but not limited to, of project management or of provisioning, establishing, installation, operation and maintenance thereof;
• Rendering of service(s) including telecommunication services viz. landline, mobile, leased line broadband facility, SIM charges and USB Dongles etc;
• Reimbursement of expenses including towards availing/ providing for sharing/ usage of each other’s employees, infrastructure, related owned/ third-party services and payment of taxes;
• Purchase/ sale/ exchange/ transfer/ lease of business asset(s) and/ or equipment(s) including passive infrastructure assets to meet its business objectives/ requirements;
• Selling or otherwise disposing of or leasing, or buying property(ies) to meet its business objectives/ requirements; and
• Transfer of resources, services or obligations to meet its business objectives/ requirements.

The Company has an arrangement with Indus Towers governing the detailed terms and conditions under which the Company avails passive infrastructure and related services from Indus Towers. The arrangement prescribes material terms and conditions w.r.t. sharing of passive infrastructure at sites, provision for related operation and maintenance service, corresponding obligations of both the parties and service level schedules applicable with respect to the said obligations. The arrangement also prescribes the tower sharing process, site access, acquisition and deployment timelines, the service levels and uptime to be maintained, site electrification requirements, the governance process and applicable charges including standard charges, annual increment, various site levels, premiums and additional charges determined basis the installed active equipment of the Company etc.

The transactions are proposed to be undertaken during the duration/ tenure of FY 2021- 22 to FY 2025-26, such that the monetary value of such transactions, individually or taken together, does not exceed Rs. 17,000 crores per annum for each of the FY 2021-22, FY 2022-23, FY 2023-24 and FY 2024-25 and Rs. 20,000 crores per annum for FY 2025-26.

India is on a crucial stage of readiness toward 5G roll-outs, which presents an opportunity to propel India to the next generation of digital connectivity and deliver significant social and economic benefits. Deploying 5G networks in India will require capital-intensive investments including sufficient spectrum, tower infrastructure and fiber etc. Given the 5G developments globally, it is likely that 5G will soon start to become a reality in India also, slowly in the key cities and then going into the rest of India across the length and breadth of our current network. Therefore, considering the increased requirements of passive infrastructure during massive 5G roll outs, the Company is proposing the higher amount of transactions of upto Rs. 20,000 crores per annum with Indus Towers for FY 2025-26.

The Company had an existing arrangement to undertake transactions with Bharti Infratel Limited (erstwhile Subsidiary of the Company) and Indus Towers Limited. However, consequent to the implementation of Scheme of amalgamation and arrangement between Indus Towers limited and Bharti Infratel limited and their respective shareholders and creditors w.e.f. November 19, 2020, the estimated value of the aggregate contract(s)/ arrangement(s)/ transaction(s) with combined entity, named as Indus Towers post amalgamation, for the financial year 2021-22 may also exceed the current threshold under the extant Regulation 23(1) of the Listing Regulations i.e. 10% of the annual consolidated turnover of the Company (i.e. Rs. 10,061 crores) as per the last audited financial statements of the Company for the financial year 2020-21.

The strategic advantages for the Company in transacting with Indus Towers (justification as to why the transactions with Indus Towers are in the interest of the Company), are as follows:

• Indus Towers is one of the world’s largest telecom tower companies, with a nationwide presence covering all 22 telecom circles in India. Therefore, the Company remains in a better position with Indus Towers in terms of tower sharing process, site selection, speed and quality of acquisition and deployment, the service levels, uptime, site electrification requirements and the governance process etc. Availability of such synergies in the operational processes helps the Company in providing improved quality of services and maintaining consistent high service standards across the business.
• Network requires site infrastructure to be established for providing mobility & enterprise services. Sites planned in the network are defined so that they can provide best coverage & performance for services provided by the Company. As establishment of infrastructure is capital intensive, the contracts/ agreements with infrastructure partners are built for long term period. Therefore, to enable Company maintain continuity of services, experience & contractual obligations, the Company needs to continue to use such passive infrastructure established with Indus Towers on long-term basis.
• Switching the passive infrastructure sites may not be prudent for the Company as switching of such sites comes with disruption in the network as well as surrender penalty for the infrastructure that the partners like Indus Towers have built for us. The arrangement with Indus Towers places the Company well to benefit from optimization of sites (within the eligibility of the contracts) thereby bringing in optimized cost structure driven by scale, reduction in operational expenditure and improvement of expenditure.
• The Company also fiberizes passive infrastructure sites for backhaul which again is long term asset that the Company creates. Therefore, switching to other new partners or moving such sites would need fiber infrastructure to be adjusted accordingly which may adversely impact the cost-effectiveness for the Company. Furthermore, any change may also impact Company’s backhaul topology as multiple sites are inter-connected for creating end to end backhaul network.
• As the technology upgrades from 3G to 4G to 5G, the same infrastructure or site is leveraged for upgrading Company’s network. Leveraging existing infrastructure gives the Company, the lowest cost for upgrade as well as enable it maintain same site grid across all technologies for better user experience.
• The Company leverages the exiting site infrastructure to provide B2B services (and connectivity to its Homes infrastructure as well), which helps the Company to optimize the cost of delivering those services from common infrastructure/ site.
• The arrangement with Indus Towers brings environmental benefits like reduction in diesel consumption, conservation of resources, energy savings and reduced pollution etc., due to enhanced sharing, improved tenancy and world-class ESG practices adopted by Indus Towers.

CT Bureau