Idea Vodafone May Face Conflict of Interest in Telecom Tower Deal

The merged entity of Vodafone India Ltd and Idea Cellular Ltd is likely to face a conflict of interest when it plans to buy tenancies as the two companies have telecom tower operator American Tower Corp. (ATC) as a preferred vendor and at the same time also have stakes in its rival Indus Towers-Bharti Infratel combine.

“There is a conflict of interest here… if earlier promises cannot be implemented… there can’t be sweetheart deals because there is a risk of some legal action if the small player is disadvantaged,” a person with direct knowledge of the matter said, requesting anonymity.

“Ultimately, it will come down to normal market principle and market pricing,” the person cited above said.

Emails sent to Vodafone India, Idea, Bharti Airtel Ltd and ATC were unanswered till press time.

The two telecom operators, which are likely to complete their proposed merger by June, had in November 2017 separately agreed to sell their respective standalone telecom tower businesses in India, totalling 20,000 towers to ATC Telecom Infrastructure Pvt. Ltd, a unit of ATC, for Rs7,850 crore.

As part of the deal, both Vodafone India and Idea as customers, and ATC as a mobile network infrastructure provider, had agreed to treat each other as long-term preferred partners, subject to existing arrangements.

Post the Vodafone-Idea merger, 6,300 co-located tenancies of the two operators on the combined standalone tower businesses will collapse into single tenancies over a period of two years without the payment of exit penalties, the companies had then said.

ATC last month completed the acquisition of Vodafone India Ltd’s 10,200 standalone telecom towers for around Rs3,800 crore but the deal to purchase Idea Cellular’s stand-alone towers for Rs4,000 crore is yet to be completed.

Meanwhile, Bharti Infratel Ltd, the tower arm of India’s largest telecom operator, and Indus Towers on 25 April agreed to merge their businesses to create the world’s largest tower company outside China.

Under this proposed merger, Airtel and Vodafone India will have equal rights in the merged tower entity. Vodafone India will own between 26.7% and 29.4% and Idea has the option to either sell its 11.15% stake in Indus Towers for Rs6,500 crore or get a 7.1% stake in the Indus Towers-Bharti Infratel combine if Providence also opts to receive new shares in exchange for its shareholding in Indus Towers. Airtel, which owns 53.5% stake in Bharti Infratel, will hold between 33.8% and 37.2% in the merged entity.

“What is interesting is that Bharti Infratel and Indus Towers have not clarified what happens to the exit penalties payable by Idea and Vodafone because of cancellation tenancies as a result of their merger,” a Mumbai-based analyst said requesting anonymity. Overall 25,000 tenancy exits are expected when Vodafone and Idea merge.

“We could look at options…which are win-win for all…Vodafone and Idea are our long-term partners,” a Bharti Infratel spokesperson had said in a post-earnings call on 24 April, responding to an analyst’s question on whether the exit penalties would be waived if Indus and Infratel merged.

“Bharti Infratel-Indus Towers could have an edge in this scenario as they could waive off these penalties in lieu of a promise of getting future tenancies from Idea and Vodafone,” the analyst cited above said.

While the combined entity of Bharti Infratel Ltd and Indus Towers will have 163,000 towers, ATC owns or operates over 68,000 tower sites in India with final approval pending to buy an additional 10,000 towers from Idea. – Live Mint