BSNL to form tower co, but will it sell stake?

The Union Cabinet today gave its approval for hiving off mobile tower assets of Bharat Sanchar Nigam Limited into a separate company owned by BSNL.

While the move, is not of that big a significance in itself, it is crucial from the perspective of what could come next.

It is believed that the move to hive off the tower assets into a separate company is a prelude to allowing the company to sell some of the towers and raise money.

It is an accepted way of raising money and cutting debt among telecom service providers.

However, BSNL may not be able to sell all of its towers as many of them are located atop the company’s telephone exchanges.

“This approval authorizes BSNL to monetize its telecom tower infrastructure with the formation of a separate subsidiary company,” the company said.

The government, for now, indicated that the spin-off was primarily to raise revenue and not for raising funds.

“An independent, dedicated tower company of BSNL with a focused approach will lead to increasing of external tenancies and consequentially higher revenue for the new company,” it said.

There are around 4,42,000 mobile towers in the country out of which more than 66,000 mobile tower are of BSNL.

The telecom tower industry has emerged as an independent business to harness the potential for sharing of infrastructure.

The business model arose from the need to achieve economies of scale and to reduce capital investment costs for providing mobile services. The Department of Telecommunications (DoT) policy allows sharing of passive infrastructure i.e. the tower structure, Diesel Generator sets, battery units, power interface unit, air-conditioning etc., which has facilitated the growth of the telecom infrastructure industry.

A tower infrastructure company essentially owns the passive infrastructure asset and leases it to telecom service providers enabling them to minimize duplication of investments and economize on costs of Operation and Maintenance (O&M), thereby improving profitability.

Besides the captive model in BSNL and MTNL where the service provider owns their passive infrastructure also, there are three different business models within the telecom tower industry:- companies created by hiving off the tower assets portfolios of service providers into subsidiaries, companies established as independent joint venture entities by service providers jointly and companies promoted by specific service providers but established as independent entities with the promoter being the anchor tenant for the tower company.

Reliance Communications and Bharti Airtel too have raised money recently by selling stakes in their tower subsidiaries.

The high level of debt has prevented BSNL from launching 4G services, which has in turn led to a decline in revenue and profit.