Industry Trend Analysis - Vodafone-Idea Better Positioned As A Service Operator - JAN 2018
BMI View: Selling their tower assets will help the merged Vodafone-Idea to exploit scale and operational efficiencies to better compete with Reliance Jio and Bharti Airtel. Development of new technologies like 5G and IoT ecosystems, combined with use of high-frequency spectrum , will drive demand for connectivity services , where specialised players like American Tower will be in a prime position to capitalise.
Vodafone and Idea Cellular will sell their entire Indian tower assets portfolio to American Tower Corporation. Vodafone and Idea are still seeking regulatory approval for the merger of their mobile business in India and are looking to shed assets that would not be needed under a combined business. The USD1bn cash deal will comprise 10,926 Vodafone towers and 8,886 Idea towers. This move plays out our Operator-as-a-Service and Investment Rationalisation views in India ( see ' Telecoms Mid-Year Update: Key Themes For 2017 ' , July 5 2017). The two companies already hold other tower assets through a stake in Indus Towers, where the merged entity would become the majority shareholder. The merger and this tower sale would put the combined business in a much stronger position to tackle competition from Bharti Airtel and Reliance Jio.
We expect Vodafone-Idea to continue to divest capital-intensive assets or operations as it transforms into a more competitive business. Exploiting scale and maximising operational efficiency will prove crucial to survive in the Indian mobile market, as price wars triggered by newcomer Jio's ultra-low-cost offerings are taking a toll on operators' revenues across the market. With fewer infrastructure assets to maintain, Vodafone-Idea would run a more competitive operation to cope with price-slashing. Furthermore, it could focus its investments on its core business, developing better-value offerings to cater to medium and high-value customers.
|Data Demand Growth To Drive Tower Densification|
|India - Mobile And 3G/4G Forecasts|
|f = BMI forecast. Source: Operators, TRAI, COAI, BMI|