GTL Rcom Deal - Interview of Manoj Tirodkar

GTL Infrastructure is making waves in the telecommunication tower market for the second time in the year




GTL Infrastructure is making waves in the telecommunication tower market for the second time in the year. After closing the largest acquisition in
the sector globally with Aircel in January, the company is now mulling a merger with Reliance Infratel, that will be divested from Reliance Communications, which currently holds 95%. GTL Infra chairman Manoj Tirodkar told ET, the combined entity will generate Rs 6,000 crore from 85,000 towers with operating margin of up to 75% in its first year of operations, in an interview with ET. Excerpts:

After the Aircel deal, what’s the need for a deal with Reliance Communications (RCOM)?

It will take us five to seven years to reach this scale without RCom. But we needed to get this scale as of yesterday. The BWA (broadband wireless access) spectrum will be released in 10 days, and 3G in the next four to five months. The outcome of the bidding in these technologies present apparition of more players. Plus, with all wireless technology, whether it is telecom, or FM radio or mobile TV, everyone will require towers spurring demand. Each of the subscribers, particularly someone like Reliance Industries and Qualcomm, which recently made a foray, will need a footprint of 1,00,000 towers. With this, we should at least be able to fulfil 80% of client requirements if not more.

Will there be a high degree of overlap in the Aircel and RCom portfolio?

There is very little duplication in the footprint. This makes the fit very synergistic. Aircel for instance was very strong in the South, but it didn’t have as much strength in Mumbai. As a result we can use the RCOM towers for additional requirements of Aircel and vice versa. If GTL were to build 20,000 towers for Aircel, that would mean a capital expenditure of Rs 6,000 crore, which we can now save. The overlap will be between 12-15%, but not all of it will be redundant, because in some sites we may require more slots than can be housed in one tower. That said, we are prepared to relocate or reduce excess infrastructure, but we will be able to reuse most of it in what we are building.

What will the deal valuation be?

It is too premature to say. At the moment, we have both agreed to a 60-day exclusive talking period, where the two parties will discuss finer details. Valuation will be done by an independent party as well as banks, before we can decide exactly who gets what. What has brought us both on the table is a meeting of minds.

We (Mr Tirodkar and Anil Dhirubhai Ambani ) share the vision of creating a large independent tower operator, that can not only facilitate sharing of passive infrastructure — like towers — but also active infrastructure — radio equipment — between operators present at a site. We have spoken to several other players for similar deals, but the operators wanted control in them. Here (with RCOM), the operator will hold no stake in the merged entity. This is likely to reflect in all aspects of the deal, share holding or management. Tomorrow if we have one or two large clients, who ask for some change in leadership, I myself will be willing to step down as long as we maintain neutrality.

What will be the basis for valuation?

The value for a tower operator lies in the tenant. So that is the key. In the Aircel deal for instance, we paid Rs 35 lakh per tenant, and Rs 5 lakh for the first right to build, or provide, the next tower requirement. In Aircel’s case we have first right of refusal for the first 20,000 towers the company will build in addition to the 17,500 it sold to us. For RCom the number can be much higher given 3G plans.

How will you fund the transaction?

It will take co-operation from both sides. That’s why this transaction is different from a simple acquisition. The cash amount needed is already underwritten by Standard Chartered Bank and SBI Caps. We will be able to close the deal without any investor, but there are several private equity investors who have been talking to us since the Aircel deal. We will weigh our options.