In its move to further penetrate Indian markets, American Tower Corp., (AMT) is in talks to buy the telecoms tower unit of Reliance Communications, India’s second-largest cellular carrier. Industry sources predicted that the tower unit could be valued at more than $5 billion, considering the recent telecom tower deals in the Indian market.
Reliance Communications is debt burdened and is in discussions with local and overseas companies for a cash and stock transaction to create an independent infrastructure business, Reliance Infratel.
India offers some of the cheapest mobile call tariffs in the world. These low prices have put pressure on wireless service providers’ margins and their capital expenditure plans for network upgrade. Consequently, Indian mobile operators are opting for more tower sharing and leasing to save costs.
American Tower is quickly expanding its business operations in various emerging markets. In addition to Brazil and Mexico, American Tower has taken a major initiative to expand its Indian operations. This will generate long-run, sustainable business for the company.
After China, India is the second largest growth market for wireless services where the anticipated subscriber base would be 737 million by 2012. Revenue wise, India currently generates approximately 1% of American Tower’s total revenue. Management has also fixed a target to increase this level to 5% to 10% in the next few years.
As of Mar 31, 2010, the company had a total of 27,661 communications towers, including 27,037 for Wireless network, 431 for Broadcasting and the remaining 193 for DAS (Distributed Antenna System). American Tower expects to close its previously announced acquisition of Essar Telecom Infrastructure Private Limited of India by the end of the second quarter of 2010.
Despite being the largest wireless tower operator in the world, American Tower is facing stiff competition. Crown Castle International (CCI), its closest rival, is currently in negotiations with several Indian towers operators for purchasing their tower units. We maintain our Neutral recommendation on American Tower.
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