Can Bharti Airtel maintain its lead over rivals by selling its tower units?

Bharti Airtel, India's largest mobile-phone operator, plans to sell control of its tower unit, raising cash that can be used to stave off competition and widen its network in the world's fastest-growing wireless market.


“We are willing to come into a minority position” in Bharti Infratel, which runs the mobile-phone tower business, Joint Managing Director Akhil Gupta said. “We would like to get the company listed over the next two-three years but will retain a sizeable minority stake.”


Bharti, based in New Delhi, transferred its network equipment to wholly owned Bharti Infratel to cut costs by sharing infrastructure with rivals in a market where less than two in 10 people own a handset. Bharti's closest rival, Reliance Communications, sold a 5 percent stake in its tower unit for $338 million to seven global investors on July 19.


India's largest tower company, Bharti Infratel, plans to double the number of towers to 80,000 by March, Chairman Sunil Mittal said on Aug. 21. Reliance plans to have a total of about 40,000 towers this year.


Having extra tenants on towers will reduce expansion costs, said Arun Kejriwal, director at research firm KRIS.


“Bharti will get an additional income stream from tenancy,” said Kejriwal, who has some clients with shares in Bharti and Reliance. “The valuation of Bharti will also increase if it is able to sell a stake in the tower unit.”


Bharti, controlled by billionaire Sunil Mittal, could sell a stake in Bharti Infratel to any type of investor, including buyout firms and phone companies, Gupta said.“We are open to all opportunities and can explore each of these options,” he said.


Bharti Infratel has a value of $11 billion, roughly translating into 232 rupees per share for the parent, Harit Shah, analyst at Angel Broking, wrote in a research report. India will need about 330,000 towers to meet a projection of 500 million phone users by 2010 from 110,000 at the end of March 2007, Shah said in a note to clients on Oct. 8.


Bharti, which has appreciated 74.3 percent this year, rose 24.15 rupees, or 2.3 percent, to 1,096 on the Bombay Stock Exchange.


The stock is the sixth-best performer on the benchmark Sensitive Index this year, according to data compiled by Bloomberg. Reliance Communications is ranked eight among the 30 on the index.


Bharti, 30.84 percent owned by Singapore Telecommunications, plans to spend as much as $3.5 billion in the year to March 31, 2008, on network expansion to maintain its lead over rivals Reliance Communications and Vodafone.


Will the $1 billion investment in towers pay off?