Reliance Comm to hive off cell towers

American Towers Inc may be strategic partner.

Reliance Communications plans to hive off its cellphone towers into a subsidiary and offload a significant stake to the $18-billion US company American Towers Inc, an independent owner and operator of wireless and communication sites.

Reliance Communications has 15,000 existing cell sites for CDMA and GSM services in India and is setting up another 10,000 in the next 12-14 months.

The company's board is learnt to have discussed this as part of a restructuring initiative. The idea was to hive off a crucial asset, normally a recurring cost on a telecom firm's balance sheet, and convert it into a source of revenue, sources close to the development said.

Reliance Communications hopes to use the expertise of American Towers Inc, which owns and operates towers at 30,000 sites in the US, Mexico and Brazil, to offer them for use by other operators.

The move is a step ahead in the current trend of private mobile phone operators sharing each others' towers (co-location) in order to reduce costs and achieve better coverage.

The costs of setting up a tower vary. Ground-based towers cost up to Rs 1 crore, depending on the site and terrain, while rooftop towers can cost only Rs 50,000. There are also variable costs like rent, fuel for generators, air-conditioning and maintenance.

An official of a leading industry association pegs the average cost of a site at Rs 25 lakh, excluding the transmission and switching gear housed in a tower shelter, and Rs 35-40 lakh, including them.

According to sources close to the development, electronics will not be a part of the subsidiary. Assuming just the sunk costs, the new subsidiary will have a total capital expenditure of around Rs 875 crore. However, the valuation of the sites will be higher, given the variable costs and premium on locations. An internal estimate puts the valuation at around Rs 20,000 crore.

Infrastructure sharing is a key part of Reliance Communications' plans to reduce capital expenditure and hasten its GSM rollout.

The company has already signed agreements for infrastructure sharing with Hutch, BPL and Spice and is also expected to sew up similar agreements with Bharti Airtel and Aircel.