Indian Mobile Operator Will Spin off Infrastructure

Idea Cellular, a large Indian mobile services provider, said on Thursday that it received shareholder approval to transfer its communications towers and other passive infrastructure to a subsidiary company, Idea Cellular Towers Infrastructure.

Idea Cellular will then hire these services from the new company, which will also offer them to other operators.

The move by Idea Cellular is in line with the plans of competitors such as Vodafone Essar, Reliance Communications, and Bharti Airtel, which intend to hire passive infrastructure rather than invest in setting it up.

These companies are aiming to convert their infrastructure from a capital cost to an operating expense of their businesses, Kamlesh Bhatia, a principal research analyst at Gartner, said on Friday. As passive infrastructure gets commoditized, mobile operators want to free up capital to invest in marketing, new applications, and service innovations, he added.

Operators are also more likely to use shared infrastructure than to set up their own when they target semi-urban and rural markets, Bhatia said. The rural market is low-margin and geographically dispersed, and in many places does not have basic infrastructure such as roads, electricity, and security, he added.

As the mobile services business in India gets more competitive, and requires investment in new services and spectrum, including for 3G services, mobile companies are looking for ways to cut costs.

In a regulatory submission on the spin-off, Idea Cellular said that duplication of facilities is uneconomic and undesirable. It is also not in the public interest to have multiple sets of poles or towers on streets, or to have roads dug up to accommodate multiple sets of underground ducts.

Having shared infrastructure services will also help mobile service operators to roll out new services in new areas quickly, Idea said.

The new Idea subsidiary will later be merged into a joint-venture company, Indus Towers, that has been set up by Idea, Vodafone Essar and Bharti Airtel. The joint venture will be in the business of building, managing and offering shared network infrastructure services.

Shareholders of Reliance Communications, another large mobile communications company, also approved in May a proposal for the spin-off and transfer of its optic fiber division to a subsidiary company, Reliance Infratel. The company said the subsidiary would offer infrastructure services to other operators.