With ATC deal, Brookfield eyes long-term play in India's digital infra space

Already, Brookfield’s DIT has a portfolio of roughly 175,000 towers, acquired in 2020 from Reliance Industrial Investments and Holdings Limited.

Brookfield Asset Management-sponsored Data Infrastructure Trust (DIT) is looking to capitalise on the next leg of growth in the towerco space, which will come through with the 5G expansion, through its recently signed deal to acquire ATC India, industry executives and analysts said.

Data Infrastructure Trust inked a definitive agreement with the US-based American Tower Corporation on January 4 to acquire 100 percent equity interests in ATC India. The acquisition is expected to diversify DIT’s revenues and increase touchpoints with all mobile network operators in India.

Tower companies, or towercos, in India combine various infrastructure pieces, such as macro sites, small cells, and edge sites to capitalise on the opportunity in the digital infrastructure space and drive growth, similar to players in the US.

"They seem to be gung-ho about the market. That's why they are ratcheting up the magnitude of investments across various infrastructures. They are at a stage of deploying more capital. This  transaction (the ATC deal) indicates that they are doubling down on India's infrastructure opportunity, especially private infrastructure, which will last for decades," Vivekanand S, an analyst at Ambit Capital Research, told Moneycontrol on January 9.

“One of the critical rationales was that there would be synergies between Brookfield and ATC India. For anyone to give a reasonable valuation to ATC, it would have been only Brookfield due to the synergies,” said an industry executive on condition of anonymity.

Brookfield’s DIT has a portfolio of roughly 175,000 towers, acquired in 2020 from Reliance Industrial Investments and Holdings Limited. DIT houses Brookfield’s telecom tower businesses in India through Summit Digitel and Crest Digitel.

With the $2.5-billion deal, DIT’s tower portfolio has reached around 252,000, compared to Indus Towers’ 204,000 towers.

In India, Brookfield has approximately $25 billion in assets under management across infrastructure, real estate, renewable power and transition and private equity.

Brookfield didn't respond to Moneycontrol's queries.

Brookfield’s third acquisition in India

ATC India is Brookfield’s third acquisition in India’s telecom infrastructure space. In 2022, it acquired a portfolio of 5,000 indoor business solution sites and small cell sites, which helped advance the rollout of 5G, and enabled telecom operators to extend their coverage ambit in difficult-to-access and dense areas.

“It is a good structure with two strong tower companies and two strong telecom operators. Brookfield will have a better way of managing all telecom operators. With ATC India’s towers, Brookfield will get higher tenancies as all three telecom operators are the former’s customers,” said another industry analyst working with a leading brokerage.

Shiv Putcha, principal analyst at Mandala Insights, said consolidation is much needed in the towerco space as it will lead to more substantial companies. “In this space, you can’t be subscale to make money.”

He said Brookfield is not just restricting itself to the macro tower space and is looking at the broader digital space, including data centres.

“Our coverage continues to be a growing area. There is an opportunity in the edge computing space as well. Brookfield can look at setting up edge locations as well. It is better to come in now, after the 5G launch. There won't be much on the enterprise side if all these things are not in place, the opportunity is huge,” Putcha said.

He said that towerco is a stable, low-growth space, but it will pick up when the second round of network expansion takes place, which will come with 5G advanced deployments by Indian telecom operators.

“The 5G will happen in two years from now. Hence, tower companies must look at driving growth from other places, especially in the digital infrastructure space, which includes network services to enterprises," he said, adding that the future network expansion by Vodafone Idea and BSNL could also present an opportunity.

In a note, Ambit Capital said that ATC had built its Indian tower portfolio through acquisitions, including those from Vodafone India and Idea Cellular, which account for 25 percent of its towers.

"With a 14 percent market share of India’s tower industry and a similar share of tenancies, ATC wasn’t able to improve terms of trade with telcos with fair pricing escalation and margins for energy and acquire new customers through data centres and fibre deployment," the brokerage said in the note. "Controlled by telcos, India’s towerco industry couldn’t develop lucrative capital reinvestment avenues. VI’s funding challenges affected ATC India’s cash collections," it said.

Ambit Capital added that since Indus has long-term pricing contracts with telcos, the ATC-Brookfield deal won’t enable it to change those terms. "Besides, since 4G and future telco generations entail fibre rollout, where telcos aren’t relying on towercos, we see no improvement in the bargaining power of  Indus with customers,“ it said.