The board of Idea Cellular on Monday decided to demerge the passive infrastructure of the company into a wholly owned subsidiary. In July, the board had approved the formation of a separate wholly owned arm for a possible transfer of its GSM infrastructure business.

The AV Birla group company is following the trend among wireless telephony operators in the country to separate their infrastructure operations, thereby allowing for infrastructure sharing among themselves, which in turn leads to reduction in capital costs. Reliance Communications and Airtel have already demerged their infrastructure operations.

'Infrastructure' would consist of tower, generator and other non-core telecom network related assets of a wireless operator. Such a demerger also helps companies to monetise their assets. RCom recently placed a 5% equity stake in its infrastructure business with private equity investors for Rs 1,400 crore. The demerged companies can also now compete with pure-play infrastructure companies such as Essar Telecom Tower & Infrastructure and GTL Ltd.

A foreign brokerage CSFB has valued Idea's tower business at $ 1.2 billion, or Rs 22/share of the company.

Sanjeev Aga, MD, Idea Cellular, said that the company is looking to demerge the passive infrastructure into a wholly owned subsidiary. They have not valued the tower business yet. The company is looking to transfer tower business to the subsidiary but there is no call on next step.

At present, Idea Cellular have over 10,000 towers, along with 15,000 cell-sites and 50% of the towers are hosting a partner. It is premature to comment on getting strategic investor or PE player in tower subsidiary and the company have seen a lot of non-serious players lining up for telecom foray, he commented. The company have already been sharing tower business to reduce operating cost but the company have not even attempted to value the tower business. But the recent valuations of tower business assumes lot of stories which are yet to unfold. Currently, the tenancy ratio is about 31% for towers and the value is in the tenancy from the tower business for the future.

He further said that new TRAI norms are well intentioned but the gaps like no cap could be abused. Idea Cellular is looking for organic growth but chance of M&A in next twelve months are slim.

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