AlJazira Cap says CITC nod to merge Zain KSA, Mobily towers 'positive' for both firms

Zain KSA, Mobily logos

AlJazira Capital said that the approval from the Communications and Information Technology Commission (CITC) to merge the tower businesses by Mobile Telecommunications Company Saudi Arabia (Zain KSA) and Etihad Etisalat Co. (Mobily) will be positive for both telecom firms.

This step is likely to reduce operating costs due to lower depreciation charges as well as elimination of maintenance cost related to telecom towers, it said in a recent report.

The existence of a separate tower company would help focus on improving efficiencies of the tower business and help the company grab upcoming growth opportunities in the telecom sector.

Additionally, involvement of IHS KSA Ltd. (IHS), the largest independent tower operator in Europe, Middle East and Africa, will help the company in terms of leveraging the expertise in the tower business.

AlJazira Capital expects the merged entity to own more than 18,000 towers, as the value of Mobily’s telecom network equipment assets stood at SAR 18.9 billion, while Zain KSA's telecom equipment assets amounted to SAR 6.1 billion, in 2020.

The proposed merger and establishment of a new entity will help both companies slash depreciation charges on tower assets, as consumption charges for Mobily and Zain KSA amounted to SAR 2.6 billion and SAR 1.2 billion, respectively, in 2020.

The telecom operators are projected to lease back towers from the tower company, thus increasing rental costs. The stake sale to consortium partners is likely to generate one-time gain for Mobily and Zain KSA proportional to the size of their assets in the company.

The telecom companies can use these gains to lower their leverage level and invest in growth opportunities.

According to data compiled by Argaam, Zain KSA received a letter from the CITC board on March 23, 2021, giving its in-principle approval on the joint application from Zain KSA, Mobily, Raidah Investment Co. (AlRaidah) and IHS. The approval allows to merge and unify these towers under Towers Co., a Saudi-registered commercial entity, to obtain a license for providing infrastructure wholesale services (category A towers and masts).