Tata Teleservices [Get Quote] on Monday merged its tower arm with Quippo Telecom, a pure play towers company, to create a Rs 13,000-crore (Rs 130-billion) entity with 18,000 towers -- making it the second largest firm in terms of number of towers.

As per the terms of the partnership, Quippo telecom would hold 49 per cent in the new entity, while Tata Teleservices's Wireless-TT Info-Services Ltd would hold the remaining. Despite a low stake, Quippo would control the management.

Quippo Telecom Infrastructure, which is a Srei Group company, would have to pay Rs 2,400 crore (Rs 24 billion) cash upfront for 30 per cent stake in WTTIL, while it would transfer 5,000 towers to the new company for the remaining 19 per cent stake.

The branding exercise of the new entity would take place once the merger is complete.

The existing telecom tower market has seen through competition with Anil Ambani's RCom, in which private equity investors hold five per cent having 13,000 towers.

Indus Towers, which is a tripartite independent venture between Bharti Airtel [Get Quote], Idea and Vodafone Essar, after merging their individual infrastructure assets in 16 telecom circles in India leads the pack with 70,000 towers.

"This company will organically grow into an entity with over 50,000 towers by 2012. "We are confident it will hold the largest tenancy ratio in the Indian telecom space as well," Quippo Group president and QTIL managing director Arun Kapur said.

The joint entity will invest about Rs 2,000 crore (Rs 20 billion) in 2009-10 to build 8,000-10,000 towers, Quippo Infrastructure Equipment MD Sunil Kanoria said.

Quippo will have to approach the High Court for clearance of the tower demerger transaction.

"The combined entity will, therefore, have a portfolio of over 18,000 towers thereby making it the largest independently managed tower company in India, with an enterprise valuation of approximately Rs 13,000 crore ($2.6 billion)," Anil Sardana MD TTSL said.

He said the entity would be listed at a later date.

"Consolidation gives benefits of scale. Tower players must have a large portfolio of shareable towers to be able to continue in the business," an analyst said.