New Delhi: India’s telecom tower industry is expected to see more consolidation after the Bharti Infratel-Indus Towers merger, a development that could eventually restore some of their pricing power, though they would also need to diversify their business for growth.
Tower companies have frequently faced challenges such as right of way, fear of radiation and rising fuel costs. Consolidation among telecom service providers, triggered by the entry of Reliance Jio Infocomm Ltd in September 2016, has added to their woes.
“Tower companies in India grew as there were many telecom operators earlier, which resulted in higher tenancies. With consolidation among telecom operators, tower companies face lower tenancies and eventually they will also consolidate. Going forward, tower companies have two options—either diversify and get into areas like Smart Cities and utilities, or move up the value chain and get into small cells, etc.," Amresh Nandan, research vice president, Gartner, said.
After the merger of Bharti Infratel Ltd, the tower arm of Bharti Airtel, and Indus Towers, the combined entity will own more than 163,000 towers and will create the world’s largest tower company outside China.
The merger will help Bharti Airtel Ltd, Vodafone India Ltd and Idea Cellular Ltd, which came together in 2007 to form Indus Towers, easily pare their stakes in the combined entity to raise funds to invest in their struggling telecom operations and cut debt.
With revenue streams of tower companies largely dependent on telecom service providers, a turnaround of the industry is some time away.
“While in the near term, earnings and return ratios are largely shielded, we are cautious on the long-term outlook. With operators likely to remain under pressure, there may be stress on growth and margins for tower companies too," brokerage Jefferies India said in a note on 25 April.
Moreover, with Airtel and Vodafone sharing controlling rights of the merged entity, it would give them the leverage to negotiate for lower tower rentals. “The lack of pricing power in the near term will trickle down to other smaller tower companies which would also not be able to charge higher rentals," a Mumbai-based analyst said, requesting anonymity.
In the tower industry, at present, ATC owns or operates over 68,000 tower sites in India with final approval pending to acquire another 10,000 standalone towers from Idea Cellular. BSNL owns 66,000 towers, Reliance Communications has 43,000 towers which it plans to sell to Reliance Jio, while GTL Infra has 27,000 towers. Tower Vision India and Ascend Telecom Infrastructure are other smaller players with 8,500 and 4,000 towers, respectively.
“The smaller players with fewer towers will be the first ones to be acquired as they don’t have the scale and are not present across all 22 telecom circles," an industry executive said requesting anonymity.
This would, however, also result in a leaner industry structure where tower companies would be ready to grab the low hanging fruits of expanding 4G rollouts by telecom service providers and the advent of 5G.
“Given that there is a shortage of about 2 lakh towers and that the network is not fully spread across the country, there is much room for growth. Going forward, the tower industry would see some relief when telcos are able to improve ARPUs, fiberisation increases the value proposition of tower companies and if they are able to deal with diesel costs," Mahesh Uppal, director at communications consulting firm ComFirst India said.
The Tower and Infrastructure Providers Association (TAIPA), meanwhile, is working towards ironing out issues related to the deployment of towers, especially as the implementation of right of way rules, 2016, remains a challenge at state level despite the department of telecommunications asking states to align their respective policies with the said rules.
“There are around 7-8 states such as Rajasthan, Assam, Odisha and Jharkhand which have aligned their policies with the said rules while for others, we are in active discussions to do the same," Tilak Raj Dua, Director General, TAIPA, said.