1. Telecom Tower Industry in India
The phenomenal growth in mobile subscribers in India over the last few years has created huge opportunities for the telecom infrastructure industry. The tower industry is growing continuously with the active support of the Government. During the early years, the mobile operators were directly involved in the installation and maintenance of the mobile towers. The intense competition in the telecom industry forced all the operators to look for opportunities to reduce the cost of operations by outsourcing network related activities which demand huge capital expenditure and operating expenditure. While some companies created their own captive tower companies, a few others pooled the towers and formed joint ventures. In India even today operator owned tower companies control more than 90% of the market share.
2. Industry structure
The tower companies in India are of 3 types.
1. Tower companies formed through joint ventures like Indus tower which is a joint venture by Airtel, Vodafone and Idea
2. Tower companies formed though de-merger like Reliance Infratel which is a wholly owned subsidiary of RCom
3. Independent tower companies (pure play operators) like GTL etc
3. Current market share of tower companies
Tower company Tenancy ratio No of towers
Indus 1.71x 100,000
Bharti Infratel 1.62x 30,000
WTTIL Quippo 1.84x 25,000
Reliance Infratel 1.74x 48,000
BSNL / MTNL 1.07x 45,000
GTL Infra 1.17x 32,000
Others 1.47x 50,000
Total 1.55x 330,000
The others include small Telecom Tower companies like Tower Vision, Aster Infrastructure, KEC International, and India Telkom Infra etc
At present India has around 330,000 towers in India and it is estimated that another 130,000 towers will be required during the next 3 years. However this projection may come down if the anticipated consolidation takes places among the telecom operators.
4. Operations handled by a tower company
The role of a tower infrastructure company is site planning, site acquisition and obtaining of necessary regulatory approvals, site erection and commissioning of tower and allied equipment. After the site starts radiating, the site maintenance including provision of support services such as back-up power, air-conditioning and security will be handled by the tower companies.
Currently the government policies allow sharing of both passive infrastructure and active infrastructure. Passive infrastructure is the non electronic components like tower, antenna mounting structures, BTS shelter, power supply, battery bank, invertors, diesel generator, Air conditioner etc
Active Infrastructure or Electronic Infrastructure include components like Spectrum (radio frequency), base tower station, microwave radio equipment, switches, antennas, transceivers for signal processing and transmission, etc.
While the Indian tower companies have streamlined the sharing of passive infrastructure, they are yet to operationalize the sharing of active infrastructure.
5. Types of towers
Telecom towers may be a ground based tower (GBT) or a roof top tower (RTT). Ground based towers are erected on the ground with a height of 40 meters to 80 meters. These ground based towers are mostly installed in rural and semi-urban areas because of the easy availability of land. Ground Based Towers involve a capital expenditure of around Rs 2.5 million depending on the height of the tower. A GBT can accommodate 5 to 6 tenants in its tower.
Roof-Top Tower (RTT) on the other hand, is placed on the terrace of high-rise buildings particularly in urban areas. In cities like Mumbai and Delhi where the high rise buildings are available, instead of towers poles are errected for installing antennas. A roof top tower can accommodate 2 to 3 tenants.
6. Financials of a Tower Infrastructure Company
The telecom tower business in India is very lucrative with long-term growth prospects as the agreements are signed with the mobile operators for a minimum period of 10 years. Thus the tower infrastructure companies are insulated from the volatility of the telecom service business which is currently going through a phase of declining revenue and profit.
The commercial terms between the tower company and its tenants are governed by Master Service Agreements (MSA). These MSAs are generally considering 10 to 20 years of lease which ensures stable and predictable cash flow for the tower company by way of rent. However each tower depending on whether it is GBT or RTT, will require a very high capital investments ranging from Rs 1.5 million to Rs 2.5 million.
The business model provides for a high incremental profit when the tenancy ratio is improved. Tenancy ratios are expressed as a fraction of total number of tenancies / total number of sites present. At present the average tenancy ratio for the industry is 1.55 per tower which is expected to grow to 1.84 by 2015. However for a long term viability tenancy ratio of 2 will be required.
The working capital requirement is relatively low as most of the operating expenses are pass-through and recovered from the teneant operators. The operating expenditure like rent, fuel and energy charges is shared by the tenants on a monthly basis.
The monthly rentals charged by tower companies are approximately Rs 30,000 (US $ 667) for GBT and Rs 21,000 (US $ 466) for RTT per operator.
7. Benefits of infrastructure sharing
Overall, sharing of infrastructure, passive as well as active, is beneficial to the operators as it results in substantial savings in the capital expenditure as well as operating expenses. It is estimated that by sharing the site the operators are saving around 20% of the operating expenditure.
The tower industry plays a major role in enhancing the rural connectivity where dedicated tower is not financially justified due to lower ARPU. In these rural areas the tower companies are providing all infrastructure and services to the mobile operators and offer a very low network operating cost.
Availability of ready infrastructure also enables the operators to reduce their time to market. By outsourcing their infrastructure requirements, operators are able to focus on their core activities of providing quality service, brand building and customer relationship.
Shared networks ensure judicious use of precious natural resources and reduce the electricity requirement and diesel consumption which in turn reduces the carbon emission contribution of the industry.
8. Regulatory support
In 2005, the DoT issued guidelines on passive infrastructure sharing and in 2008 active infrastructure sharing was also implemented. At present there is no licensing for setting up tower companies but TRAI has given a proposal to charge 6% of the revenue as licence fee.
In 2007 the government under the USO fund scheme announced monetary support for setting up towers in rural and remote regions of the country. In the first phase up to 2009, the industry commissioned 6220 towers and in the second phase 11,000 towers have been targeted.
The IP operators are facing major challenges in obtaining permission for their sites from regulators and government authorities. There is no uniformity in the taxes levied by the government authorities on these towers and it varies from municipality to municipality even within the state. Even the application process, the documents that are required to be submitted are not yet streamlined. Approvals takes more than 6 months in many cases and the operators cannot wait for such a long time to start their operations. The recent reports about the radiation from the telecom towers have also created huge resistance from the exisitng landlords and also poses major challenge in acquiring new sites.
At present there is no centralized regulatory framework which is identified as a key gap.
9. Mergers and acquisitions in Tower industry
Tower Industry in India is on the path of mergers and consolidation. Some of the significant acquisitions during the recent period are
* WTTIL acquisition of TTML’s 2500 towers for a value of Rs 5.2 million (US $ 115,000) per tower.
* GTL’s acquisition of Aircel 17500 towers in a cash transfer worth Rs 8400 cr ((US $ 1.87 billion)
* ATC’s acquisition of Essar Telecom infrastructure’s 4450 towers and 325 towers of Transcend infrastructure
However, the valuation of the tower has come down drastically over the last 3 years from Rs 2 cr (US $ 444,000) to Rs 50 lacs (US $ 111,000) now
The telecom tower industry in India is expected to grow at 20% during the next 5 years. This growth is driven mainly by the current capacity constraints, increased rural penetration strategy and additional requirement for rolling out 3G services. It is advantageous for the mobile operators to tie up with tower companies as it is faster and cheaper to roll out the network by collocating with Infrastructure operators (IP) rather than expanding their own network.