Sharat Chandra, Managing Director, TelEnergy Technologies

The Indian telecom tower industry is going throu­­gh a major transition period. The number of telecom tower companies will co­me down to four or five over the next one to two years. Conso­lidation in the sector is likely to result in three prime players in the field – a Bharti Infratel-Indus Towers combined entity, American Tower Corporation (ATC), and an entity led by a Canadian asset management firm. Two smaller players will also remain – the Bharat Sanchar Nigam Limited tower arm and Aircel.

Meanwhile, Reliance Communications (RCOM) is looking for a buyer for its tower assets. The exit of Idea Cellular and Vodafone will mean that there will be no mobile operator left in the tower segment other than Reliance Jio.

It is evident that there will be a change in the ownership from telecom operators to independent players, as reflected by the consolidation transactions under way and the interest of such players and investors.

In the coming years, the telecom tower industry is likely to witness strong growth, driven largely by network expansions by telecom operators. There will be a growth in rentals owing to the improved negotiation power that would follow from the consolidation as well as from greater independent ownership.

Tower companies may also look be­yond the traditional business and ex­plore opportunities in areas such as in-building solutions, Wi-Fi hotspots and fiberisation, though the business models around these remain to be developed.

In addition, the possible upsides to the cash flows for tower companies are likely to be a growth in rentals due to the im­pro­vement in the negotiation power of tower companies and a reduction in power ex­pen­­ses, primarily diesel consumption, aiding growth in profitability. The tower industry can also explore the real estate investment trust or infrastructure investment trust (REIT/ InvIT) str­uc­­ture to access a greater pool of investors.

Focus areas

As data takes centrestage with subscribers, there are clearly two focus areas for the telecom infrastructure industry – reaching five nines uptime and a sharp reduction in opex. The industry has taken a few hesitant and many bold steps in the adoption of technologies that lead to opex reduction, especially in the face of grid intermittency and deficiency. These include indoor to outdoor transformation, hybri­di­sation of energy solutions, induction of lithium-ion batteries, and the deployment of solar PV systems.

Technology can play a role in improving the situation, but only to an extent, depending on its adoption and acceptance by the industry. Needless to say, scale and a set of industry standards for performance measurement and delivery will have to be developed, adopted and monitored for rigorous implementation to reduce opex. There are large players like Japanese giant NEC, with intentions to offer long-term energy management services to towercos in India under the managed energy services model. There is a need for a partnership approach to attract such players and give them enough play in the industry as the future of telecom in the country does not depend so much on the move from 3G to 4G and beyond as it does on the availability of telecom infrastructure uptime. Players who manage the energy needs of telecom infrastructure service providers will eventually own the customers.

Challenges: Tenancy losses and consolidation

Tenancy loss due to mobile network operators exiting the business has hit the tower industry hard. One such towerco is GTL Infrastructure, which lost a total of 3,987 tenants following a wave of consolidation in the telecom sector. Of these, 2,230 tenancies were lost from Tata Teleservices Limi­ted, 1,327 from RCOM and another 430 from Sistema Shyam TeleServices Li­mi­­ted. As of end-September 2017, GTL Infra­struc­­ture’s total tenancy stood at 51,424.

The company expects a further impact of 9,000-11,000 tenancies on account of the consolidation of Vodafone India and Idea Cellular, and pertial shutdown of Aircel’s operations over the next 12-18 months. However, with the estimated addition of some tenancies during this period, the damage could be partly offset.

There are similar challenges for other towercos such as ATC, Bharti Infratel and Indus, though they may not be of the same scale and magnitude.

The way forward

Post consolidation, the remaining ­oper­ators will need to expand and upgrade their networks to account for the increased ­subscribers and continued demand for data ­services. The telecom tower industry will face some headwinds in the short term – primarily on account of the ­rationalisation of tenancies by telecom operators that are undergoing consolidation. The ­culm­i­nation of the consolidation would coincide with a revival in capex by telecom operators and the pruning of redundant tenancies would hopefully be compensated by the addition of new ones.