The Indian market offers a strong business case for tower companies with long-term plans. However, the next 18-24 months will be challenging. Only companies with focused attention on tenancies, systems and processes, and O&M expertise will thrive.

The US and Indian markets are broadly similar, with characteristics such as large coverage requirements, spectrum scarcity forcing denser coverage and significant capacity needs from high minutes of use (MoUs). These act as catalysts for independent tower companies.

However, compared to the mature US market, India’s infrastructure market is still developing. It needs over 150,000 towers in the next two-three years. The market is highly fragmented with a mix of large operator-owned companies and medium to small independent tower companies. This is unlike the US where operators have sold their tower businesses to independent tower companies, which today own the majority of towers, thereby allowing operators to focus on their core business.

Besides, the average tenancy in India is low at ~1.2 compared to ~2.4 in the US.This pulls down the return on investment significantly, making it difficult for smaller tower companies to sustain themselves.Also, operators have started their own tower companies and the consolidation phase has just begun.

Growth drivers
The Indian mobile market is adding more than 10 million subscribers per month and is expecting to cross the 500 million subscriber mark by 2010. Besides, the teledensity is comparatively low with a vast rural population waiting to be connected.

Telecom operators are increasingly appreciating the key role of tower companies, especially in light of the expected entry of 3G and Wi-Max services, the scarcity of spectrum, as well as the entry of new operators.

Future trends
Near term (2009-12)

  • New tower build activity will start declining.
  • Two-three operator-owned tower companies will continue to control a significant share of the market and a couple of independents with strong balance sheets and domain expertise will emerge as strong regional players.
  • Tower companies will focus on collocation rather than on the number of towers.
  • There will be a focus on systems and processes to manage towers effectively.
  • Tenancies will accelerate from an average of 1.2 to about 3, with better EBITDA margins.
  • Zoning will be introduced in India to reduce the tower clutter.
  • There will be increased effort on providing fibre connectivity to towers, opex reduction through energy management, active infrastructure sharing, and tower companies providing inbuilding solutions on a build-ownoperate model.

Medium term (2013-20)

  • New tower build activity will be almost zero.
  • Consolidation activity will continue, leaving two-three independent players with a countrywide presence, controlling over 80 per cent of the towers.
  • Tenancies will stagnate at about 3.5 to 4, but tower companies will see healthy EBITDA margins.

Company role
Tower companies are judged by their operational and financial efficiencies. ATC Tower Company of India, a subsidiary of US-based American Tower Corporation (ATC), is one of the oldest and largest independent tower companies worldwide with a global portfolio of over 26,000 communication sites, including wireless and broadcast communications towers, rooftop and distributed antenna systems. It has a market capitalisation of over $12 billion and strong operating and credit metrics.

For ATC, India is an important market.It has a long-term commitment to the Indian telecom market, having started its operations in the country in 2007-08 with just two customers wanting base transceiver station contracts. ATC India has grown since. Today it has commercial contracts with six leading mobile operators and is in talks with the others. It has built about 300 sites and has 1.26 customers per site.

The company aims to grow both organically and inorganically and become a strong regional player in the short term. By 2011-12, it plans to build a portfolio of at least 6,000 towers, which it hopes to deploy so as to bring operating expense savings to customers through maximising collocation, deploying time-tested systems and processes tailored to Indian operating conditions, and including innovation in energy management.