Report On Telecom Tower Industry

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Reort On Telecom Tower Industry
Indian telecom tower industry is a vital component of telecom value chain. Telecom Tower industry acquired its identity when government introduced Infrastructure Provider Category - I in the middle of 2000 to craft telecom infrastructure as a separate business model. Wireless telecom in India has seen stupendous growth in last few years with wireless subscriber base growing at a CAGR of more than 50% in last 5 years. As a result, telecom tower industry was also pushed into the higher growth trajectory.

There was astonishing growth in tower capacity addition at a CAGR of above 30% during FY 2006 to FY 2011. Number of towers in the country increased from ~85,000 in 2006 to ~400,000 today. Rapid growth in 2G subscribers and the expectations of 3G and 4G network expansion led to massive capacity build up in the tower space. However, the last couple of years witnessed a slowdown in the tower capacity addition due to oversupply in urban markets and lack of viability in most of the rural areas. As the revenue for tower business primarily comes from tower rentals, a slowdown in telecom services impacted telecom tower industry.  

Tower industry is dominated by operator owned tower companies though there are few independent tower companies as well. Though the tower industry is highly capital intensive, operating profitability of the industry is good as most of the costs are fixed in nature and variable costs like energy costs are passed on to the tenant. Operating profitability increases directly with tenancy ratio as the fixed costs are shared. Tower industry in India has an average tenancy of 1.6x and is expected to improve marginally over the next couple of years as there will be new Base Transceiver Station (BTS) addition on the existing towers, to cater to demands of 3G and 4G services .Telecom Industry

CARE Research expects new tower addition to happen at a much slower pace. Growth in BTS will be comparatively better, riding on 3G and 4G expansion in urban areas and rural subscriber addition.

On the cost side, power cost is the biggest concern for tower companies and telecom providers (as power costs are pass-through for tower companies). As power deficit in India stands at 12%, around 70% of the towers in India remain cut off from grid power for more than 12 hours a day. Alternatives like a diesel generator produce expensive power costing around Rs. 16 per unit which is almost triple the cost of grid power. Tower companies in India consume ~2 billion litres of diesel which is around 3.5% of total diesel consumption in India, next only to Railways. Tower companies also have to incur expenses related to security of the cell site due to pilferage of diesel which is as high as 15-20% of total diesel consumption by tower companies. Renewable energy sources - solar, wind, biomass, fuel cell etc are the most promising alternatives to grid power shortage. But high capex, lack of sufficient space at the cell site, inadequate subsidies etc are the issues in tapping renewable energy for powering the cell sites.

Tower companies in India also struggle with backhaul connectivity as Optical Fibre Cable (OFC) connectivity is limited to urban areas forcing operators to use microwaves, which have limited applications when the data usage is high. As telephony in India is expected to shift from voice to data, current OFC network of 1,000,000 km will need massive capacity addition, which comes at a huge cost of Rs. 250,000 per km.

On the regulatory front, tower industry is facing the uncertainty over proposed inclusion of IP-I category under Unified License. This might also result in tower companies sharing 6% of their revenues as license fees and FDI limit in tower industry coming down to 74% from current 100%.

Outlook on Indian Telecom Tower Industry

Growth in number of BTS will be moderate
Playerwise ‘Subscriber per BTS': Incumbents will continue the lead
Circle wise Subscribers per BTS will decline
Tower addition will take a back seat
Tenancy ratio will improve marginally
Revenue will grow in higher single digits
Profitability will see modest upside
Capex Outlook
Demand Drivers
Regulatory Concerns
Emerging Trends

Evolution of Indian Telecom Tower Industry

Telecom Tower Industry Overview
Business Models for Tower Sharing
Captive Model
Operator Controlled Entity Model
Pool and Share Model
Build and Operate Model
Evolution of Telecom Tower Industry in India - Captive to Independent Owned Model

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