Over the years, the tower industry has emerged as a key engine of growth for the telecom sector. It has helped the sector in keeping pace with technological advancements by setting up robust network infrastructure. The tower industry has invested over Rs 2.5 trillion so far for setting up over 460,000 towers and 1.7 million base transceiver stations (BTSs) with a tenancy ratio of more than 2. This has helped in providing ubiquitous network coverage in the country. Further, the tower industry has been playing an essential role in the government’s Digital India initiative and Smart Cities Mission, thereby laying a strong foundation for the future.
A look at the key trends and the changing dynamics in the country’s telecom tower industry…
Key growth drivers
Accelerated investments in 4G networks have spurred tenancy growth in the tower industry. In a bid to increase their 4G coverage, operators have set up new tower sites in uncovered areas and enhanced their existing network capacity as well as tenancies. Owing to the surge in data consumption, demand for infill sites in metro cities and Category A circles has also increased substantially. Further, key incumbent operators such as Airtel and Vodafone have started rolling out their voice over long term evolution networks in the country, which will further fuel the demand for tower sites.
Meanwhile, the introduction of new and faster technologies such as 5G will open up many opportunities for the tower industry. The current telecom landscape will have to be revamped for the development of state-of-the-art robust network architecture for 5G. Besides, a large number of new sites will have to be set up to launch 5G networks. With the proliferation of 4G and 5G networks, it will not be feasible for operators to build their own sites due to capital constraints. Therefore, they will have to turn to infrastructure providers for sharing towers.
Impact of consolidation
The ongoing consolidation among telecom operators has led to a short-term negative impact on the tower industry in terms of loss of tenancies and reduction in the number of co-location sites. In addition, telecom operators have started divesting stakes in their tower assets to abide by the spectrum holding guidelines, reducing their debt burden and deleveraging their balance sheets. According to industry reports, about 74 per cent of the towers in the country are controlled either by telecom operators directly or by tower companies owned by these operators. However, owing to the operators’ decision of divesting stakes in their non-core/non-strategic tower assets, these assets are now likely to change hands from telecom operators to independent players. For instance, Idea Cellular and Vodafone India, which have merged their wireless operations, have sold nearly 20,000 combined tower assets to the American Tower Corporation (ATC) for an aggregate enterprise value of Rs 78.5 billion (Rs 40 billion to Idea and Rs 38.5 billion to Vodafone).
The long-term impact of such consolidation is going to be the emergence of fewer and stronger independent tower companies, which are free from operators’ influence or control. According to ICRA Limited, the number of players in the tower industry is expected to decline from 10 at present to four or five in the next two years. The industry has already started witnessing consolidation among tower companies as global tower companies, global pension funds, private equity funds and international sovereign funds have been consolidating their operations with Indian players.
The formation of these tower companies would remove discounts on tower rentals, which are available to captive infrastructure providers. This will improve the valuation of tower companies and result in enhanced co-opetition and infrastructure sharing. In addition, the consolidation of tower companies would yield other benefits such as:
- Lower capital expenditure costs towards maintenance, workforce and power.
- Additional capital for the development and enhancement of tower sites.
- Strong balance sheets of the consolidated company.
- Enhanced operational synergies and improved efficiencies.
- Scale and size advantages.
- An influx of new business opportunities.
Exploring new avenues
The expansion of 4G networks, greater affordability, increased smartphone penetration and a surge in data demand have opened up new opportunities for the telecom tower industry. Therefore, tower companies have started looking beyond the traditional business models to capitalise on these emerging opportunities. Some of the key focus areas for the tower industry are as follows:
- Fiberisation: The rapid deployment of 4G networks and exponential growth in data consumption are driving telecom operators to connect their tower sites with fibre. With the launch of advanced technologies like artificial intelligence, 5G, virtual reality and internet of things, more and more towers will have to be connected to fibre to manage the increasing data traffic, which cannot be handled by microwave-based solutions. Therefore, with less than 25 per cent of the towers fiberised till date, the fibre leasing market represents an opportunity worth more than $500 million for the tower industry in 2018. This is expected to increase to $2.6 billion by 2020.
- In-building solutions (IBS), small cells and Wi-Fi: Data consumption largely takes place indoors. However, given the in-building penetration challenges associated with higher frequency spectrum, the need for IBS has increased substantially. This has opened up a massive opportunity for passive infrastructure companies to build neutral-host last-mile fibre and in-building infrastructure that can be shared among multiple operators. To this end, the telecom tower industry is exploring opportunities to roll out IBS, Wi-Fi hotspots, small cells, street furniture, etc. in order to optimise and monetise consumer and business services on mobile devices across 3G, 4G and Wi-Fi networks. Tower companies such as ATC and Bharti Infratel have started exploring avenues in this space.
- Digital India initiative and Smart Cities Mission: The Digital India initiative and the Smart Cities Mission have also opened up new growth areas for the tower industry. The roll-out of various digital services envisaged under the Digital India initiative, will require a robust fibre or wireless infrastructure, which can be provided by tower companies. Moreover, the government’s Smart Cities Mission is expected to provide tower companies with an opportunity to serve as end-to-end infrastructure providers, catering to all the connectivity needs of the smart cities. To this end, tower companies have started collaborating with competent stakeholders in this space. For instance, Indus Towers has signed concession agreements with the Vadodara Municipal Corporation and the New Delhi Municipal Corporation with regard to smart citiy projects.
While the telecom tower industry is headed towards significant growth, several challenges still remain unaddressed. One of the key challenges is the non-availability of government land and buildings for tower installations. In addition, the issue of arbitrary and exorbitant property tax on telecom towers at different rates by local authorities including municipal corporations, municipalities and state governments is a major challenge. Apart from this, there are coercive actions like sealing of towers, disconnection of power supply and damaging telecom sites. Also, concerns regarding electromagnetic field (EMF) radiation by telecom towers still exist among people. Even though India has one of the most stringent EMF radiation standards in the world, the public continues to be sceptical about new tower installations. Further, the poor financial health of telecom operators and aggressive competition has led to several cost-cutting measures, indirectly affecting the infrastructure companies. Due to hypercompetition, operators are unable to make sufficient investments in new infrastructure. To address this issue, infrastructure providers can make investments in creating common telecom tower infrastructure that can be shared by all operators. However, this will require ease of doing business and a conducive policy environment.
Given the hypercompetitive market situation and the explosive demand for data, the relevance of network infrastructure is only going to increase despite the challenges. The tower industry is awaiting the National Digital Communications Policy (NDCP), 2018, which is going to set a roadmap for future growth of the telecom sector. The industry would like a robust mechanism to ensure uniform policies across various geographies, with equal participation from state governments. Further, the industry hopes that the implementation of the NDCP, 2018, would promote a liberal policy environment that will enable the tower companies to collaborate with the government to create information and communication technology infrastructure that can be shared among multiple stakeholders.