Bright Future for the Tower Industry

At a time when sevice providers are launching their 3G services to fight the battle of sustainability, the rapid 3G expansion mode of the operators has come as a boon for tower cores. Rollout of 3G has brought massive transition from voice to data application, calling for the existing BTS cell sites to be upgraded into Node B in order to support the data influx.

The operators rollout of 3G services along the length and breadth of the country has intensified the building of 3G ecosystem with the upgradation of towers topping the chart. The higher transmission frequency (2,100 MHz) and the greater data rate that operators would like to offer will necessitate more cell sites for the 3G coverage.

All major players names BSNL, MTNL, RCOM, Airtel, TTSL, Vodafone, Idea, and Aircel have launched their 3G services in all major cities. BSNL has launched its 3G services in all the circles for which is holds licenses while MTNL has also its services in both Delhi and MTNL and has already come up with 250,000 2G subscribers.

Reliance Communications has also launched its 3G services in 150 cities of its 13 circles including circles of Delhi and Mumbai. Tata Teleservices has launched the services in 9 of its circles covering 110 cities with a subscriber base of 1.5 mn till March 2011.

Idea Cellular has launched its services in 9 circles covering 200 towns, Vodafone in 17 cities, Aircel in 13 circles while Airtel has launched its services in 8 of its circles.

According to an industry estimate, with the effective coverage in all major cities, operators will need one 3G BTS for every 2G BTS. The telcos also need to ensure that their existing infrastructure on 2G is able to co-site and work with new infrastructure for 3G with minimal interference or even upgrade the existing infrastructure to support 3G.

Developments, such as new technologies like 3G and BWA creeping in and rural penetration taking the front seat, have been boosting the morale of the tower industry. According to VOICE&DATA estimates the industry has seen an upsurge in the number of tower erection with 51,981 additions in FY 10-11.

The industry is seeing a lot of action with each player ramping up its cell site. In fact the pace of change and growth has been so fast that the industry is witnessing a wave of tower erections.

Prakash Ranjalkar, wholetime director & CEO, GTL Infrastructure says, The concept of sharing has been firmly entrenched and now the service providers are going in for shared infrastructure. There are only few new rollouts happening. The industry is focused on ironing out the supply chain challenges and on reducing the operational costs for the service providers and building scale for efficiencies. Amit Sharma, executive VP & president, ATC Asia explains, The advent of 3G/BWA services is likely to lead to a quantum increase in the usage of data services among consumers. The rollout of 3G and BWA services across India cannot happen without significant addition of towers-in urban areas to provide capacity and in rural areas to provide coverage.

Arun Kapur, CEO, Viom Networks says, 3G and BWA tenancies will drive the need for incremental telecom infrastructure and hence offer good opportunity for the telecom infrastructure industry. In the early years, 3G rollouts are expected to result in improved utilization of tower capacities. 3G networks will nevertheless require greater number of towers compared to 2G networks which will necessitate further tower rollouts.

Meanwhile, Sameer Sinha, chief sales & marketing officer of Indus Towers explains, 3G services are being rolled out as an overlay of 2G network. More than 25,000 BTS cell sites have been upgraded to Node B cell sites. An investment of 2-3 lakhs approx. per site is required to upgrade BTS cell sites into Node B sites. We expect 60 to 70% cell sites to be having Node B in major cities in the near future.

Market Dynamics

At a time when the telecom industry is reeling under immense pressure in lieu with declining ARPUs bringing the service providers to come under severe duress, the telecom tower sector making rampant growth. According to reports, the telecom tower sector is likely to post a compounded annual growth (CAGR) of 22% in revenue and 30% in earning before interest, tax, depreciation, and amortization (EBIDTA) until fiscal 2013.

Towers play a pivotal role in providing seamless connectivity in every wireless technology. India has around 353,813 telecom towers. There has been a rapid technological growth in the field of antennas in the last few decades. On the revenue front the total size of the market would be in the range of approx. `18,000-20,000 crore excluding the power and fuel billing.

This enormous growth in subscribers and falling average revenue per user (ARPU) have been the major growth drivers for telecom industry translating into a growth of the telecom tower market.

India is worlds fastest growing mobile market, ranking second at present. The rapid growth is in turn resulting in on average of addition of 15 mn subscribers every month. Of the entire Indian telecom industry, the tower telecom is one of the few sectors which is progressing at a steady pace. In the last few years, telecom infrastructure sector has undergone a phenomenal change. Ever since the concept of infrastructure sharing was introduced in India, the market has been getting more and more competitive. With the entry of new operators and astonishing growth of the Indian mobile base, this industry is sure to witness a huge leap in the years to come. The key players in the telecom tower business are Indus towers, GTL, Bharti Infratel, Reliance Infratel, Viom, and American Tower.

Moreover, the entry of new players like as Unitech-Telenor, Etisalat-Swan, Loop Telecom, S Tel, has also forced the need for a large number of towers to support their rollout plans.

The growth in the sector will be primarily driven by increasing rural penetration and deployement of 3G services. The current market trends are also forcing the tower cores to shift their focus from building new assets to tenancy. This in turn, is likely to truncate the costs and make every player build a strategic decision based on demand from tenants.

In the infrastructure space, the industry is undergoing sharing of passive telecom infrastructure for in-building coverage. Sharing of passive infrastructure also brings with itself a compelling business case for independent infra-owning companies and in-turn, for services companies since this considerably reduces the cost. Moreover, the Rapid Deployment Towers (RDT) to cut down the lead time, and thus results in faster deployments of telecom infrastructure also happens to be a trend that the industry is undergoing presently.

Indus Towers, the largest tower company in the country, has coverage in 16 circles and healthy tenancy ratio of 1.78x, boasts of 109,073 towers in 2010-11 as well as a high speed-to-market. With new operators rolling out services, the tower company is on a high-growth trajectory.The company that is a joint venture between Bharti Airtel, Vodafone Essar, and Aditya Birla has enabled 3G BTS installation over 20,000 sites as on 25th March, 2011, in a short period of 6 months in 16 circles. Less than 100 cities are covered with 3G services today. In the next 12 months many more cities will come under the 3G fold.
While GTL Infrastructure is set to have 50,000 towers across India by 2013post a 3-year rollout plan with Aircel to acquire 20,000 more towers from the companywhich will make it the second largest tower company in the world. As on FY 2010 to 2011, GTL has 33,681 towers in various stages of completion and has a tenancy ratio of 1.33x.

Viom, formerly QuippoWTTIL, during the last financial year has registered a significant increase in tenancy ratio from 1.7x to 2.35x over the last 3 years. During the last FY, Viom has maintained its incremental Infrastructure Market Share (IMS) of approx 30%. The company has also achieved the 2nd largest share in the incremental Tenancy Market Share (TMS) accounting for approx 33% of the incremental TMS.

According to VOICE&DATA research, erecting one cell site involves an investment of about `30 lakh. Therefore, for setting up 2.2 lakh more towers in the next 3 years, `66,000 crore will be required. Besides, India is set to touch 600 mn subscribers by 2011. This means that there are close to 150,000 more towers needed from the present base of 353,815 in the next 2-3 years, which would put the cumulative number to 503,813 by 2014/15.

Roadblocks

While the telecom infrastructure industry is still at a nascent stage in India, in the near future, a few billion dollars worth of investments are likely to be made. In order to provide a further fillip, the government should consider granting infrastructure industry status to tower companies and recognize the services rendered by them as critical.

The government should also allow tower companies to build active infrastructure for mobile operators, ease the process of obtaining no-objection certificates (NOCs), and lower the processing fee. The NOC fee should be determined on a cost-recovery basis rather than a revenue-raising proposition.

The government should come forward and take up the responsibility of easing out the procedures and overall approval processes are carried out. Moreover a standalone association is also the need of the hour as most other verticals in the telecom industry have bodies which enhance their roles, like Cellular Operators Association of India (COAI) and Association of Unified Service Providers (AUSPI) for telecom operators; Telecom Equipment Manufacturers Association (TEMA) for equipment vendors and the Indian Cellular Association (ICA) for handset manufacturers. So, here comes the need of an association in order to have structured and regulated market. This will also help in understanding the dynamics and challenges of the tower industry in a more efficient manner.

Growth Drivers

The growth in tele-density is directly proportional to the growth and demand of telecom infrastructure industry. The antenna sector is growing at a phenomenal rate due to the increasing growth in mobile subscribers. There is a huge competition as the operators are looking for opportunities to reduce the cost of operations by outsourcing network. The market is very promising due to the rollout of advanced technologies like 3G, LTE, WiMax and an initiative to extend BWA services even to rural areas.

Future Trends

The increase in subscriber base, reduced margins, and current economic climate has led to a favorable environment for the growth of this sector. However, with the demand of the towers rising, the demand and supply ratio may tip unfavorably and may lead to consolidations in the industry with a few but strong players. This will also lead to increased competitive activity or maturing of the industry. The tower companies will have to develop new business models and move to active infrastructure sharing. Technological changes like the movement towards higher share of outdoor BTS, high gain antennas, etc could significantly impact the market dynamics. Also, the 3G and WiMax rollout is expected to increase tenancy. However 3G forecast is expected to reduce 2G BTS demand as well.

Conclusion

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 and BWA services. It is a safe bet for operators joining hands 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.

Currently, telcos are increasingly hiving off their towers into separate subsidiaries to unlock shareholder value and to focus on core competencies. In order to stay in the game for a longer duration, expanding the base in rural market would be the key priority for most of the operators.

Hence looking at the current market dynamics and going by the V&D data estimates of yearly additions in the last fiscal, it seems that the industry will have exciting times ahead that will take the Indian telecom towers industry to new towering heights.

Ritu Singh
ritus@cybermedia.co.in