What Measures Boost Telecom Tower Companies in India ?

The Telecom Regulatory Authority of India (TRAI) has recommended re-farming of the 900MHz spectrum, as current licences will start to expire from 2014. In circles where operators migrate from 900MHz to 1,800MHz, they will have to increase the number of their sites by 1.6x to maintain existing coverage, according to Analysys Mason analysis. Most of the 900MHz spectrum is held by Bharti Airtel, Vodafone and Idea, which are anchor tenants of Indus. However, we believe there is low likelihood of spectrum re-farming actually going through.

Data Services and Volume are long-term growth drivers Indian telecom operators have launched 3G services over the past two years and are in the process of rolling out 4G networks. Data networks are being rolled out in 2100Mhz (3G) and 2300Mhz (4G), which require more sites. Initial contribution will be through 3G loading on existing sites. Operators will have to invest in additional sites for capacity / coverage to cater to increased volumes. Data pickup will be reflected in tower companies’ revenue, initially through higher 3G loading revenue and later through an actual increase in towers and tenancy as operators exhaust the tower-loading possibility

The Three important aspects of Tower Companies business model are,
Energy Costs – Tower companies incur the energy cost on behalf of telecom operators. An in-depth coverage on Energy Costs of Telecom Infrastructure is available here.

Continued CAPEX – Telecom passive Infrastructure is a Capital Intensive business too. High maintenance or recurring capex to sales weighs on the valuation of a tower company. More details on CAPEX from Expansion to Maintenance is discussed here

Operators Tenancy Tenancy is another important parameter while studying the tower company. The site requirements of anchor tenants and the possible drivers is discussed here.

India has a low wireline broadband penetration of 2% and total broadband penetration is less than 5%. I see strong data growth potential in India and operators will have to invest in more sites / towers as data volumes increase.