The recent Spectrum Auction has brought much-needed clarity on the Spectrum Roadmap for Telecom Sector in India. Mobile operators have made significant investments in spectrum in Feb-14 auctions. To monetize this spectrum better, the operators need to increase their footprint geographically and ensure that their network is data-ready. Encouragingly, data growth has also picked up over the last one year in a meaningful manner. We note that telecom operators have installed 3G base stations on only 25% of their leased towers and Bharti Infratel generates only 10% incremental revenues from loading on these towers. There is significant headroom for growth in 3G and 4G tenancies as data starts contributing meaningful proportion of total revenues.
Operators will need higher number of 3G towers vs. 2G towers due to 3G being on higher spectrum (2100 MHz) and non-scalability of data network. 4G roll-out has not even started yet. Also, 4G spectrum is at 2300 MHz band and one BTS has coverage of about 300-400 meters at this spectrum versus 1000 meters at 900 MHz spectrum. Hence, the number of BTS required for providing seamless data coverage will be significantly higher. The entry of Reliance Jio in 4G space is expected to accelerate data growth/pick-up for operators and is positive for Bharti Infratel.
Mr. Pankaj Miglani – Bharti Infratel said,
The tenancies are expected to increase mid-to-high single digit percentage points (~5-8% points) driven by additional tenancies required for data growth. Reliance Jio will be the 3rd or 4th tenant on many of the towers it will utilize, the rentals will come down for all the operators on these towers (as per Bharti Infratel’s pricing model, the rent declines for all operators on a specific tower as the number of tenants increases on that tower) Reliance Jio’s tower sharing contract with Bharti Infratel, Reliance Infratel and Viom suggests that Reliance Jio will adopt an intensely collaborative model to lower its capex. Interestingly, Reliance Jio Infocomm is installing its own towers as well, which are ‘single tenant’ towers running on lithium battery.
Mr. Miglani suggests that cost to build a new tower has not decreased meaningfully. The savings from technology improvement (to build telecom towers) has been mostly offset by increase in input prices, electrification and higher wages. The cost to build a GBT (ground based) tower is still about INR 2.5 million. It is not clear whether India might leapfrog from 2G to 4G (bypassing 3G), as pick-up in 4G adoption is likely at least still 18-24 months away.