For an investor in Indian Telecom story, he can either choose a Telecom Infrastructure Company or a Service Provider to invest in. Relatively, the tower company can exhibit a stable and consistent growth profile versus the service provider.
Data has a long way to go in India and voice usage is still rising. Data penetration is ~25% of the wireless base. 3G penetration, which reflects a higher/regular usage base, is only at 4-5%, while 4G penetration is minuscule. Voice penetration of 60-70% (based on VLR subscribers) reflects good growth potential.
To capture this opportunity, telcos need to continue investing in networks; most of this incremental capex is being spent on increasing capacity (2G/3G and backhaul), we understand. As well, a large part of the incremental network ramp-up for data / 3G is likely to be in 1800, 2100 and 2300 MHz, which would require more BTS than the 900Mhz spectrum. For towers, telcos’ continue to prefer leasing for faster and capexlight rollouts, which bodes well for the tower cos.
India today has close to 390k towers, vs 70k in Indonesia, and 18k in the Philippines. The US has around 150K towers. This implies India has 2,350 subscribers per tower, which is lower than 4,600 for Indonesia and 6,000 for the Philippines. The subscriber per tower in the US is around 2k, comparable with India; but data usage is far greater in the US. We think this suggests that India probably does not need many more towers in the next few years as there is capacity available on existing towers.
India has around 750k BTS, vs 180k in Indonesia, 44k in the Philippines and around 2mn in China. On Subs / BTS, India has 1,200, Indonesia has 1,800, the Philippines has 2,500 and China has 600. Finally, lets compare the Voice Traffic in minutes per BTS – In India it is 5.7mn, vs ~2.8-3.8mn for China and Indonesia, which indicates that Indian telcos may need more BTS.
Moreover, spectrum is far more limited in India – on subscribers per MHz, India telcos have 8-12mn , vs just 1-6mn for China and Indonesia telcos. With such network congestion, along with expected imminent data growth, we see strong potential for BTS growth in the market.
BTS and tower numbers on their own are not a complete gauge of coverage / capacity given spectrum, technology and topography differences. However, given the significant differences in metrics compared across markets, we believe India needs more BTS, and not towers.
Reliance Jio’s recent press releases indicate a lot of focus on the data segment including digital services; this coupled with its higher frequency bandwidth (1800Mhz and 2300MHz) should see a high number of BTS being rolled out. For the bulk of these, we expect Reliance Jio to lease towers to enter the market sooner.
India has around ~390k towers and 750k tenants(BTS Radio Equipment) currently, which translates to an average tenancy ratio of around 1.9x. We expect tower and tenant counts to expand to 400k and 850k by the end of 2015.