The nature of growth in the tower industry has undergone a substantial change, reflecting the change in maturity, structure and growth drivers of the mobile telecom sector. The coverage of key mobile operators is now more or less complete. The focus is now on augmenting voice capacity and data coverage. As a consequence, the tower industry growth is being driven more by increase in tenancies than through new tower additions.
According to Bharti Infratel management most 3G sites are co-located with 2G sites and over
time, as data grows, standalone 3G sites would drive demand. Vodafone, for instance, has placed orders for 1700 3G-only sites. Jio also contributed to some increase in tenancy in 1Q. In our view, Jio would require 100,000 towers for its pan-India launch and eventually need to go up to 150,000. Since recently, we think Jio’s dependence on independent tower companies has increased. This means that while the tenancy ratio remains unchanged, the tenant pays 10-15% higher rental (for 3G loading), which supports the sharing rental per tenant. With mobile data in a secular growth phase (currently growing ~20%qoq), we expect this trend to sustain and even intensify. However, over time, data capacity & coverage requirements will probably create the need for standalone data-only sites.
One must note that only 7-8% of Infratel towers are fibre connected. Eventually, all towers will have to be connected by fibre unless microwave’s capacity increases significantly (which looks unlikely). Currently, pulling fibre to the tower is an operator-led initiative but over time, towercos may look at this (especially intra-city). Right of Way (RoW) and digging up are the bottlenecks in deploying intra-city fibre.
Unlike telecom operators, which might face increased competition due to Reliance Jio’s imminent entry, Bharti Infratel will benefit from an increase in the number of telecom operators. Reliance Jio has already signed a tower-sharing contract with Bharti Infratel. The stringent rollout obligations should also incentivize operators to increase their footprints relatively aggressively. Net-net, we believe Bharti Infratel is very well placed to drive growth in the medium to longer term driven by data. What Could be the Risk ? A meaningfully higher quantum of spectrum with operators, in the form of spectrum sharing or outright spectrum purchase, will likely reduce their need to add sites (fewer sites are required to maintain coverage / quality of service if an operator owns more spectrum), which could be a potential risk to Bharti Infratel.