BSNL Tower De-merger to Help 4G-LTE Operators

Telecom Towere Business IndiaThe Government is planning to hive off BSNL’s tower business into a separate subsidiary with estimated valuations of cUSD3.8bn. BSNL has a total of c60,000 towers with a good mix of towers in rural and urban markets. Furthermore our industry analysis suggests these towers have good fibre connectivity as well. With all telcos focussing on enhancing data coverage, BSNL’s focus on the tower business via a separate subsidiary will increase tower supply to the sector and key beneficiaries in our view will be 4G entrants.

One of the challenges for 4G entrants has been network coverage given their dependence on the 2.3 GHz spectrum. We highlight coverage issues can be resolved in two ways: (a) adding sub1 GHz spectrum and (b) adding more towers.

With not much clarity on possible auctions of spectrum in 700 MHz band and 800 MHz spectrum renewal still five years away, incremental supply of good quality sub 1GHz spectrum seems restricted in the medium term. Given this we see the availability of BSNL towers as positive for 4G entrants. We add that it may take some time, possibly 9 to 12 months before BSNL towers are made available commercially and hence it is reasonable to assume that 4G entrants will be able to leverage them only in Phase 2 of the network launch and not immediately. In other words the initial fate of 4G entrants will depend a lot on Phase 1 network coverage, prospects of voice over LTE (which in our view is still in the early days) and the ability to churn subscribers from incumbents.

Finally, telcos which are not fully done with their rural coverage and BSNL towers may allow incumbents to boost voice coverage in rural markets. However this will be gradual in our view.