telecom-infrastructure

Bharti Infratel Tenancy Sluggish, Reliance Jio’s Light Weight Towers

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Bharti Infratel Growth SluggishBharti Infratel saw reduction in tenancies currently as the smaller operators are exiting the market. There was a reduction of 1,179 tenancies in this quarter due to such smaller operator exits (Largely Videocon’s Exit). But even excluding the impact of such exits, gross tenancy addition of 2,546 is muted vs the prior four-quarter tenancy addition of 3,185. This suggests that even the Big 3 (Airtel, Vodafone, Idea) have been slow in rolling out tenancies/towers in this quarter, in part seasonal and in part due to the nearness of the upcoming spectrum auctions.

Strong loading on existing sites has led to a ~3% Y/Y increase in average rentals (~Rs 35,039 for Jun-16). Almost all 3G/4G build-out by operators

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Bharti Infratel to Ride on Incremental 3G /4G Tenancies

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Bharti Infratel 3G 4G TenancyThe 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

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Status of Indus Towers / Bharti Infratel – Tower Business

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Telecom Towere Business IndiaThere is a Potential of Listing Indus Telecom Tower Company separately on the Stock Exchanges as it could help its owners, Bharti Infratel and Idea, raise money to repay Indus’ debt, providing more cushion for spectrum renewal and upcoming auctions (like 700 MHz).

Indus is a subsidiary of Bharti Infratel (already listed), and as a consequence, there is already a market ascribed value for Indus. Bharti Infratel stock price has fallen 32% from Rs 220 (IPO price on 28 Dec-12) to Rs 150.9 (yesterday’s close), and therefore the market implied value for Indus would have also declined, making current valuations inexpensive vs. tower-cos peers. We therefore remain uncertain on the timing of such an IPO

Smaller telcos continue to selectively close operations which will impact tenancies of tower companies. However, we expect limited impact on Bharti Infratel as majority of tenancies

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Telecom Tenancy drivers and possible rollouts by anchor tenants

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The Indian telecom industry is fragmented, and so is the tower industry, with most companies having preferred tower partners. The top three Indian operators have formed a JV to form Indus. However, Reliance Infratel, MTNL/BSNL, Tata, Aircel, among others, have their preferred companies, which will take a bulk of their tenancy. Therefore, Bharti Infratel / Indus Towers tenancy will have high dependence on the top three operators.

Factors that positively impact the future tenancy potential are 3G network Expansion, 2G tenancy for new entrants who make in-roads into rural areas and 900MHz Spectrum.

3G Network In most circles, operators holding

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Telecom CAPEX between Expansion and Maintenance

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Telecom tower is a capex-intensive business. While the tower structure and shelter have a long life of up to 40 years, there are parts such as batteries, generators and air conditioners that are the responsibility of a tower company and have a shorter life. Telecom tower companies’ capex can be divided into new tower capex, tower capacity expansion capex, renewable energy initiatives capex and maintenance capex. For example, Bharti Infratel management has guided to maintenance capex of INR 100,000/tower per year. Main parts that need regular replacement are batteries (cost INR80,000-100,000 each) and diesel generators (INR150,000 each).

Indian tower companies spend on batteries and generators,

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Energy Cost Impact on Telecom Tower Companies

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Telecom companies’ power cost has three components – grid power, batteries and diesel. Grid power is the cheapest source of power and is the main source in most urban sites. Telecom sites need upwards of 99% uptime, but round-the-clock grid power is not available for most towers. When grid power is not available, the cell site shifts to battery backup. In rural India, most sites either do not have grid connectivity or have grid power availability for a very short period, and grid and battery are not sufficient to provide the high uptime levels required for a cell site. Therefore, most of these sites run on diesel generators

Power and fuel cost is the single-largest cost head for a telecom operator (8-10% of revenue for the most efficient operators). Reading into the Balance sheet of Pure telecom Infratel Player,

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Tower Requirements of Top 4 Mobile Operators

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Let us look into the Telecom Tower Requirement of Top 4 Operators – Airtel, Vodafone, Reliance Communications and Idea Cellular.

Bharti Airtel Airtel is already present on Bharti Infratel [BHIN] sites; will contribute to incremental tenancy of Indus Towers. Airtel is a tenant on almost all of Bharti Infratel’s towers. Airtel will contribute to Bharti Infratel’s incremental tower growth but not to its incremental tenancy. However, Airtel will be the key driver of 3G and 4G loading revenue, being the single-largest operator on Bharti Infratel’s towers. This benefit will be back-ended, as Bharti Infratel’s towers are in B and C circles, which shall see delayed 3G/4G investments, as they are predominantly rural

Vodafone India Vodafone is only on the 1,800MHz band, necessitating

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List of Telecom Tower Infrastructure Companies

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I’d like to present the List of Telecom Tower Infrastructure Companies Operating in India

Aircel
American Tower Co India Ltd
Bharti Infratel
BSNL Telecom Tower Infrastructure
Essar Telecom (ETIPL)
GTL Infrastructure
HFCL Connect Infrastructure – Infotel Group
Idea Telecom Infrastructure
India Telecom Infra Ltd
Indus Towers Ltd

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