Indian mobile tower industry set to double by 2020: Deloitte

The number of mobile towers in India is likely to increase at a compound annual growth rate (CAGR) of 3 percent over the next four to five years, going from an estimated current figure of around 400,000 to 1.2 million by 2020, according to a Deloitte report.

Tenancy ratio per tower -- the number of tenants (operators) who have put up their antennae and other active infrastructure -- is also expected to grow from 1.77 in 2014-15 to 2.48 by 2020, primarily due to an increase in data services.

This ratio may go up if the cash-strapped companies do not buy spectrum in 700 MHz, depending on whether the government reduces the reserve price of 11,485 crore rupees (approximately $1.7 billion) per MHz, as recommended by the industry regulator TRAI. The spectrum in the 700 MHz band will reduce the capex for telcos in installing more towers.

Aided by a spurt in mobile phone users, particularly in the smartphone segment, India's mobile tower industry has been witnessing a rapid growth as telecom service providers have been rolling out more services -- around 65,000 mobile towers were added by the companies between July 2015 and February 2016, according to Indian Minister for Communications and Information Technology Minister Ravi Shankar Prasad. The figure had previously swelled 300 percent from 100,000 mobile towers in 2007 to 310,000 by 2010.

Companies are expanding their operations, and to improve the voice and data services, are installing more mobile towers to strengthen the network across the country.

The minister said that with over 400,000 mobile towers functioning at present, telcos have been installing more towers as major players like Airtel, Vodaphone, Idea Cellular, and Reliance Jio Infocomm have been in process of launching 4G services across the country. Though the government has allowed 100 percent foreign ownership of tower companies, the regulators wanted it no more than 74 percent.

Tower and Infrastructure Providers Association (TAIPA) Direction General, Tilak Raj Dua, said that the reserve price fixed for 700MHz was too steep and looking at the companies' current financial situation, investing in spectrum would leave the debt-ridden industry financially stretched. "If they participate in the auction, it may restrict the telcos to put up new towers and might lead to a higher tenancy ratio," he said.

Already some companies like the state-owned Bharat Sanchar Nigam Limited (BSNL) have been sharing their passive infrastructure, including towers with other telcos on techno-commercial consideration. The BSNL has leased out 6,505 towers to other companies and has hired 15,113 towers from other companies and infrastructure providers for its operation.

The industry is also witnessing sell offs, and acquisitions have recently taken place. The US-based tower firm American Tower Corporationhas completed its acquisition of a 51 percent stake in Viom Networks, adding 42,000 communication sites in India, reportedly paying $1.14 billion.

Likewise, Bharti Airtel is said to be looking for buyers to sell 5 percent of its stake in Bharti Infratel to realise around $550 million as it intends to buy spectrum in the next round of auction to be held in June or July. The Department of Telecommunications is holding a meeting on April 30 to discuss the issues relating to spectrum auction.

Dua said that the main objective of any business would be to create value for the stakeholders on a sustained basis. The investments in a business have to bring planned returns through revenue enhancements and cost controls, and all merger/acquisition transactions are a result of strategy towards these objectives.

"Sell offs and acquisitions are a global phenomenon and the Indian tower industry too has witnessed the same. This will help the tower companies manage their operating cash, achieve scale, and broaden their geographical coverage. Further, it can also optimise operations and energy costs through sheer economies of scale," he added.