The Indian telecom tower industry has witnessed significant growth over the past several years on account of the aggressive expansion of telecom networks and the entry of new operators. The telecom tower base in the country increased from about 250,000 in 2007-08 to 411,000 in 2012-13, while the tenancy ratio grew from 0.9 to 1.91 during the same period. Going forward, with operators expected to expand their 3G telecom infrastructure and roll out 4G networks to support the growing demand for bandwidth and data services, there is expected to be a further increase in tower installation and an improvement in the tenancy ratio.

The key trends, growth drivers and challenges in the tower industry were examined at a recent tele.net conference, “Telecom Infrastructure in India”. The following sections are based on presentations and panel discussions at the conference by industry analysts, tower operators, service providers and technology vendors...

Key trends

Market consolidation: At present, there are around 450,000 towers in the country, which are being operated by over 50 companies. However, around 90 per cent of them are operated by six companies, among them Indus Towers, Bharti Infratel and Viom Networks. Due to the entry of sev-eral independent tower companies in the recent past and the expansion of operations by incumbents, the competition in the industry has escalated manyfold. As a result, there is expected to be consolidation in the industry. Companies like American Tower Corporation and Viom Networks are considering buying some of the smaller players that are struggling to survive in the tough market conditions.

Lightweight towers: Tower companies are shifting towards higher capacity multitenant towers. They are looking at streamlining tower designs and making them lightweight and tubular in order to reduce their costs. In this way, older and uneconomical towers can be downsized in a phased manner.

Sustainability through smart solutions: Many telecom tower companies are adopting or planning to adopt smart solutions to improve operational efficiency. For instance, real-time site and asset monitoring, mapped with effective preventive maintenance processes, can lead to optimal asset performance and higher efficiency. Smart solutions provide data on site downtimes and other parameters on a real-time basis. This enables companies to analyse the energy consumption patterns of a tower site and helps detect theft and pilferage of diesel generators.

Growth drivers

3G and 4G network roll-outs: Most operators are either planning to expand their 3G networks or set up 4G telecom infrastructure to offer an improved data service experience. The majority of operators’ spectrum holdings are in high frequency bands like 1800 MHz, 2100 MHz and 2300 MHz, which require double the number of towers as the 900 MHz band.

Shorter roll-out times: New entrants have to roll out telecom networks in a short time to gain market competitiveness. Tower companies can enable new entrants to commence operations by installing their base transceiver stations on installed towers, resulting in significant time reductions.

Lower working capital requirements: The telecom tower industry is characterised by lower working capital requirements as the majority of operating expenses are passed on to tenants. Companies with a portfolio of tower sites spread across the country will be able to obtain advance rentals from telecom operators and secure credit on favourable terms from suppliers, reducing their working capital needs.

Industry challenges

Regulatory constraints: One of the biggest issues faced by tower companies is the lack of uniformity in right-of-way guidelines and the absence of a single-window clearance process. Tower com-panies have to seek the approval of multiple regulatory authorities, which hampers operations and delays network roll-outs. Compliance with stringent green energy mandates is another major challenge for tower companies. In order to procure power from hybrid energy sources, they have to incur a cost of Rs 2 million per tower. Given that less than 1 per cent of the total tower base is using hybrid power, the industry’s investment requirement for complying with the green mandate will be Rs 660 billion.

Lack of grid power supply: Another big issue is the limited availability of grid power at tower sites. At present, telecom infrastructure providers meet 33 per cent of their energy requirements from grid power and the remaining through diesel generator (DG) sets.

Shortcomings of tax benefits: Tax laws permit a depreciation of just 15 per cent per annum on most telecom equipment and, therefore, tower companies can claim tax deductions only after eight or nine years. However, most of their equipment has a lifespan of less than seven years. For instance, the economic life of batteries is only three years, while DG sets and air conditioners last for just five to seven years.

Based on a presentation by Jaspreet Singh, Director, EY India