ATC sees huge opportunities in a challenging and competitive market

ATC has already invested over Rs 24,000 crore in India, buying towers from telcos (it bought VIL towers recently) and stakes in its partners
Can an independent mobile tower company — that is, one in which no telecom company owns a stake — grow when two of its key rivals are almost three times its size and control over 70 per cent of the market? And when Bharti Airtel, Vodafone plc and Reliance Jio still have substantial stakes in their own tower businesses to which are they tied by long-term lease contracts?

American Tower Corporation (ATC) says the answer is a resounding yes. That the company means serious business was evident when in late November it got Union cabinet approval to buy out the Tata group’s 12.3 per cent stake in ATC Telecom Tower Infrastructure for Rs 2,480 crore, raising its stake to 91 per cent. ATC has already invested over Rs 24,000 crore in India, buying towers from telcos (it bought VIL towers recently) and stakes in its partners.

This expanded presence brings it up against larger tower companies that have been cobbled together through acquisitions and mergers, part of telcos efforts to go asset-light and monetise tower assets by running them as independent businesses.

For instance, just a week before ATC’s cabinet clearance, Bharti Airtel and Indus Towers merged to create a behemoth with 171,000 towers in which Bharti and Vodafone plc will have substantial stakes. And in the first week of December, the National Company Law Tribunal gave Reliance Communications (RCom) permission to sell its tower assets, which will now be part of the Reliance Jio-Brookfield infrastructure investment trust (InviT) that was set up last year. The new company will control over 218,000 towers, making it the biggest player in the game.

Reliance Jio, now India’s largest telco by number of subscribers, has signed a 30-year master agreement to be an anchor tenant, so the InviT has one major tenancy assured. Unlike earlier, when Jio used RCom towers for captive use, the game will change: The new company will aggressively woo other telcos such as VIL and Bharti, the same companies that ATC is also trying to win over.  

The reality is that the tower business has shrunk in the past two years. The number of mobile towers shrank 15 per cent, with over 100,000 of them being pulled down. One reason has been the closure of many telcos, and Vodafone’s merger with Idea led to overlapping tenancies, forcing them to prune their tenancies and reduce costs. So ATC, like most others, saw its tenancy ratio per tower drop 27 per cent from 1.8 to 1.3 even as it reduced the number of towers.

But India accounts for 15 per cent of ATC’s global revenues and the largest share of towers across the world, so it is an attractive long-term market. As Amit Sharma, ATC India’s executive president, said, “Our experience is that telcos always look for a second provider of tenancies even if they have a primary tower vendor in which they have a stake; This is where we come in.” That is why ATC still has Reliance Jio, VIL and Bharti as clients. Analysts add another reason for ATC to have a clear niche — the bitter competition between incumbent operators and relative newcomer Jio could make the former more cautious about putting their infrastructure on towers in which they own stakes.

Sharma also pointed out that data usage levels at 15 GB per subscriber per month would jump to 25 GB a month in five years. When taken together with a growing subscriber base, this leads to a quadrupling of total data flowing on the networks. “With limited spectrum available to operators, it’s no rocket science to predict that there will be huge growth in tower and tenancy requirements,” he said. After all, there are still over 400 million customers who are on 2G waiting to transition to 4G.

And then, there’s the impending 5G launches, when higher bands will require more towers for coverage, and high data speeds will place a new level of demand on the network.

Conservatively, the industry estimates that the number of towers in the next five years should go up from 550,000 currently to around 800,000, while tenancies will rise 50-80 per cent. ATC expects its tenancy ratio to revert to 1.8 though over a larger number of towers. To achieve these numbers tower companies have to sink in $5-6 billion in capex.

ATC also sees new opportunities to expand the revenue base — for instance, in installing fibre for the backhaul connectivity from towers. Currently, only 30 per cent of the towers have fiberised backhaul, the rest run on microwave, but with the advent of 5G this has to change dramatically. To achieve 60-70 per cent fiberisation, ATC estimates it will require $3-4 billion. Currently, it is the telcos that invest in fiberisation. Sharma said given telcos’ capex constraints this investment is better undertaken by the tower companies.

ATC could also offer microwave back haul, currently the exclusive preserve of telcos, once the tower company licences are amended. Once that happens, ATC executives said they would be able to backhaul the traffic of, say, two operators (instead of everyone doing it on its own), which would reduce capex requirements.

Sharma said 5G would also bring in new requirements for leveraging towers — services that require low latency will require micro data centres where data is cached and distributed locally closer to the customer. In other words, this data could be co-located on towers. Also, with open architecture of radio access network, there will be more network equipment on towers than in 4G, opening up new revenue opportunities for tower companies.

ATC is also catering to the new realities of the business and tower technology. For instance, new ground-based towers are shorter (30 metres instead of 40) and also lighter but they cater to two tenants rather than three to four earlier. As a result, investment in the towers have halved to around Rs 13-15 lakh a tower. That will have a bearing on tenancies.

Though ground-based towers will remain, ATC is readying for a sharp shift in rooftop towers that will be replaced by lighter pole sites run by batteries rather than generators within the city. ATC expects at least one million small cells in the next five years mounted on lamp posts or street poles connected to macro sites to enable 5G. India clearly offers its some high-growth opportunities.

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