Telecom industry's move towards oligopoly to impact tower companies: Report

Representative image

The telecom industry's move towards oligopoly will potentially impact telecom tower companies through factors like tenancy losses, a report said Tuesday.

The number of telecom operators has now reduced to about five from a peak of 15 in 2012, the report by domestic rating agency Crisil's research arm said.

"The telecom sector moving towards an oligopolistic structure, with three players accounting for more than 90 per cent market share, will pose challenges for towercos," it said.

It said the merger of Vodafone and Idea Cellular to create the largest entity by subscribers alone has resulted in over 57,000 tenancy losses for the towers industry as the combined entity consolidated its network.

A further reduction of 21,000 tenancies is expected till September, it said, adding that the exit penalties will only partially offset the revenue loss and the impact of tenancy losses will spill over to FY20 as well.

ALSO READ: Truce in telecom

The reduction in operators and concentration of the market in the three companies will also put pressure on rent revenue per tower as the number of tenants per tower would go down. The stressed financial condition of debt-laden telecom incumbents will also restrain any material hike in rentals, at least over the medium term, it added.

Even though state-run Bharat Sanchar Nigam (BSNL) and Reliance Jio are adding towers, they are captive ones which does not expand the industry's revenue base, it said. In the last 12 quarters, there has been a stabilising trend till the first half of financial year 2018 and then a drop for the first time in five years in the second half of fiscal 2018 owing to tenancy losses, it said.

Citing its interactions with the industry, the analysts said telcos are currently focusing on densification of the 4G networks. The replacement of 2G and 3G BTSs (base transceiver stations) with 4G ones will slow down net BTS additions to 1.55 lakh in FY20, against 2.75 lakh in FY19, it said.

The number of BTSs per tower is, however, expected to increase marginally to 3.85 in FY20 from 3.67 in FY19, on increased loading by telcos to increase their capacity per site and support existing coverage during high traffic and congestion, it added. It said the fall in rentals has dented tower valuations and called out valuations as a key monitorable from here on.


Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel