A Passing Ebb
India’s only listed tower company is banking on anticipated demand in data services, despite some weaknesses on the tenancy front
Bharti Infratel, which holds a 42 percent stake in Indus Towers, is also India’s third-largest tower player on a standalone basis. As of March 2016, Bharti Infratel owned and operated 38,458 towers with 81,632 co-locations in 11 telecommunications circles while Indus operated 1,19,881 towers with 2,70,006 co-locations in 15 telecommunications circles. The two players had overlaps in a total of four circles and between them covered all the 22 circles. As per the company’s financial report, the average tenancy at the consolidated level shot up to 2.16x during FY 2016, while sharing revenue rose to Rs 7,787.5 crore for the same fiscal. This is only set to grow as telcos grow coverage of their high-speed data networks.
Infratel has been investing heavily in green towers to increase its operational efficiencies and nearly 40 percent of its towers were green on the last count. In the past quarter, energy revenue was marginally below estimates due to fluctuations in energy compensation by tower users. But as more towers turn green, energy costs are likely to reduce further, with guidance on energy margin being 2–5 percent.
Typically, tower agreements are signed for five to 15-year tenures and customers that rent tower sites tend to be quite stable, as shifting locations is both technically and financially expensive. Infratel, whose average tower agreements are upward of 5.8 years, could see some impact on revenue considering the recent cancellation of tenancies by Videocon.
The ongoing consolidation in the industry, with players like Videocon, Reliance Communications, Sistema Shyam and Aircel either scaling down operations or contemplating mergers, is likely to impact tenancies. However, an industry-wide need to improve coverage for data as well as voice networks is expected to offset any short-term tenancy losses.
Incidentally, base tower rentals haven’t changed in the last several years and tower companies may consider tweaking rates to ensure that cash flows remain healthy. The year gone by also saw significant rollout of broadband networks, and the trend is likely to continue this fiscal and Infratel is well positioned to capitalize on this growth. To meet demand, the company was reportedly also exploring inorganic growth opportunities. As per media reports, the company was in talks to acquire Tower Vision India, which is owned by international financial investors. Tower Vision boasts of 8,500 towers with a tenancy ratio of 1.8.
A key growth opportunity for Infratel lies in the rural market segment, which is still under-penetrated. Given that group company Bharti Airtel is also increasing coverage in the rural areas, there would be obvious synergies for Infratel to benefit from.
Meanwhile, like other tower companies, Bharti Infratel has worked towards greening of its sites. The company’s green initiatives such as P7 Program are aimed at minimizing dependency on diesel and thereby reducing carbon footprint. The P7 program promotes improving energy efficiency of tower infrastructure equipment; use of renewable energy resources, and reduction of equipment load on tower infrastructure equipment.
Bharti Infratel has been investing heavily in green towers to increase its operational efficiencies and nearly 40 percent of its towers were green at last count.