In 2007, India’s first mobile networks were hosted on around 100,000 telecom towers, considerably less than the current tower count of over 450,000. Over the past seven years, operators and independent tower companies have built an average of 50,000 new towers per year and, as a result, telecom coverage now extends to 90% of India’s geography. India is one of the few countries in the world with an average of two tenants per telecom tower - and the efficient sharing of towers, facilitated by neutral, non-discriminatory tower companies who now own 69% of India’s towers, has been critical to the growth of telecommunications and the associated positive impact on economic growth.
India’s first mobile phone call was made in July 1995, but the growth of the Indian telecoms market was initially slow due to high license fees. The pace of rollout dramatically accelerated in 1999 when the government made a forward-looking shift from fixed license fees to a revenue share regime. With the fixed license fee frozen and thereafter a percentage of revenue shared with the government, operators were able to pay license fees from their revenues.
The next challenge faced by the operators was building enough infrastructure to achieve all-India coverage. Due to India’s vast geography, this required a portfolio of at least 45,000 towers, and a huge capital outlay. At this time an individual site cost US$20,000, and towers represented 70% of network costs. As a result, no operators had all India coverage.
India’s Telecom Infrastructure Industry came into existence when the Department of Telecommunications invited applications for IP-I and IP-II registrations in the year 2000. The registration certificate of IP-I states: “Registered IP-I to establish and maintain assets such as dark fibre, Right of Way, Duct Space and Towers for the purpose to grant on lease/rent/sale basis to the Licensees of Telecom Services licensed under section 4 of Indian Telegraph Act, 1885”
The first infrastructure sharing agreements took place in 1999-2000 after the formation of the COAI (Cellular Operators Association of India), but were limited to carefully controlled, tower-for-tower exchanges known as barters or swaps, with each operator sharing the same number of assets, and no money changing hands. With cellular operators cautious of trusting one another sufficiently to embrace deep tower sharing partnerships, the limited scope of these barters meant they generated negligible efficiencies.
The first tower sharing breakthrough happened in 2005 when operator Spice approached Quippo, the equipment leasing firm of SREI, to start building the first independent infrastructure: 50 towers in Punjab, to be paid for by a rental fee for tenants, the first of which would be Spice. The rental fee was to be lowered by adding more tenants, and before long the second and third tenants, Hutchison and Bharti Airtel were on board. Quippo SREI benefitted from increased rental fees from multiple tenants, and the operators benefitted from lower rental fees, and most importantly access to towers without having to build and maintain them.
The success of this first venture led to the creation of “Project MOST” (Multi Operator Shared Towers) in cooperation with the Union Ministry of Urban Affairs and Ministry of Communications, Government of India, 2006-7.
Indian towerco tower counts 2009-16
Meanwhile UK private equity investors the Ashmore Group and some partners from Israel started Tower Vision, India’s second independent towerco, which had sites in Karnataka. Tower Vision also engaged in tower sharing with Spice.
By now the concept of infrastructure sharing had really caught on: “We realised that operators were fundamentally ill-suited to manage passive infrastructure efficiently, said Akhil Gupta, Chairman of Bharti Infratel. “The other reason of course was that we felt that this infrastructure would need to be shared extensively amongst operators to reduce cost, especially in low tariff countries like India, which was possible only with independent towercos.”
Bharti Airtel carved its own towerco, Bharti Infratel in late 2006. Bharti Airtel also partnered with Hutchison and Idea to set up their own towerco by pooling their existing tower assets. Indus Towers, the world’s first joint venture towerco was conceived in 2006, and had a major impact from 2007-08, with 70,000 towers from day one. As a 100% shareholder-owned entity, it was quite distinct from Quippo, which was 100% non-operator owned. While Indus was larger in volume, almost all their initial tenants were internal and there was limited external marketing of the towers for three or four years, allowing them to focus on managing the portfolio and decommissioning overlapping sites. Between 2006 and 2008, Quippo grew from those initial 50 towers to 5,000 towers through acquisitions and organic growth, and achieved a tenancy ratio of over 2.5.
After the partners in Indus Towers brought to market their 70,000 towers, Reliance and Tata followed suit. Reliance hived off assets into their own 100% owned towerco, while Tata Teleservices hived off their assets into 100% owned WTTIL. However, WTTIL invited the participation of another towerco to manage and run the entity; Quippo bid for and won the rights to merge their 13,000 towers. The Tata-Quippo joint venture portfolio grew to 18,000 towers, and would later become Viom Networks.
To further promote tower sharing, TAIPA, the Tower and Infrastructure Providers Association was formed in 2008 to promote tower and energy management used to support cellular communication. TAIPA works through five committees: Energy including renewable sources, Finance, Legal issues, Regulatory and Operations which includes interactions with the telecom service providers, incumbents as well as new operators. TAIPA draws on the expertise of its members to identify key common issues facing towercos, and works with the government to address them.
Another independent player in the Indian market, Ascend Telecom, formerly known as Aster Infrastructure, is backed by private equity company New Silk Route and was incorporated in 2002. Ascend merged with India Telecom Infra (ITIL), a joint venture between TVS Interconnect Systems (TVSICS) and Infrastructure Leasing and Financing Services (ILFS) in 2011.
The first international and independent towerco, American Tower Corporation, entered the Indian market in 2009 with the acquisition of XCEL Telecom with its 1,730 towers, and Transcend Infrastructure with its 327 towers. This was followed by the acquisition of Essar Telecom’s 4,450 towers in 2010, which gave American Tower a considerable footprint in India which it has continued to expand through organic and inorganic growth.
We’ll let former Viom Networks President Umang Das take up the narrative: “Another seven or eight operators entered the Indian market in 2008, and several decided that the only way for faster rollout was to launch through independent towercos who would provide them with an existing platform and due focus as customer clients. In particular, Uninor, Telenor’s Indian opco, became the only company to proudly proclaim that they didn’t invest a dime in building their own towers. (Quippo, later known as Viom Networks) were able to share the roll-out between Uninor and Tata Teleservices and provided them with a pan-India footprint. By sharing with each other, Tata Teleservices and Uninor were able to become all-India operators. Our work with Uninor gave Quippo the opportunity to rollout 16,000 towers in a single year – a world record in its own right for the sheer scale of deployment across a massive geography like India.” Despite this unprecedented rollout,fierce competition among carriers, often relying on cut-throat offers to attract subscribers, created considerable instability in the Indian market.
All of this changed in 2012 when the Indian government restructured the telecoms industry and revisited a large number of licenses that had been previously awarded, resulting in the cancellation of over a hundred operator licenses. The number of licensed mobile network operators in each Circle dropped from an average of eleven to the five that currently hold 85% market share, which had a direct impact on the towercos.
Timeline of the Indian tower industry
“While the cancellation of 122 licenses had put the telecom industry in India on a stand-still mode with lot of uncertainty, the tower industry also faced a huge brunt with companies like us facing a setback of close to 15,000 tenancies,” Former Viom Networks President Umang Das told TowerXchange. “As a company, we decide to sit back and re-strategize the way business should be done and resultantly, we managed to record our maiden profit in one of the most difficult periods in the year 2012. The loss of all those tenancies helped us focus on cash flow, on reducing opex, and on consolidating our relationships with the incumbent market leading operators. Our profit margins have increased year on year ever since. It became critical that we could still make healthy IRR. Our idea is to exceed 20% IRR even with a single tenant on a tower.”
The 2012 restructuring resulted in an extended hiatus on the M&A activity that took place between 2007 and 2012. The tower transaction pipeline was further slowed by repeated spectrum auction delays, but when a total of over 440 MHz of spectrum was finally auctioned between 2014 and 2015, the floodgates were opened on network investment.
The new allocation of spectrum also requires the redesign of India’s mobile networks. “The 1,800 MHz band will require twice as many towers as the 900 MHz band,” TAIPA DG TR Dua told TowerXchange. “The latest auction saw the shift of some operators from 1,800 to 900, some from 900 to 2,100 and some from 900 to 1,800; this will lead to changing tenancies and incremental changes in the numbers of towers.”
The new spectrum, network redesign and rollout has re-energised the tower transaction pipeline in India. American Tower landed the first punch with the acquisition of 381 towers from KEC International, but that was the prelude to the main event: the conclusion of a drawn out negotiation to acquire Viom Network, for an enterprise value of US$3.3bn, bringing American Tower’s tower count to 58,130, and adding Tata to its customer base. And giving American Tower genuine all-India coverage.
The next major deal may involve Reliance Communication’s sale of Reliance Infratel, which has been on the market since mid-2015. A potential deal with Tillman Global Holdings and TPG fell through in early 2016 due to a disagreement over the valuation of the assets. Brookfield Asset Management has subsequently been mentioned as a prospective acquirer, while American Tower are believed to be targeting 100,000 towers in India - at the right price, Reliance Infratel could represent one of the last acquirable portfolios of scale.
BSNL is in the process of carving out of its ~65,000 towers into a new towerco subsidiary; the company is evaluating assets but the process could take some time. While substantial improvement capex would doubtless have to be invested into BSNL’s towers to make them suitable for co-location, many of BSNL’s towers are in uniquely desirable, otherwise inaccessible locations - there is likely to be pent up demand for such sites. With a tenancy ratio of around 1.1, BSNL’s towers could see the fastest tenancy ratio growth in India if and when they come to market.
There is still a long way to go to provide full telecoms coverage in India; in terms of tenancies 3G is on about 50% of the towers. Over the next 18-24 months it is anticipated that 3G will replicate 2G’s 95% coverage of India’s geography. The 4G rollout is already spreading to second tier cities - Bharti Infratel Chairman Akhil Gupta told TowerXchange he felt that the 4G overlay was already 20% complete.
The impact of these new rollouts on India’s towercos will be tremendous - Deloitte forecast tenancy ratios will rise to almost 2.5 by 2020. The effects are already being seen: “Indus Towers does a lot of what we call ‘projects’: ranging from as little as one antenna being added or removed, to fibre being brought into a site,” Indus Towers CEO Bimal Dayal told TowerXchange in an interview which you can read in full in this edition. “In 2014, a busy year, we did 133,000 projects. In 2015 we did 216,000 projects including everything from 2G, 3G and 4G to microgrids. Growth is increasing year on year and, with another spectrum auction coming up, more network realignment will be required.”
The operator market is currently being restructured again in India, although this time it’s better news for towercos! The merger of Aircel, MTS and Reliance Communications headlines the current phase of consolidation. To quote Gupta again: "It is not healthy for the industry to have ten operators, including five or six sitting on spectrum without the wherewithal and means to rollout. Consolidation remains a work in progress, but it will leave spectrum in the hands of companies that have the resources for rollouts."
In the meantime some Indian towercos are already in the process of evolving from a pure passive infrastructure sharing model to a full multi-service model providing end-to-end support of both passive and active network elements. “In the next five years I see the Indian tower industry growing thanks to the ongoing spectrum auctions and new revenue streams including white label Wi-Fi and CCTV,” said TR Dua.
Towercos are looking for new ways to help operators minimise opex and capex and become their key partners for managed services including customised site planning, energy efficiency, access to fibre networks and white label Wi-Fi services for end users. India’s towercos have been pioneers of small cell deployment, and are also keen to play a key role in the development of Smart Cities; the first tenders have already taken place. The future certainly looks bright for the Indian tower industry.
Growth trajectory for total Indian tower count through 2020
Growth trajectory for site tenancies
What can we learn from the success of India’s towercos?
A year ago Akhil Gupta told TowerXchange “We’re on a mission of operator disarmament – to disarm their manpower and make it economically unfeasible for them to build their own towers. I’m pleased to say that today virtually no operator in India builds its own towers.”
If there’s one lesson the Indian tower industry has to share with the rest of the world it is that MNOs should focus on their core business; delivering minutes and megabytes and ensuring a great customer experience. Leave building, maintaining and operating towers to specialist tower companies. Towers should be leased up on a non-discriminate, commercial basis, and the industry needs a regulatory environment that encourages tower companies to invest in ICT infrastructure, to invest in their specialist, highly skilled workforce, and to invest in the environment.
In March 2016 Indus Towers converted their 50,000th cell site to run diesel free. Bharti Infratel now has over 31,000 towers that consume less than a litre of diesel a day. Crucially, the progress of energy efficiency initiatives in India is now extending to two and even three tenant towers, which have higher energy requirements. The energy conservation possibilities run into billions of rupees.
The roadmap to efficient connectivity which has been drawn in India is an important benchmark for the rest of the world because it proves this can all be done at scale.
Another lesson from India: the business model is more robust if a single tenant tower is profitable. “As a result of focusing on quality, innovation and cost reduction, towers which once cost US$200,000 to roll out each were brought to down to US$50,000, and today below US$25,000,” Umang Das told TowerXchange. “India has the lowest cost tower rollouts in the world.”
Lighter, modular structures do not have to be built with capacity for multiple tenants at the outset, but can readily be upgraded. Of course, whether a single tenant tower can be profitable without India’s abundant local steel remains to be seen!
India also has some unique lessons to be learned and applied in operator-led tower markets. For example, in the American tower market, discounting lease rates as new tenants are added is considered value destructive. In India, it’s been at the heart of the business model since inception. Some stakeholders in India would go further than advocating shared savings, they suggest MNOs create their own towercos: “Our model is a good one, and we’re proud of Indus Towers; we recommend that MNOs don’t make their own towercos, but that they consolidate resources with other MNOs in one portfolio,” said Akhil Gupta.
It is interesting that China, the only tower market in the world of comparable, indeed greater, scale than India, the MNO-owned China Tower Company has consolidated the resources of the three operators in a single portfolio, and adopted a similar lease pricing model. Comparable business models can also be found in the UK (CTIL and MBNL), Greece (VICTUS Networks), and Poland (NetWorkS!) - it will be interesting to see whether STC and Mobily come up with a comparable joint venture model in Saudi Arabia, or whether ultimately they sell their towers
The governance of MNO-owned towercos must be carefully managed to ensure independence. “We must give credit to our operator shareholders who brought together their operating teams and, also enabled the Indus Board to be distinct from the people who run operations within each MNO,” said Indus Towers CEO Bimal Dayal. “These ‘Chinese Walls’ are important – without them, Indus wouldn’t have reached where it stands today.”
Lease pricing in India
Lease pricing is fairly consistent at around Rs 32,000pcm (approximately US$500) for a single tenant on a ground based tower, with an additional energy charge at a rate depending on grid availability.
“We designed a Master Service Agreement (MSA) whereby with the addition of a second or third tenant, it would result in a lower charge for everyone,” said Bharti Infratel’s Gupta. “Towercos make a lot more money with a second tenant, but the anchor tenant also gets approximately 20% relief on their lease rate and energy charge. This made it a true win-win situation for both and resulted in a unique situation where a company makes more money when its existing customers start paying less than before.”
Bharti Infratel and Indus Towers subsequently amended their MSA so that from 1 April 2016 the rate card is increased 2.5% each year, and any new tenants come in at that rate to compensate those who came earlier. This will ensure pricing parity between anchor and co-locating tenants.
The cautionary tale of GTL Infrastructure
GTL Infrastructure are continuing to do a great job managing 27,839 important towers with a tenancy ratio of 1.7; some very talented people work at GTL Infrastructure, and the company continues to play an important role in the Indian telecoms infrastructure ecosystem. But it would be remiss if we were to neglect to share some lessons which GTL and their shareholders have learned the hard way.
Founded in 2004, GTL Infrastructure listed on the stock market in 2006, debuting at a share price of Rs 39.95, with a market cap of US3.1bn. In the heyday of the Indian MNO goldrush, GTL’s stock was trading at just under Rs 100. The company had raised US$1.8bn to rollout a portfolio of 23,700 towers, which they supplemented with the acquisition of 17,500 Aircel towers, with 21,000 tenants, for a further US$1.8bn. At the time, GTL was the largest independent tower company in the world.
However, much of the value in the Aircel deal was derived from future cash flows derived from a planned further 20,000 tenancies. The 2012 MNO market restructuring meant Aircel was unable to honour its commitments. The timing was disastrous for GTL, who had placed orders and paid advances for towers and other equipment, and had to short close their commitment to vendors. The company ran up substantial debts, and the net worth of GTL was fully eroded: you can buy a share today for a couple of rupees. The company still turns over in excess of US$500mn per annum, and has assets worth around US$3bn, but GTL Infrastructure;s market cap is currently around US$80mn.
GTL has implemented a turnaround plan. 3G and 4G overlays and bringing welcome loading revenue, and the company has struck an innovative deal with Intelligent Energy to take over the power equipment on their sites.
