Telecom Tower Industry

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Telecom Tower Industry
Description: Indian Telecom Tower Industry. Towering Dreams & Ground Realities. Indian telecom tower industry is a vital component of telecom value chain. Telecom Tower industry acquired its identity when government introduced Infrastructure Provider Category – I in the middle of 2000 to craft telecom infrastructure as a separate business model. Wireless telecom in India has seen stupendous growth in last few years with wireless subscriber base growing at a CAGR of more than 50% in last 5 years. As a result, telecom tower industry was also pushed into the higher growth trajectory. There was astonishing growth in tower capacity addition at a CAGR of above 30% during FY 2006 to FY 2011. Number of towers in the country increased from ~85,000 in 2006 to ~400,000 today. Rapidgrowth in 2G subscribers and the expectations of 3G and 4G network expansion led to massive capacity build up in the tower space. However, the last couple of years witnessed a slowdown in the tower capacity addition due to oversupply in urban markets and lack of viability in most of the rural areas. As the revenue for tower business primarily comes from tower rentals, a slowdown in telecom services impacted telecom tower industry. The tower industry is dominated by operator owned tower companies though there are few independent tower companies as well. Though the tower industry is highly capital intensive, operating profitability of the industry is good as most of the costs are fixed in nature and variable costs like energy costs are passed on to the tenant. Operating profitability increases directly with tenancy ratio as the fixed costs are shared. The tower industry in India has an average tenancy of 1.6x and is expected to improve marginally over the next couple of years as there will be new Base Transceiver Station (BTS) addition on the existing towers, to cater to demands of 3G and 4G services. CARE Research expects new tower addition to happen at a much slower pace. Growth in BTS will be comparatively better, riding on 3G and 4G expansion in urban areas and rural subscriber addition. On the cost side, power cost is the biggest concern for tower companies and telecom providers (as power costs are pass-through for tower companies). As power deficit in India stands at 12%, around 70% of the towers in India remain cut off from grid power for more than 12 hours a day. Alternatives like a diesel generator produce expensive power costing around Rs. 16 per unit which is almost triple the cost of grid power. Tower companies in India consume ~2 billion litres of diesel which is around 3.5% of total diesel consumption in India, next only to Railways. Tower companies also have to incur expenses related to security of the cell site due to pilferage of diesel which is as high as 15-20% of total diesel consumption by tower companies. Renewable energy sources - solar, wind, biomass, fuel cell etc are the most promising alternatives to grid power shortage. But high capex, lack of sufficient space at the cell site, inadequate subsidies etc are the issues in tapping renewable energy for powering the cell sites. Tower companies in India also struggle with backhaul connectivity as Optical Fibre Cable (OFC) connectivity is limited to urban areas forcing operators to use microwaves, which have limited applications when the data usage is high. As telephony in India is expected to shift from voice to data, current OFC network of 1,000,000 km will need massive capacity addition, which comes at a huge cost of Rs. 250,000 per km. On the regulatory front, tower industry is facing the uncertainty over proposed inclusion of IP-I category under Unified License. This might also result in tower companies sharing 6% of their revenues as license fees and FDI limit in tower industry coming down to 74% from current 100%. The report elucidates facts on the Indian Telecom Tower Industry, supplemented by the latest statistics. The report is divided into three sections. Section I covers CARE Research’s outlook on the industry over next 2-3 years and emerging trends. Section II covers overview of various segments of the industry, performance of the industry in the last financial year. It also talks about various

regulatory issues involved in the industry. Section III gives details of the various players in the industry. Following are the points which are emphasised to accomplish the report: Section I - CARE’s perspective of the telecom tower industry in terms of tower and BTS growth across circle categories. - CARE’s outlook on topline, profitability and CAPEX of the sector. - Demand drivers for growth of tower industry - Expectations on various regulatory issues. - Brief on emerging trends in telecom tower industry like use renewable energy for power needs of tower, new technologies like IBS and DAS. Section II - Telecom Infrastructure sharing, cost analysis, M&A analysis. - Brief on emerging trends like green telecom, challenges for growth in rural areas, tower sharing - Regulatory issues related licensing, subsidies in rural areas and emission radiations. Section III - Brief on key listed and unlisted telecom players


Executive Summary Table of Contents SECTION- I CARE Research’s OUTLOOK Outlook on Indian Telecom Tower Industry - Growth in number of BTS will be moderate Playerwise ‘Subscriber per BTS’: Incumbents will continue the lead Circle wise Subscribers per BTS will decline Tower addition will take a back seat Tenancy ratio will improve marginally Revenue will grow in higher single digits Profitability will see modest upside Capex Outlook Demand Drivers Regulatory Concerns Emerging Trends

SECTION- II INDUSTRY SECTION Evolution of Indian Telecom Tower Industry - Telecom Tower Industry Overview - Business Models for Tower Sharing - Captive Model - Operator Controlled Entity Model - Pool and Share Model - Build and Operate Model - Evolution of Telecom Tower Industry in India – Captive to Independent Owned Model Elements of Telecom Infrastructure - Telecom Tower Site Components - Types of Towers - Factors considered for designing telecom towers - In Building Solution (IBS) - Distributed Antenna System (DAS) Cost Analysis - Installation Costs

- Components of Tower Capex - Operating Costs - Power and Fuel Costs - Rentals for Cell-site Premises - Security Cost - Operation and Maintenance (O&M) Expenses - Regulatory Costs - Employee Costs Telecom Infrastructure Sharing - Infrastructure Sharing in India - Categories of Infrastructure Sharing - Segments of Infrastructure Sharing - Payback Period Analysis of Telecom Tower - Advantages of Infrastructure Sharing - Regulatory Initiatives for Facilitating Infrastructure Sharing - International Practice in Infrastructure Sharing Regulations - Proposed Licensing of IP – I Licenses - Telecom Tower Roll-Out in Rural Region under USOF Scheme - Emission Norms on Electromagnetic Waves The Rural Challenge - Delays in USOF Scheme Implementation - Hurdles in Proliferation of Telecom Towers in Rural Areas - Site Acquisition - Right of Way Issues - Backhaul Connectivity is poor - Lack of Infrastructure Sharing - Lack of Reliable and Consistent Grid Power Supply - Higher Operation and Maintenance (O&M) Expenses - Low Average Revenue per User (ARPU) Merger and Acquisitions - Factors Driving Merger and Acquisitions (M&A) in the Indian Telecom Tower Industry - Key M&A Deals (2007-2010) - Declining Telecom Tower Valuations - Lowering FDI limit - Global Telecom Tower Comparisons Emerging Trends – Green Telecom - Power Needs of telecom tower industry - Grid power is intermittent and not available fully - Tower companies have to rely on diesel generators - Grid Power vs. Diesel Generators - Methods of reducing carbon footprints - Use of Energy Efficient Equipments - Tapping Renewable Energy - Capital Cost for SPV-WTG - Payback period - Benefits of Carbon Credits - Limitations of Solar PV – Wind Hybrid Systems - Global Success Stories SECTION- III COMPANY SECTION GTL Infrastructure Ltd - Background - Key Operational Highlights of FY2011 - Financial Performance Review - Share Price Movement, Shareholding Pattern & Credit Rating Indus Towers Ltd - Background - Operating Parameters - Client Base - Shareholding Pattern

- Credit Rating Bharti Infratel Ltd - Background - Operating Parameters - Client Base - Financial Performance Review Reliance Infratel Ltd - Background - Operating Performance - Financial Performance Review - Credit Rating Viom Networks Ltd - Background - Products & Services - Operating Parameters - Credit Rating SECTION- IV ANNEXURES - Annexure I – Nomenclature of telecom circles - Annexure II – Circle wise subscribers (000's) - Annexure III – Operator wise subscribers (000's) List of Graphs and Tables SECTION- I CARE Research’s OUTLOOK Outlook on Indian Telecom Tower Industry - BTS Deployment – Circle wise - Subscriber per BTS – Player wise (February 2011 and September 2011) - Subscriber per BTS – Circle wise - Subscriber Density Comparison - Number of Towers Across Circles (September 2011 to March 2014) - Composition of New tower addition by FY 2014E - Revenue Growth (FY11-FY14E) - Wireless Subscriber Forecast (FY2009-FY2014E) - Subscriber Forecast – Urban & Rural (FY2009-FY2014E) - Subscriber Growth and Teledensity (March 2007-January 2011) - 3G Subscriber Forecast (December 2011 – FY 2016E) SECTION- II INDUSTRY SECTION Evolution of Indian Telecom Tower Industry - Telecom Tower Market Share – FY2011 - Captive Model in India - Operator Controlled Entity Model in India - Pool and Share Model in India - Build and Operate Model in India - Evolution of Telecom Tower Industry in India Elements of Telecom Infrastructure - Telecom Tower Site Components - International Practices in IBS Deployment Cost Analysis - Cell-site Capex Components - Telecom Operator’s Power Consumption - Regulatory Fees charged by State/Local Authorities Telecom Infrastructure Sharing - Telecom Infrastructure Components - Payback Period Analysis of ground based tower and roof top tower - Assumptions for the payback period calculations - International Practice in Infrastructure Sharing Regulations - Region Wise Guidelines for Erecting Mobile Towers

- International Exposure Limits For RF Fields (1800 MHz) - Guidelines for Basic Restrictions for Limiting EMF Exposure in The Telecom Sector The Rural Challenge - Commissioning Status Of Towers Under USOF Scheme (December 2011) - Commissioning of BTS under Shared Mobile Infrastructure Scheme under USOF (December 2011) - Grid Power Availability in Rural India Merger and Acquisitions - Major M&A Deals in the Indian Telecom Tower Industry - Global Comparison of telecom tower companies Emerging Trends – Green Telecom - Telecom Operator’s Power Consumption - BTS Power Consumption - Sources of Power for Telecom Towers - Grid Power Availability Pattern - Grid Power Vs. Diesel Generators - Overall - Grid Power Vs. Diesel Generators - Rural - Renewable Initiatives in Telecom Towers - Capital Cost of Different Sources of Power - DoT Study on Payback Periods for Various Solar-Wind based Towers - Global Initiatives on Green Telecom SECTION- III COMPANY SECTION GTL Infrastructure Ltd - Circle wise towers of GTL Infra as on FY2011 - Consolidated Financial Performance (FY09-FY11) - Share Price Movement (February 2011-February 2012) - Share Holding Pattern as on December 2011 - Credit Rating Indus Towers Ltd - Indus Towers’ Client Base - Share Holding Pattern as on December 2011 - Credit Rating Bharti Infratel Ltd - Bharti Infratel Client Base - Standalone Financial Performance (FY09-FY11) Reliance Infratel Ltd - Reliance Infratel Client Base - Financial Performance (FY09-FY11) - Credit Rating Viom Networks Ltd - Credit Rating


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