Telecom tower industry expected to undergo structural changes

The telecom tower industry is expected to undergo structural changes in the medium term. Currently, the industry, with around 4 lakh towers and around 8 lakh tenancies, is a sizeable one in the world. It has 10 organized players wherein 74% of the portfolio is held either by tower companies promoted by telecom operators, or by telecom operators themselves. Over the next 1-2 years, there is likely to be a material change in the industry structure with number of players expected to reduce to 4-5. 

The key development for the industry would be the likely change in ownership from telecom operators to independent players, as reflected by the consolidation transactions under way and by the interest from such players and investors. The industry is also likely to witness strong growth in the coming years driven largely by the network expansions by telecom operators; and upside in rentals due to improved negotiation power which would follow from consolidation as well as from greater independent ownership. 

Commenting on this, Harsh Jagnani, Sector Head & Vice-President – Corporate Ratings, ICRA, elaborates, “The industry generates steady cash flows given its indispensability to the telecom services and benefits from the inherent strengths of the lease agreements or Master Service Agreements (MSA) which include: long tenure (the MSAs range from 10-15 years), penalties on exit before a fixed lock-in period, per annum escalations in rentals, and incentivising addition of new tenants. This, along with moderate capex over the last few years, has enabled many tower companies to achieve strong financial profile with steady reduction of debt. The industry is now on a solid footing to expand as the telecom sector looks for greater and deeper network expansions to meet the growing need for data.”Read More