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Growing Tenancies: Key trends and market outlook

June 13, 2014
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The telecom infrastructure segment has been a catalyst for sector growth during the past several years. However, since 2012, the industry has been witnessing subdued growth on account of the discontinuation of operations by a few service providers and slow roll-out of 3G and long term evolutions (LTE) networks. Now, with data uptake increasing exponentially, operators are planning to augment their network coverage, which will result in greater demand for towers and improve the tenancy ratio.

There are several factors that will impact tower tenancies and result in the redistribution of tenancies in the future. One of the most important factors is the liberalisation of spectrum, as a result of which airwaves in any frequency band can be used for any wireless technology. Delinking of spectrum from telecom licences has opened up many possibilities for operators, which will have an impact on tower companies. Other factors that will affect tenancies are the entry of greenfield 4G operators and consolidation of the industry.

When operators plan to roll out their telecom networks, they focus on two parameters – coverage and capacity. If an operator selects spectrum in the 900 MHz band for providing coverage, the capacity available will depend on the deployed technology. This capacity will range from 384 kbps per site to 20 Mbps per site, as technology deployed varies from EGDE to long term evolution (LTE). In case an operator shifts from 2100 MHz to 900 MHz band for the deployment of 3G technology, the number of cell sites required for providing adequate coverage becomes lesser. For instance, in Delhi, an operator needs to deploy only 1,500 sites on the 900 MHz spectrum band for providing 3G network coverage as compared to 5,000 sites on the 2100 MHz band. Meanwhile, an operator shifting from GSM to LTE technology on account of spectrum liberalisation will get much higher capacity at the cell site with the latter technology. For instance, an operator using spectrum in the 900 MHz band for 3G technology will get 10.1 Mbps throughput per site as compared to 17 Mbps-18 Mbps throughput per site with LTE-frequency division duplex (LTE-FDD) technology. Therefore, if the cell sites can support higher capacity, the operator will deploy fewer cell sites to support bandwidth requirements.  These factors are likely to have a major impact on tenancies going forward.

In this scenario, operators can opt for various technology models. Some operators, primarily the incumbents, are focusing on deploying 3G technology on the 900 MHz spectrum band due to a significant capex requirement for the 2100 MHz band, which is more likely to be used for providing higher capacity in urban areas. Meanwhile, some operators will deploy 3G technology on the 2100 MHz spectrum band as reacquiring spectrum in the 900 MHz band will be an expensive proposition.

Considering the outcome of the spectrum auctioned in the 900 MHz band in February 2014, most operators are likely to shift their base network to 1800 MHz spectrum band. Since operators have acquired spectrum in the 900 MHz band at a high cost in the auction, they are more likely to use this spectrum for 3G networks while spectrum in the 1800 MHz band will be used for offering voice services. The shifting of base networks from the 900 MHz band to the 1800 MHz band will result in higher tenancies in the future. In contrast, operators that do not hold spectrum in the 900 MHz band will deploy 3G technology in the 2100 MHz spectrum band, which will result in a partial increase in tenancies. In all, the tower industry is expected to witness an addition of about 45,000 tenancies in the next three years.

Another driver for tenancies will be the roll-out of LTE networks by greenfield 4G operators. These operators are likely to use the 2300 MHz spectrum band for providing capacity in dense urban areas due to the propagation characteristics of the frequency airwaves. This, however, will not result in many tenancies as the operators will most likely be installing their own towers. On the other hand, operators will also deploy LTE-FDD technology using 5 MHz of spectrum in the 1800 MHz band to provide capacity in urban areas, which will result in additional tenancies of about 30,000.

On the downside, the consolidation of operators in the telecom industry will reduce tenancies based on the combined spectrum holdings of the acquirer and the target. The surplus non-contiguous spectrum in the 1800 MHz band will be sold to ensure tenancy rationalisation. Consequently, a reduction of about 20,000 tenancies is expected in the future.

In sum, spectrum liberalisation, the entry of greenfield 4G operators and consolidation in the industry will result in a net increase of about 55,000 tenancies in the next three years.

Based on a presentation by Pankaj Agarwal, Founder, Capitel Partners at tele.net’s Eighth Annual Conference on Telecom Infrastructure in India on April 29-30, 2014 at The Leela Ambience, Gurgaon



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