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ICRA foresees growth prospects for tower industry after a tumultuous two years

March 19, 2019
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According to ratings agency ICRA, the telecom tower industry is looking ahead at growth prospects with operators upgrading and expanding their network.

As per ICRA, the industry will add around 110,000 tenancies by 2021-22 in turn increasing the tenancy ratio to around 1.55 times as on March 31, 2022. Approximately 140,000 net tenancies were lost during 2017-18 and the first nine months of 2018-19, causing a decline in the tenancy ratio from 1.78 times to 1.37 times. Tenancy losses have been higher on a gross basis but network rollout primarily by Reliance Jio and Bharti Airtel helped moderate the impact.

ICRA expects the impact of tenancy losses on revenue growth and profitability to continue in the near-term. Tenancies reduced from 840,000 in March 2017 to 700,000 as on December 2018 while towers increased to 510,000 from 470,000 over the same period.

Tenancy losses impact average revenue per tower (ARPTo) per month metric, which declined by 12 per cent in the first nine months of 2018-19 to Rs 72,000. ICRA expects industry ARPTo to be around Rs 70000 per month over the long term, as against peak value of Rs 82000. Further, the recovery of exit penalties on early cancellation of tenancies has provided a cushion to tower companies. Total exit penalties secured by tower companies amounted to around Rs 50 billion which is 38 per cent of 2017-18 earnings before interest, taxes, depreciation and amortisation (EBITDA).

In addition, ICRA expects the currently fragmented tower industry to consolidate to three players, with Indus and Bharti Infratel merging and Reliance Infratel selling its tower assets. At present, there are more than 10 organised players and the top five companies own 75 per cent of the towers and around 80 per cent of tenancies. The tower industry is also likely to become more independently owned with operators stepping out of the space.


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