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ATC India - Strong growth plans

June 15, 2010
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American Tower Corporation (ATC) India is witnessing busy times. The company, along with its peers, has been supporting the fastest growing telecom market in the world.

Currently, the Indian telecom tower industry is dominated by big players like Indus Towers, Bharti Infratel, Reliance Infratel, Tata-Quippo and GTL Infrastructure. All of these companies have a portfolio of more than 30,000 towers. Surviving in such a competitive environment has been an uphill task for ATC India. With two relatively smaller acquisitions - of XCEL Telecom and Transcend Infrastructure and a third one in the process (ATC has entered into an agreement to buy out the Essar Group's tower business), the company is set to reach a reasonable size of 7,000 towers (including Essar's tower portfolio) in less than three years.

The company, backed by an established global brand, has firm growth plans for India. "ATC has a long-term vision and strategy for the Indian market. It is critical for us to enter any market with a sustained growth strategy. We have demonstrated this in the US and Latin America, and believe we can replicate the success here as well," says Amit Sharma, executive vicepresident and president, Asia, ATC.

ATC India is a wholly owned subsidiary of Massachusetts-headquartered ATC, a leading owner and operator of wireless and broadcast communication sites in North America. ATC was established in 1995 as a unit of American Radio Systems, and was spun off in 1998 when the latter merged with the CBS Corporation. In 2005, ATC merged with SpectraSite Communications, Inc. Currently, ATC owns and operates over 30,000 sites in the US, 2,700 in Mexico and 1,600 in Brazil, besides its operations in India. Its customers include Alltel, AT&T, Sprint Nextel, T-Mobile, Verizon Wireless and most Indian operators.

The tower firm operates in two business segments - rental and management (leasing and sub-leasing of antenna space on multi-tenant towers), and network development services such as site acquisition, zoning, permissions, construction management and structural analysis. The rental and management business accounted for 96.8 per cent of the company's total revenue in 2009, while network development services constituted the rest.

Growth trajectory in India
ATC India's growth has largely been inorganic. The company acquired XCEL Telecom in May 2009 for Rs 7 billion and Transcend Infrastructure in October 2009.
While the latter had a relatively small base of 700 towers, XCEL added 1,700 towers to ATC India's business. Prior to the XCEL acquisition, it had only 300 towers.

ATC, through its wholly owned Indian subsidiary Transcend, has entered into a definitive stock purchase agreement to buy the issued and outstanding shares of Essar Telecom Infrastructure Private Limited, which owns and operates about 4,450 wireless communication sites. It has a tenancy ratio of 1.8 tenants per tower.

At present, the Indian market generates about 1 per cent of ATC's total revenues. The company aims to increase the revenue share from the Indian market to 5-10 per cent in the next few years.

However, there are several challenges. A key issue is the dominance of operatorowned tower companies. "This means that our largest potential customers are also our biggest competitors," says Sharma. Unless the industry structure changes, the company will be forced to compete with certain customers. ATC India's growth will depend on the company's ability to collocate these customers on its sites.

Taking a cue from the outsourcing model currently being followed by operators for their networking needs, ATC has been in talks with mobile operators for managing their tower business.

Sharma believes that the structure of this market will evolve in the future. "This is a preliminary stage of market evolution where operator-owned tower companies dominate. The Indian wireless industry is still at a dynamic growth stage and we should see a lot of changes in the tower industry in the years to come when the wireless market matures," he says.

Another problem for tower operators is that the lease rates have not increased despite the sharp rise in capex for building a tower. Despite these concerns, the company is optimistic about its growth in India. "It is a challenging market, but we see a lot of opportunity here. We have been setting up towers at the rate of about 150 towers a month even as we look at inorganic growth opportunities," says an ATC official.

The way forward
The ability of operators to pay rentals has been affected by the continuously falling tariffs. The profitability of the Indian tower industry now rests on network sharing, leading to higher tenancy levels.

ATC India has been building towers with collocation in mind. There is greater emphasis on enhancing tenancy rather than the number of towers. In fact, the company is at par with the industry average on collocation. This will help ATC increase its share in the market and reduce the carbon footprint generated by the tower industry. ATC India seems to be moving in the right direction with a substantial portfolio of well-located towers, a reasonable client base and a competitive tenancy ratio.
Dolly Khattar

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