New giant Indus Towers to capitalize on phone and data boom in India

11, Dec. 2020

A telecom tower at Ramnagar in the remote district of West Champaran in the northern Indian state of Bihar on Dec. 2, 2020. The telecom tower industry in India has witnessed tremendous growth with the number of towers more than doubling to 520,000 in 2019 in India. (NNA)
A telecom tower at Ramnagar in the remote district of West Champaran in the northern Indian state of Bihar on Dec. 2, 2020. The telecom tower industry in India has witnessed tremendous growth with the number of towers more than doubling to 520,000 in 2019 in India. (NNA)

By Atul Ranjan

NEW DELHI- The recent merger of two leading telecom infrastructure providers in India has not only created the country’s biggest tower company, but also one of the largest of its kind in the world.

Following the amalgamation of Bharti Infratel Ltd. and Indus Towers Ltd., the mega company is looking to leverage their combined strengths to capitalize on the boom in India’s data and phone consumption as the digital revolution continues to spread from cities to rural villages. The surge will be further supported by 4G services being expanded and the faster 5G network poised to be launched soon.

The merger entity has kept the name of Indus Towers Ltd. after Vodafone Idea and Bharti Infratel announced on Nov. 19 the completion of the merger process.

Early last week, Bharti Airtel announced that it was increasing its 36.7 percent stake in Bharti Infratel to 41.6 percent, an indication of its confidence in the latter to perform even better after the merger.

The much-expanded Indus Towers now boasts more than 172,000 towers in over 314,000 locations spread throughout 22 telecom service regions in India. It also has a combined annualized revenue of 254 billion rupees in the first-half (April- September) of the current fiscal year.

On its augmented strengths, experts say the merger company can now operate with a unified, nationwide presence and stronger financial muscles to invest and seize upcoming opportunities in the thriving telecom sector.

The burgeoning growth in data consumption has given rise to the demand for new infrastructure and services to support operations.

As it was working towards the merger, the Bharti Infratel management had said the top priority would be enhancing the capabilities of its expanded network so that it will be “future-ready".

In a recent message to stakeholders, Bimal Dayal, who has been appointed as the merger CEO, said the combined enterprise will offer greater scale and capabilities in providing “world-class” infrastructure services to facilitate efficient communication throughout the country.

Dayal declared, “It is a big moment for Bharti Infratel and Indus Towers to reach this huge milestone of bringing together their strengths to create one of the largest telecom tower companies in the world, with a network of 172,094 towers.”

He added, “This will also make us the country’s largest smart city infrastructure provider, with our cutting-edge solutions already powering the cities of Delhi, Vadodara, Dehradun and Bhopal.”

While it remains to be seen whether millions of end users will benefit from any real cost savings as a result of shared resources, Indus Towers has made it clear in its new mission statement that it will "continue to provide affordable, high quality and reliable services to the growing network connectivity needs of the country".

Analysts believe that telecom tower companies like Indus Towers are betting big on next-generation technologies to push growth amid the recent consolidation in the mobile industry which has seen a dozen players in 2008 reducing to just three big players now.

The telecom tower industry had also undergone consolidation, which resulted in the dominance of three big established players - Indus Towers, Reliance Jio Infratel Pvt. Ltd. (RJIPL), now controlled by Brookfield Asset Management Inc., and American Tower Corp.

The exit of tower companies such as Aircel and Reliance Communications, and the wave of mergers of mobile operators have dampened rental incomes, putting a strain on the profitability of tower players, said analysts.

The new Indus Towers serves mainly three customers, namely Bharti Airtel Ltd., Vodafone Idea Ltd. and Reliance Jio Infocomm Ltd.

According to EY, the tower industry has witnessed robust growth, with the number of towers more than doubling to 506,746 in 2018, from around 250,000 in 2008 in India, which has the second largest telecom market in the world with over a billion wireless subscribers.

Prashant Singhal, sector leader of emerging markets technology, media and entertainment and telecommunications at EY consultancy, believes the next decade holds "exciting new prospects" for tower firms because of data growth and the imminent launch of the next-generation 5G technology.

He said, “Plenty of new opportunities are arising for tower companies to shift their attention from a macro tower focused business, towards new business models hinged on fiber, small cells, data centers, Wi-Fi, smart cities and beyond.”

Concurring, Anupama Arora, vice-president and sector head, corporate ratings at ICRA Ltd., told NNA that while tower operators are facing pressures from industry consolidation, they will be looking to expand their operations to cater to rising data consumption. They will also benefit from higher loadings at existing sites, she said.

Arora said telcos preparing for 5G rollout in the near future will also offer new growth opportunities to tower companies.

On Dec. 8, RIL chairman Mukesh Ambani announced that Reliance Jio is preparing to launch 5G services in India in the second half of 2021.

"I assure you that Jio will pioneer the 5G revolution in India in the second half of 2021. It will be powered by indigenous-developed network, hardware and technology components,” he said during a webinar in the India Mobile Congress 2020.

However, Tarun Pathak, telecom analyst at Counterpoint Technology Market Research, said the immediate focus for tower operators is to meet the demands of telcos planning capacity expansion to enhance 4G data services.

“We don't have decent 4G coverage still. This is going to be the immediate focus for the telecom firms to further expand the reach and coverage of 4G services to tap the growing demand for data for which more towers and other innovative technologies are needed,” he told NNA.

Fitch Ratings Inc. noted that Bharti Airtel is continuing to invest in the expansion of its 4G and fiber networks across India after it completed the shutdown of its 3G network.

Analysts say competitive data pricing, expansion of 4G services, and the availability of affordable internet-enabled handsets are driving the surge in demand for data in the country.

Said EY consultancy, “The Indian telecom industry is today characterized by high data demand and the market is expected to witness a five-fold increase in mobile data traffic during 2018-24.”

A recent report by Nokia said after the country introduced 4G services in 2016, overall data traffic increased by 44 times to 7,176 petabytes in December 2019, from a mere 164 petabytes in December 2015.

It noted that the bulk of the traffic in 2019 flowed through 4G as a result of new 4G users and the transition from 3G to 4G.

Analysts Aditya Bansal and Anil Sharma of Nomura Financial Advisory & Securities (India) Pvt. Ltd. wrote in note recently that India’s overall wireless subscriber base has expanded to 1.14 billion, or 88 percent of the Indian population.

Decline in tariffs and smartphone prices has also contributed to the flourishing growth in data consumption among the masses.

“This growing internet-enabled smartphone penetration is also fueling the demand for robust telecom infrastructure in the country,” said Counterpoint’s Pathak.

According to the India Cellular and Electronics Association (ICEA), the user base of 500 million smartphone holders recorded at end-2019 is expected to balloon to 820 million by 2022.

ICEA noted that approximately 97 percent of the internet users across India accessed the web from mobile devices.

The association also highlighted the sharp rise in the use of internet-enabled smartphones, especially in rural areas, where smartphone penetration has grown remarkably from just 9 percent in 2015 to 25 per cent in 2018.

The latest research by Counterpoint Technology Market Research shows that smartphone shipments in the country grew 9 percent year-on-year to reach over 53 million units during the July-September quarter amid the pandemic - the highest-ever achievement within a single quarter.

Cashing in on the phone demand, Reliance Industries subsidiary Jio Platforms Ltd., which has quickly positioned itself at the forefront of India’s digital revolution, has partnered with tech giant Google to develop affordably-priced entry-level smartphones.

Reliance’s unit Reliance Jio Infocomm Ltd. (RJIL), the country’s biggest telecom operator, is also ramping up its network reach to maintain its dominant position.

According to analysts, RJIPL's tower assets, now controlled by Brookfield Infrastructure, will be critical for RJIL operations.

Brookfield Infrastructure said in August that it was seeking to capitalize on the rollout of 5G across the country with Jio as an anchor tenant under a 30-year agreement, which will provide it with a “secure and long-term source of revenue".