Bharti Infratel IPO to be turning point for beleaguered tower sector

The troubled telecom infrastructure sector, after playing second fiddle to operators, is now emerging from the shadows. A mixed bag of opportunities is awaiting the tower firms, which have had a turbulent past, though their prospects are linked to the ebb and flow of the telecom sector.

A merger attempt by Reliance Infratel-GTL Infrastructure fell through. While Reliance Infratel shelved its IPO plans, GTL Infrastructure filed for a debt restructuring exercise.

The roller-coaster ride of the industry included Tata Teleservices offloading a controlling stake in tower unit to Quippo Telecom, and now Bharti Infratel, looking to raise about Rs 4,500 crore through an initial public offering (IPO).

“I see a mixed bag for the sector. There are opportunities, there are issues too. An issue is that of the regulator’s initiatives to bring the sector under the unified licensing regime. Imposition of licence fees will hit tower firms,” said Umang Das, director-general of Towers and Infrastructure Providers Association (TAIPA).

Tenancy ratio

Tower companies are dependant on operators’ businesses and issues such as cancellation of licences, dip in user additions and operators not bidding for spectrum, among others, have a direct impact. The fall in operators’ revenues for the past couple of quarters has also had its impact, as the sector depends on service providers for revenues.

At present, there are about a dozen passive infrastructure providers and more than 3.76 lakh towers in the country. The tenancy ratio (or number of operators per tower) of 1.70, up from 1.05 in 2007-2008, is much lower than the global average of about 2.5.

“The industry is expecting tenancy to go up to 2.5. It also expects telecom penetration to rise and to cover all the ‘black spots’. For this, more telecom operators, with large national and multi-sector presence, should enter the sector. It looks difficult,” said Arun Kejriwal, Founder and Director at KRIS Research.

Concurring with this, Ankita Somani, research analyst, IT and telecom, Angel Broking, said overcapacity of towers would make it difficult for companies to increase tenancy ratios, while the after-effect of the 2G spectrum scam was also impacting the sector.

“The balance sheets of many of the telecom companies are stretched and further growth seems to be muted, as the mobile subscriber base has grown to more than 100 crore for a country with a 120 crore population,” Jagannatham Thunuguntla, Equity Head at brokerage firm SMC Capitals said.

OPPORTUNITIES

There are a plethora of opportunities for tower firms, say many in the industry. 3G and 4G services are expected to bring in substantial data traffic, necessitating additional base transceiver stations (BTS), according to Crisil Research. And as 3G spectrum operates on higher frequency and its reach is limited, operators will have to set up additional towers.

The Indian wireless industry grew at about 56 per cent over 2005-2010, boosted by a surge in user base following the sharp decline in tariffs and expansion of services. The growth has largely been from urban centres, according to the IPO prospectus filed by Bharti Infratel.

Bharti Infratel, the tower arm of leading operator Bharti Airtel, is looking to tap the capital market with its Rs 4,500-crore (upper end of the price band) IPO next week. If successful, it would make Bharti Infratel the second listed tower firm. Companies such as Viom Networks are set to tap the IPO market.

As per data from the Telecom Regulatory Authority of India, the urban wireless penetration was 162.8 per cent and that in rural areas 38.3 per cent, as of March 31, 2012.

The industry expects growth to come from semi-urban and rural sectors, analysts said, though this would take time.

(This article was published on December 7, 2012)
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