India’s tower industry has lately been in the news headlines for the high value acquisition deals happening in this industry. In Jan, GTL Infrastructure Ltd acquired towers of Aircel ltd. in a deal valued at Rs 8,400 Cr, paying Rs 48 lakh for each of Aircel’s towers. American Towers Corporation (ATC) is to acquire Essar Telecom Infrastructure. What are the factors which makes this industry so lucrative? Why are companies paying upto Rs 48 lakh for a single tower?
Let me try to explain some basics of this industry-
Introduction to Tower Fundamentals
Cellular signals are transmitted from antennae which are mounted on towers. The antennae are generally mounted at an AGL (Above Ground Level) height of 40-60m. The towers are of 2 types:-
· Roof Top Tower (RTT) – These are towers built on rooftop of residential or commercial apartments. They are generally found in cities where towers can be directly built on roofs. Also they are cheaper as the building provides the necessary AGL and only a small tower needs to be built on the roof.
· Ground Based Towers (GBT) – These are standalone towers built on open land. They are mostly found in rural areas where there no tall buildings available for mounting a roof top tower. These are also costlier to build than RTP as they require considerable material to achieve the required AGL height.
Let me try to explain some basics of this industry-
Introduction to Tower Fundamentals
Cellular signals are transmitted from antennae which are mounted on towers. The antennae are generally mounted at an AGL (Above Ground Level) height of 40-60m. The towers are of 2 types:-
· Roof Top Tower (RTT) – These are towers built on rooftop of residential or commercial apartments. They are generally found in cities where towers can be directly built on roofs. Also they are cheaper as the building provides the necessary AGL and only a small tower needs to be built on the roof.
· Ground Based Towers (GBT) – These are standalone towers built on open land. They are mostly found in rural areas where there no tall buildings available for mounting a roof top tower. These are also costlier to build than RTP as they require considerable material to achieve the required AGL height.
The transmission of mobile signals takes place through equipment known as BTS (Base transceiver stations) which is mounted on the tower. These BTS units need to be mounted inside an air conditioned enclosure. Recently a more advanced BTS unit has been introduced which can be mounted outdoor. A BTS can support around 60 parallel connections and has a range of close to 5 km.
The need to have more BTS is generated for 2 reasons:
· Coverage – Cellular companies which need to expand their coverage to new areas.
· Capacity – Since a BTS can support only a limited number of parallel connections, as number of subscribers in an area increases, more and more BTS are required to handle the increasing number of connections.
This need to have more and more BTS installed is the factor which makes the telecom tower sector so attractive. New operators like Uninor, MTS and Etisalat would like to come as sharing partners on towers already present in major towns and cities whereas established players like Idea, Airtel and Vodafone which are expanding into rural areas give orders for new towers to be built in villages where there is no operator coverage present.
Advantage for cellular operators to go for leased towers:-
1. Expansion is faster as operators can come as sharing on sites rather than waiting for it to be built.
2. Operators need not have a high capital expenditure in building a tower; rather they just need to pay a small monthly rent amount. This is very useful for new mobile operators who want to minimize their initial capital expenditure.
3. Also as more and more operators share a single tower, the rent charged to them decreases significantly.
An example of Mumbai can be taken for this where in areas like Colaba, the site rent can be upto Rs 1 – 2 Lakh. If an operator has its own tower, than the entire rent will have to be paid by it whereas by sharing a site with 3 other operators, this rent will be reduced by 75%.
4. All Legal and operational maintenance issues are taken care by the tower company. Thus the mobile operator can concentrate its resources solely on its sales and marketing efforts and not have a workforce dedicated for maintaining its towers.
Financials
A quick look at the financial of a single tower can show why it’s profitable to operate in the tower business.
· On an average, a ground based tower costs Rs 30 Lakh to construct including the cost of foundation, tower, shelter and generator sets. A Roof top tower on the other hand costs Rs 17.5 Lakh.
· The monthly opex (operational expenditure) for these sites is around 6000-7000 which is for security personnel. For RTT sites, this expense is also often not there as RTT’s are built on residential or office apartments which already have their own security personnel. The rent to be paid to site owner is absorbed by the cellular operator or else shared between the operator and the tower company.
· The Electricity bill of operating the cellular site is paid by the cellular operator.
· Apart from this, the other major expense can be diesel fuel costs for sites where there is no electricity connection available.
· Now considering that a tower has a minimum operational timeframe of 10 years, an interest of 10-12% can be taken for the tower.
· For GBT sites, tower companies charge an IPF (Infrastructure Provisioning Fees – This is the fees paid by mobile operators to the tower company for using their tower) is around Rs 30,000 and for RTT sites its Rs 20,000.
Costing
1. Expansion is faster as operators can come as sharing on sites rather than waiting for it to be built.
2. Operators need not have a high capital expenditure in building a tower; rather they just need to pay a small monthly rent amount. This is very useful for new mobile operators who want to minimize their initial capital expenditure.
3. Also as more and more operators share a single tower, the rent charged to them decreases significantly.
An example of Mumbai can be taken for this where in areas like Colaba, the site rent can be upto Rs 1 – 2 Lakh. If an operator has its own tower, than the entire rent will have to be paid by it whereas by sharing a site with 3 other operators, this rent will be reduced by 75%.
4. All Legal and operational maintenance issues are taken care by the tower company. Thus the mobile operator can concentrate its resources solely on its sales and marketing efforts and not have a workforce dedicated for maintaining its towers.
Financials
A quick look at the financial of a single tower can show why it’s profitable to operate in the tower business.
· On an average, a ground based tower costs Rs 30 Lakh to construct including the cost of foundation, tower, shelter and generator sets. A Roof top tower on the other hand costs Rs 17.5 Lakh.
· The monthly opex (operational expenditure) for these sites is around 6000-7000 which is for security personnel. For RTT sites, this expense is also often not there as RTT’s are built on residential or office apartments which already have their own security personnel. The rent to be paid to site owner is absorbed by the cellular operator or else shared between the operator and the tower company.
· The Electricity bill of operating the cellular site is paid by the cellular operator.
· Apart from this, the other major expense can be diesel fuel costs for sites where there is no electricity connection available.
· Now considering that a tower has a minimum operational timeframe of 10 years, an interest of 10-12% can be taken for the tower.
· For GBT sites, tower companies charge an IPF (Infrastructure Provisioning Fees – This is the fees paid by mobile operators to the tower company for using their tower) is around Rs 30,000 and for RTT sites its Rs 20,000.
Costing
.bmp)
As can be seen from the above table, a single tower with a tenancy of 3 can achieve a profitability of greater than Rs 30 lakhs over a period of 10 years. With tower companies owning thousands of towers, it is anyone’s guess of the enormous profit that tower companies can achieve.
The current tenancy in India is around 1.2 – 1.3 tenants per tower with some companies like ETIPL (Essar Tower Infrastructure Ltd.) having a tenancy close to 2. With 3G auction likely to occur very soon, the demand for sharing of towers is likely to go up, which could increase the average tenancy to 3 tenants per tower. 3G and 2G require different equipment; therefore additional tower space will be required to mount the 3G equipment.
Threats to tower industry
· Increasing government regulations – Recently there have been agitations against the installation of mobile towers in residential areas which has prompted govt authorities to come up with regulations for installation of mobile towers. In cities like Delhi and Jaipur, tower companies require permission from city corporation authorities prior to construction of mobile towers. Increasing government regulations could hamper the growth of tower companies.
· Increasing government regulations – Recently there have been agitations against the installation of mobile towers in residential areas which has prompted govt authorities to come up with regulations for installation of mobile towers. In cities like Delhi and Jaipur, tower companies require permission from city corporation authorities prior to construction of mobile towers. Increasing government regulations could hamper the growth of tower companies.
No comments:
Post a Comment