Telecom tower companies in the country have reported “massive” tenancy losses over the past one-and-a-half years, with tower rentals starting to fall during the second half of fiscal 2018.
This is the first time the rentals have fallen in the past five years.
The tower rentals in the past 12 quarters indicate a stabilising trend till the first half of fiscal 2018 and then a drop for the first time in five years in the second half of fiscal 2018 owing to tenancy losses, according to study by Crisil.
The recent merger of Vodafone India and Idea Cellular has resulted in over 57,000 tenancy losses. Further reduction of about 21,000 tenancies is expected in the first half of fiscal 2020, it said.
While exit penalties are expected to partially offset the revenue loss, the impact of tenancy losses is expected to spill over to fiscal 2020 as well.
Telecom companies are currently focusing on densification of 4G networks. The replacement of 2G and 3G Base Transceiver Stations (BTSs) with 4G ones will slow down net BTS additions to about 1.55 lakh in fiscal 2020, against 2.75 lakh in fiscal 2019.
The number of BTSs per tower is, however, expected to increase marginally to about 3.85 this fiscal, compared with 3.67 in fiscal 2019, on increased loading by telcos to increase their capacity per site and support existing coverage during high traffic and congestion.
This loading results in a discount to telcos (need to pay just 10-15 per cent of rent), which reduces the potential for higher topline of towercos.
The telecom sector moving towards an oligopolistic structure, with three players accounting for more than 90 per cent of market share, will pose challenges for towercos. This will put pressure on rent revenue per tower as the number of tenants per tower would go down.
Further, the stressed financial condition of debt-laden telecom incumbents will restrain any material hike in rentals, at least over the medium term. In addition, through the towers added by Bharat Sanchar Nigam Ltd and Reliance Jio Infocomm account for a considerable share of captive towers, the revenue from these towers does not flow to the industry.