Rural focus to drive telecom industry's tower business, says CRISIL

Addition of towers across rural India will also limit the decline in revenues, according to a report by rating agency CRISIL

As consolidation in the telecom industry is expected to impact tower rentals, continuous expansion in the rural areas will moderate revenue losses, rating agency CRISIL has said.

In a recent report, CRISIL highlighted that majority of the new tower addition in the industry will be in the rural areas having lower rentals compared to the urban rental per tower. Rural expansion, too, is low. This structural change in the tower mix will pull down the rent revenues per tower, the agency said.

At the same time, addition of towers across rural India will also limit the decline in revenues. Thus, CRISIL Research expects the rental revenues of the industry to decline by 2-3 per cent year-on-year in FY19 and remain flat in FY20, as the rental per tower is expected to go down.

“We expect between 8,000 and 10,000 tower additions over the next five years. Out of that, about 60 per cent will be in rural areas,” said Hetal Gandhi, telecom sector expert and director, research, CRISIL.

In this financial year, however, rent revenue per tower is estimated to decline 7-9 per cent, owing to a loss of tenancies of Vodafone Idea and other smaller telcos, the company said in its report. 

The tower companies will not have bargaining power to levy the forgone opportune rental (from exit of tenancies) on the existing ones as the telcos’ financials are already stressed out. 

Leading tower company Bharti Infratel had indicated during the September quarter results that on account of exits, the company has outstanding penalty claims of Rs 15 billion, largely from incumbents. 

It indicated that the same is expected to be either settled partly in cash and balance in the form of committed future business.

The trend of Reliance Jio setting up its captive towers would also add to the pressure of telecom tower operators exerting pressure on rental growth, noted CRISIL.