Rising tenancy rates, better management of energy as well as input costs help.
Two years ago, the country’s three major GSM telecom operators pooled resources to float a separate infrastructure company called Indus Towers.
Bharti Airtel, Vodafone-Essar and Idea Cellular are now enjoying the fruits of that decision. Indus Towers generated around 7 per cent of revenues for Bharti and Vodafone in the first quarter of this financial year. In Idea’s case, the share was 6.4 per cent.
Bharti and Vodafone hold 42 per cent stake each in Indus and the balance 16 per cent is held by Idea Cellular.
| MAKING THE RIGHT CALL |
| * The tower industry has 260,000 towers, which would increase to 300,000 by the end of the year |
| * Hiving off passive infrastructure helps operators to become “asset-light”, while sharing reduces overall expenses |
| * Increasing tenancy rates are the immediate reason for passive infrastructure firms becoming profitable, efficient energy management is another reason |
| * The profitability of a tower company is linked to the tenancy ratio (number of operators hosted on a tower) and the present average ratio is 1.6 operators per tower, up from 1.1a year ago |
| * A dip in steel prices, a major raw material for constructing towers, and operators’ expanding services were the other factors that helped in increasing profitability |
Analysts said this share would go up further in the coming years. The profitability of a tower company is linked to the tenancy ratio (number of operators hosted on a tower) and the present average ratios are around 1.6 operators per tower, up from 1.1 a year ago. Idea Cellular CFO Akshaya Moondra said the Indus partners are hiking this to 2 per cent by March 2010.
To put this in context, listen to Manoj Tirodkar, chairman of GTL Infrastructure, which pioneered the concept of sharing telecom infrastructure, in 2004. Tirodkar said a tenancy ratio of 1.5-1.6 is cash positive for a telecom infrastructure company.
“A dip in steel prices, a major raw material for constructing towers, and operators expanding services were the other factors that helped in increasing profitability,” a telecom analyst with Credit Analysis and Research Ltd (CARE) said.
There are other reasons for this optimism on profitability. The industry has around 260,000 towers, which would increase to 300,000 by the end of the year. Hiving off passive infrastructure helps operators to become “asset-light”, while sharing reduces their overall expenses, analysts said.
Take GTL Infrastructure. Tirodkar said the tenancy ratio in the industry is growing and for GTL Infra it’s around 1.6. The company is becoming Ebitda (earnings before interest, taxes, depreciation and amortisation) positive — 53 per cent in the first quarter of this financial year — and with tenancies increasing to 3 in two-three years, Ebitda will increase to around 65-66 per cent. By the fourth quarter this year, the company’s bottomlines will also increase, he said.
GTL Infra owns and operates around 10,000 towers, with plans to more than double it to 23,700 towers by 2010-11.
While increasing tenancy rates is the immediate reason for passive infrastructure firms becoming profitable, efficient energy management is another reason. Firms like Indus Towers are working with The Energy and Resources Institute (Teri), while GTL Infra, Reliance Infratel and Bharti Infratel have set up towers that use wind, solar energy and palm oil.
Another company to gain from passive infrastructure services is Tata Teleservices (Maharashtra) Ltd. The company’s revenues from passive infrastructure services rose to Rs 16.4 crore in the first quarter of this year from Rs 1.4 crore recorded a year earlier. TTML had hived off its passive infrastructure to its wholly-owned subsidiary, 21st Century Infra Tele.
“Tower business is generating income, as tenancy rates are shooting up,” TTML CFO S Venkatesan said.
State-owned telecom firm Bharat Sanchar Nigam Ltd (BSNL) has decided to outsource telecom infrastructure to generate around Rs 1,000 crore in a year. BSNL, which has around 40,000 towers, has already begun discussions with private firms.
