Market Research India - Telecom Towers Market in India 2009


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Market Research India - Telecom Towers Market in India 2009

  1. 1. Telecom Towers ‐Telecom Towers IndiaAugust 2009
  2. 2. Executive Summary  Estimated requirement of 182,000 in 2008 and 554,000 by 2015 Market  Projected growth rate of 17% p.a. in 2008‐2015  An estimated 36% of towers are shared, which is expected to increase  Telecom tower companies follow four types of business models: – Captive: Towers are owned & operated by telecom operators Business  – Operator Controlled: Operator consolidates tower infrastructure and hives it off as a separate company models – Pool and share: Operators jointly setup an independent company for sharing tower infrastructure – Build and operate: Independent tower companies operate on a ‘build‐and operate’ model  Infrastructure sharing in India is currently limited to passive sharingInfrastructure   Positive TRAI initiatives such as granting subsidies from its Universal Service Obligation Fund  g g g sharing (USOF) encourage infrastructure sharing  Estimates indicate significant improvement in profitability as tenancy ratio increases  Indian telecom tower market includes: Indian telecom tower market includes: – Tower infrastructure companies, owned and controlled by telecom‐operator companies like ‐ Indus Towers: Competition Vodafone‐Essar, Idea, Bharti – Independent tower infrastructure companies like GTL  Indus towers is the leading player with 32.4% market share  New entrants include American Tower Corporation, Tower Vision TELECOM TOWER – INDIA.PPT 2
  3. 3. •Introduction •Introduction•Market Overview•Business Model B i M d l•Infrastructure Sharing•Competition•M&A and PE Deals•Key Developments TELECOM TOWER – INDIA.PPT 3
  4. 4. Indian mobile telecom market is driven by subscriber additions and future growth is expected from rural expansionGrowth in Indian telecom sector Growth in subscribers• Indian telecom operators’ growth is largely driven by  Tele density mn % subscriber additions since ARPU (average revenue  Subscribers 33.2 450 35 per user) is reducing )i d i 30• Increasing penetration for adding new subscribers  19.9 25 300 18.3 becomes essential 20 12.8• Significant investment is required to expand tower  9.1 15 150 7.0 10 infrastructure, especially in rural areas which cover  infrastructure especially in rural areas which cover large geographical areas 5 0 0 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09Falling ARPU (average revenue per user) Teledensity ‐ Urban and Rural % INR/month Urban 48.5 -20% 50 400 Rural 340 38.0 40 300 270 220 26.3 30 21.3 200 20 14.3 10.4 12.2 100 10 4.0 0.9 1.2 1.5 1.7 1.8 2.0 0 0 2006 2007 2008 2001 2002 2003 2004 2005 2006 2007 TELECOM TOWER – INDIA.PPT 4
  5. 5. •Introduction•Market Overview•Business Model B i M d l•Infrastructure Sharing•Competition•M&A and PE Deals•Key Developments TELECOM TOWER – INDIA.PPT 5
  6. 6. Demand for telecom towers is high to support a rapidly growing  industry leading to emergence of lucrative tower businesses Overview Tower requirement estimates1 •The telecom tower market size in India is  Towers (‘000s) valued at INR 775 bn in 2008 800 +17% •Types of towers 600 527 554 491  Ground‐based tower 388 446 400 321  Roof‐top tower 252 182 •All leading mobile service operators are  •All leading mobile service operators are 200 expanding and increasing their coverage by: 0  Increasing their network  2008 2009 2010 2011 2012 2013 2014 2015  Increase coverage through tower sharing Level of Tower sharing U i i d Using independent tower networks d k •Tower infrastructure is increasingly becoming  Shared Towers  independent of telecom operators 36% •The growing market for towers is also  attracting the attention of private equity funds  64% to invest in the companies Unshared Towers1 Based on ABN AMRO normalized subscriber estimates & forecast; Average BTS overlap of 20%; Average tenancy ratio of 1.5 (conservative) TELECOM TOWER – INDIA.PPT 6
  7. 7. Tower infrastructure is the largest component of setup costsGround based tower (GBT) Cost break up GBT•Towers are erected on ground 100% = INR 3.3 mn Real estate•Height of the towers are in between  200 – g 15% 400 feet •GBTs are ideally suitable for rural and semi‐ urban areas Site setup 25% 60% Tower setup•Capex involved is in between  INR 2.4 – 2.8 mn•Capex involved is in between INR 2 4 2 8 mnRoof type tower (RTT) Cost break up RTT•Towers are placed on roofs of buildings 100% = INR 1.6 mn Real estate• In terms of height these towers are shorter  than GBTs 15%•RTTs are ideally suited for Urban areas and  RTT id ll it d f U b d metros Site setup 20% 65%•Capex involved is usually in between INR 1.5 – Tower setup 2 mn TELECOM TOWER – INDIA.PPT 7
  8. 8. •Introduction•Market Overview•Business Model B i M d l•Infrastructure Sharing•Competition•M&A and PE Deals•Key Developments TELECOM TOWER – INDIA.PPT 8
  9. 9. Telecom tower companies operate under four business models determined by ownership structure and operating modelBusiness Model Description • Operator invests in towers, which are managed internally or outsourced to a vendor • Single tenancy resulting in high capex and operating costCaptive • In the Initial years of expansion many operators constructed towers which do not support In the Initial years of expansion, many operators constructed towers which do not support  multiple mobile operators • Tower infrastructure is consolidated and transferred to a separate operator‐owned entityOperator‐controlled  • Allows operator to raise funds by selling shares to external investorsentity y • e.g.: Rcom and Bharati Infratel operates on this model • Operators jointly set up an independent company • Each operator contributes infrastructure to the joint entity or venturePool and sharePool and share • Owner‐operators enjoy rights to the shared infrastructure Owner operators enjoy rights to the shared infrastructure • e.g.: Vodafone Essar, Idea Cellular and Bharti Airtel jointly own Indus Towers, an entity with  over 70,000 towers/cell sites spanning 16 circles from the three operators • Operator‐independent company builds  and manages tower infrastructure p p p y g • Towers are leased to operators under long‐term contractsBuild and Operate • Normally seek multiple tenants to increase profitability • e.g.: GTL, Aster, Quipo and Tower Vision are independent tower operating companies TELECOM TOWER – INDIA.PPT 9
  10. 10. •Introduction•Market Overview•Business Model B i M d l•Infrastructure Sharing•Competition•M&A and PE Deals•Key Developments TELECOM TOWER – INDIA.PPT 10
  11. 11. Infrastructure sharing results in substantial savings and is essential for ‘build and lease’ and ‘pool and share’ modelsTRAI initiatives• Currently, operators who set up infrastructure in rural areas receive a subsidy from the Universal Service Obligation  Fund (USOF) through a bidding process. USO fund value as of March 2009 was INR 140.33 bn• TRAI R TRAI Recommendations  d i  All operators who connect rural areas be given a subsidy provided they share infrastructure  Amount of subsidy should depend on the number of operators sharing the tower although it was earlier stipulated that the tower  design should have capacity to accommodate at least three service providers • Time bound Clearances from Standing Advisory Committee for Frequency Allocation (SACFA) and local bodies Time bound Clearances from Standing Advisory Committee for Frequency Allocation (SACFA) and local bodies• Lower processing fee/other charges from Local bodies to promote sharing• Amendment in Licenses to allow active sharing of  infrastructure limited to antenna, feeder cable, Node B, Radio Access  network (RAN) and transmission system onlySample tower profitability matrixSample to er profitabilit matriNo. of Tenants 1 2 3 4Capital Expenditure 2,600,000 2,600,000 2,600,000 2,600,000Rent per tenantRent per tenant 34,000 34,000 30,000 27,000Sharing Adjusted Revenue 34,000 68,000 90,000 108,000Operating Expenses 18,250 19,450 20,650 21,850Contribution 15,750 48,550 69,350 86,150Contribution as % of Gross Revenues 46% 71% 77% 80% TELECOM TOWER – INDIA.PPT 11
  12. 12. Infrastructure sharing takes place at two levels – passive for non‐electronic devices and active for network equipment Types of infrastructure Sharing Active Sharing Passive Sharing ( Electronic Infrastructure) ( l f ) (Non – Electronic Infrastructure) ( l f ) • Steel tower/antenna • Base tower station  • Mounting structures  • Microwave radio equipment  • Base tower station shelter Base tower station shelter • Switches  • Power supply  • Antennas  • Backup power: Battery bank, inverter, diesel  • Transceivers for signal processing generator (DG) set • Transmission • Air conditioner, Fire extinguisher, Security cabin Sharing of spectrum is not permitted in India Practice being adopted in India Benefits of infrastructure Sharing Benefits of infrastructure Sharing • Reduces cost involved in infrastructure set‐up • Optimum utilization of scarce resources • Faster roll out of service • Aff d bl Affordable tariffs for subscribers iff f b ib TELECOM TOWER – INDIA.PPT 12
  13. 13. •Introduction•Market Overview•Business Model B i M d l•Infrastructure Sharing•Competition•M&A and PE Deals•Key Developments TELECOM TOWER – INDIA.PPT 13
  14. 14. Major telecom operators have hived off tower divisions into separate entities to benefit from favourable capital structureType of companies Major tower companies in India•Market is dominated by tower companies,  Independent tower company owned or controlled by operators Operator controlled tower company Operator‐controlled tower company  Indus Towers: Vodafone‐Essar, Idea, Bharti  Reliance Infratel – Reliance Communications Indus Towers 32.4% 85,000  Bharti Infratel – Bharti Reliance Infratel 27.5% 72,000•Independent tower infrastructure companies Independent tower infrastructure companies  Bharti Infratel 10.3% 27,000 (ITICs) are more recent entrants with GTL  being the largest WTTIL+Quippo 6.9% 18,000 GTL Infrastructure 3.6% 9,500New entrants Essar 1.5% 4,000•American Tower Corporation with the  acquisition of Xcel Towers Xcel 0.6% 1,500•Ramboll Aster 0.4% 1,000•Tower Vision Other 27.5% 72,000•Crown Castle % indicates share of total towers Note : Xcel Towers has been recently acquired by American  Tower Corporation Tower Corporation TELECOM TOWER – INDIA.PPT 14
  15. 15. Majority of telecom operators are using shared telecom  infrastructure Tower Infrastructure Suppliers Telecom Operator Subscribers (mn)* Own 3rd Party/Others Bharti Airtel 93.92  Bharti Infratel ( 7 circles); Indus Towers (16 circles) Reliance Communications 61.11  Reliance Infratel (All circles) Vodafone Essar 68.76  Indus Towers BSNL 46.68  MTNL; Others Idea Cellular/ Spice 43.02  Indus Towers Tata Teleservices 35.12  WTTIL Aircel Cellular 18.47  Others MTNL 4.17 4 17  BSNL; Others BSNL Oth BPL Mobile Communications  2.16  Others HFCL Infotel 0.38  Others Sistema Shyam TeleServices Sistema Shyam TeleServices 0.58 0 58  Others* As of March 2009 TELECOM TOWER – INDIA.PPT 15
  16. 16. •Introduction•Market Overview•Business Model B i M d l•Infrastructure Sharing•Competition•M&A and PE Deals•Key Developments TELECOM TOWER – INDIA.PPT 16
  17. 17. Standalone players finding it difficult to compete in the telecom towers market Telecom tower sector is witnessing consolidation Scale of Operations• Over the past two years, major telecom operators have hived off their tower related infrastructure into separate firms   Standalone players with 3,000 ‐ 5,000 towers find it difficult to compete with tower arms of the telcos in terms of scale  New entrants require at least 20,000 towers across the country for a decent roll‐out and a complete coverage needs 60,000 towers New entrants in the mobile phone business prefer to tie up with these larger established players rather than standalone tower companies  as it reduces risk as well capital investment. Thus smaller players are seeking mergers and sellouts Capacity surplus• Tower addition has resulted much ahead of the aggregate minutes of usage (MoU), putting pressures on incremental margins of tower  companies  Capacity surplus is likely to result in  longer pay‐back periods and reduction in rentals  Only those companies that have tenancy ratios of two and above will be profitable  Economic Downturn Economic Downturn• India’s standalone telecom tower companies are facing a severe a credit crunch owing to global recession:  The new orders which smaller players were banking on did not arrive owing to global recession   Smaller players are finding it difficult to raise funds in this investment‐intensive sector TELECOM TOWER – INDIA.PPT 17
  18. 18. M&A Deals 1/2Year Tower Company Deal Type Details • It is  planning to offload 51% to 100% of its tower businessAug‐2009 AirCel Spin‐off • It has shortlisted four firms for the sale Tata Teleservices  • TTML is considering selling upto 49% stake in its tower subsidiary, Aug ‐2009 Maharashtra  Acquisition 21st Century Infratel, to potential investors  (TTML)  • Essar plans to sell a part of its stake in ETIPL  Essar Telecom  Essar Telecom • It has appointed Barclays Capital to manage this  sale Aug‐2009 Infrastructure  Acquisition Pvt Ltd (ETIPL) • ETIPL plans to use the funds to grow its tower portfolio organically  as well as for buyouts of smaller players in the sector Idea cellular  • Idea Cellular received shareholders’ approval to hive off its tower  ppJul‐2009 Towers  Spin‐off business into a subsidiary company Idea cellular Towers  Infrastructure Infrastructure Mahanagar  • MTNL is considering the demerger of its telecom tower operations Telephone May ‐2009May ‐2009 Spin‐ off • It is also planning to enter a tower sharing deal with Essar It is also  planning to enter a tower‐sharing deal with Essar  Nigam Ltd  (MTNL) Telecom Infrastructure Pvt Ltd (ETIPL) for its Mumbai circle Independent  Acquisition • American Tower Corporation (ATC)  is reportedly in  talks with a May‐2009 Mobile  Gurgaon‐based tower company Independent Mobile  Infrastructure f Infrastructure which has a presence in 10 circles with 400 towers. f h hh l h TELECOM TOWER – INDIA.PPT 18
  19. 19. M&A Deals 2/2Year Tower Company Deal Type Details • American Tower Corporation (ATC) has acquired the Mumbai‐Mar‐2009 Xcel Tower Acquisition based independent tower company, Xcel Telecom Spin‐off • Vodafone hived off Telecom Infrastructure business into a Mar‐2009 Ortus Infratel separate company named  Ortus Infratel • SREI Group‐promoted Quipo Telecom Infrastructure Ltd (QTIL) Jan‐2009 Quipo Telecom Merger merged with Tata Teles tower arm Wireless Tata Telecom  Infrastructure (WTTL)  • Reliance Communication hived of  its tower company into a Sep‐2008 Reliance Infratel Spin‐off separate company named Reliance Infratel Reliance Tower  • Reliance Communications offloaded 5 % of its  equity share capital  q y pJul‐2007 Infrastructure  Acquisition in  Reliance Tower Infrastructure Ltd. (RTIL) to international  Ltd. (RTIL) investors across the U.S., Europe and Asia for INR 14 bn • Bharti Airtel hived off its tower business company into a separate Dec‐2007 Bharti Infratel Spin‐off company named Bharati Infratel • Three leading GSM operators, Bharti, Vodafone‐Essar and Idea Dec‐2007 Indus Towers  Joint Venture Cellular, jointly set up Indus Towers as an independent tower  company • Quipo Telecom Infrastructures acquired 875 telecom towers of Quipo Telecom Infrastructure s acquired 875 telecom towers of Dec‐2007D 2007 Quipo Telecom Q i T l Acquisition A iii Spice Telecom  spread over the two states of Punjab & Karnataka  TELECOM TOWER – INDIA.PPT 19
  20. 20. Private Equity participation is also increasing with major funds investing in tower companiesPrivate Equity firm Deal descriptionMorgan Stanley Morgan Stanley picked up a stake in independent telecom infrastructure firm Tower  Vision for about INR 15 bnKohlberg Kravis Roberts & Co  Kohlberg Kravis Roberts & Co (KKR) paid INR 9.9 bn for a 2.5% stake in Bharti Infratel,  a telecom tower subsidiary of Bharti Airtel Temasek Holdings and others  Temasek Holdings, along with ICD, Macquarie, AIF Capital, Citigroup and India Equity  Partners acquired a 10% stake in Bharti Infratel, a telecom tower subsidiary of Bharti  Airtel  for INR 41 bnCapital Partners  Acme Tele Power Ltd has raised INR 6 ‐ 8 bn in a pre‐IPO private equity placement.  The investors include Capital Partners and a Delhi‐based industrialist. The investors  are believed to have picked up 5 ‐ 7% stake in the companyZamil Industrial Investment  Zamil Industrial Investment Company a Gulf‐based manufacturing and fabrication Company company, has picked up a 51% stake in its joint venture with telecom infrastructure  provider New Delhi Tele‐Towers Pvt Ltd. The venture will be called Zamil New Delhi  Infrastructure Pvt LtdNew Silk Route Private Equity New Silk Route Private Equity is buying a majority stake of 72.5 % in Secunderabad  based telecom infrastructure company Aster Infrastructure for INR 2.32 bn TELECOM TOWER – INDIA.PPT 20
  21. 21. •Introduction•Market Overview•Business Model B i M d l•Infrastructure Sharing•Competition•M&A and PE Deals•Key Developments TELECOM TOWER – INDIA.PPT 21
  22. 22. Key DevelopmentsDate Development22 – Jul‐2009 Etisalat‐RCOM signed INR 1000 bn Tower Sharing Deal for the 15 telecom circles in India25‐Mar‐2009 Independent Mobile Infrastructure Pvt. Ltd (IMIL), is exiting the business after competition intensified in telecom t i t l tower b i business.24‐ Mar‐2009 Bharat Sanchar Nigam (BSNL) has decided to lease out its passive infrastructure, including towers, to  other telecommunication companies in semi‐urban areas in India20‐Mar‐2009 Ericsson has designed an innovative tower for the Indian Market. These towers have tubular construction & do not require feeders & cooling systems, thus resulting in upto 40% lower consumption of power12‐Feb‐2009 Unitech Wireless, the telecom arm of realty company Unitech, announced leasing towers from  Wireless‐TT Infoservices Ltd (WTTIL), the tower arm of Tata Teleservices Ltd, and Quippo Telecom  Infrastructure Ltd (QTIL), across India.  Infrastructure Ltd (QTIL) across India20‐Dec‐2008 Bharti Infratel has finalized a INR 25 bn plan to expand capacity in India. The company plans  to build  additional telecom towers across Himachal Pradesh, Assam, Jammu & Kashmir, Madhya Pradesh,  Orissa, Bihar and the Northeast23‐Sep‐2008 Bharat Sanchar Nigam Ltd (BSNL) has proposed a two‐pronged business restructuring strategy for (BSNL), growth. The company, which owns about 35,000 telecom towers, proposes to demerge them into a separate tower company, which will be a 100 percent subsidiary of itself16 ‐Apr‐2008 Bharat Sanchar Nigam (BSNL) has awarded the contract for hiring telecom towers across India to six independent tower companies these are Quipo Telecom Infrastructure, Xcel Telecom, Essar Telecom Infrastructure, GTL, TVS and Aster Teleservices TELECOM TOWER – INDIA.PPT 22
  23. 23. Thank you for your timeFor an updated report or any customized research requirements, please contact:Gaurav KumarE‐Mail:; sales@netscribes.comPhone: +91 33 4064 6214; +91 983 030 9715Netscribes’ Services:RESEARCH & ANALYTICSRESEARCH & ANALYTICS MARKET INTELLIGENCE MARKET INTELLIGENCE CONTENT SOLUTIONS CONTENT SOLUTIONSInvestment Research Market Monitoring & Competitive  Social Media MarketingEnterprise Market Research Intelligence Marcom Support ServicesPatent Research Sales & Prospect Intelligence Content Management ServicesSyndicated Market ResearchS di t d M k t R h Listening & Media Monitoring Li t i & M di M it i Book Packaging Services B kP k i S i Brand SurveillanceFor further details, visit us at: www.netscribes.comAbout NetscribesNetscribes supports the organic and inorganic growth objectives of global corporations through a combination of Enterprise Market, Investment & Patent Research, Market & Sales Intelligence, Social Media Monitoring & Management and Custom Publishing solution.Disclaimer: This report is published for general information only. High standards have been used for preparing this market research report; Disclaimer: This report is published for general information only High standards have been used for preparing this market research report;however, Netscribes, Inc. or “Netscribes” is not responsible for any loss or damage arising from use of this document. This document is the sole property of Netscribes and prior permission is required for guidelines on reproduction. TELECOM TOWER – INDIA.PPT 23