Telecom tower companies in India have reported significant tenancy losses over the past one-and-a-half years.
Telecom tower rentals started to drop 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 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, Crisil 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 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 expected to increase marginally to about 3.85 this fiscal, compared with 3.67 in fiscal 2019, on increased loading by telecoms to increase their capacity per site and support existing coverage during high traffic and congestion.
This loading results in a discount to telecoms need to pay 10-15 percent of rent, which reduces the potential for higher revenue of tower companies.
The telecom sector moving towards an oligopolistic structure, with three players accounting for more than 90 percent of market share, will pose challenges for tower companies. This will put pressure on rent revenue per tower as the number of tenants per tower would go down.
The financial condition of debt-laden telecom incumbents will restrain any material hike in rentals, at least over the medium term. Though the towers added by BSNL and Reliance Jio account for a considerable share of captive towers, the revenue from these telecom towers does not flow to the industry.
