The ongoing consolidation in the telecom space is a “threat” to tower companies, which are staring at a margin contraction of up to 7.5 percentage points by FY20, as operators exit co-locations. Despite the ongoing troubles, the tower industry has been able to hold on to its margins till now. The country’s largest telco Vodafone Idea is in the process of exiting as much as 27,500 co-locations or 3% of the telecom masts industry post-merger and will be looking at closing more, a report by rating agency Crisil’s said Monday.
It said the shutting down of operations by smaller telcos like Aircel and Telenor would also result in shutting down of towers. So will be the impact after Airtel integrates Tata Tele with itself. The rental per tower is expected to decline 7-9% owing to the co-location exits and lower tenancies, it said, adding an increase in the number of towers and exit penalties will limit the decline in rental revenue of the already troubled industry.
The co-locations alone will cost up to 4.50 percentage points of margin for tower companies, it said, adding the gaps have been maintained at 43-44% levels for the last four years.
It said the April-September period has already seen Bharti Infratel and other tower companies witnessing a 3.50 percentage point reduction in operating margin. The report said these mergers have emerged as a “threat” for the tower companies, pointing out that the top three telcos are estimated to hold 94% of revenue by FY20 as against 67% in FY18.
Commenting on tower additions–it expects the number of tower towers to touch 4.9 lakh by FY19 from 4.63 lakh a year ago–the report said it is unlikely to yield good news for the tower industry because the base trans-receiver stations (BTS) will come down due to migrations from 2G and 3G.