Mergers of Telcos Affecting Tower Companies’ Margin: Crisil

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Vodafone Idea is in the course of leaving nearly 27,500 co-locations or 3 per cent of the telecommunication masts industry after the merger

The ongoing merger and acquisitions in telecommunications sector in India is posing a threat to tower infrastructure companies, which are looking at a margin shrinkage of up to 7.5 percentage points by fiscal 2020, as telecom operators are exiting the co-locations, according to rating agency Crisil.

However, the tower companies in the country have been able to maintain their margins till now, despite the ongoing difficulties, it added.

Vodafone Idea, India’s largest telecom operator, is in the course of leaving nearly 27,500 co-locations or 3 per cent of the telecommunication masts industry after the merger. In future, the company will be looking at exiting more co-locations, as per the Crisil’s report.

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The report hinted that closing down of operations by smaller telecom players such as Telenor and Aircel may also lead to shutting down of towers. The proposed merger of Tata Teleservices and Bharti Airtel may further hit the tower companies, it said.

Decline in rental revenue

The rental per tower is likely to drop by 7-9 per cent due to exiting of co-locations and lower rentals, the rating agency said.

However, the growth in number of towers and exit penalties will control the rental revenue decline of the already troubled tower industry, it added.

The co-locations alone will cost the tower companies up to 4.5 percentage points of their margin. During the April-September period, Bharti Infratel and other tower companies witnessed a reduction of 3.5 percentage point in their operating margin.

The report pointed out that the three major telecom companies of the country are estimated to control 94 per cent of the total revenues by 2020 fiscal as compared to 67 per cent in 2017-18.

It is estimated that the number of towers in the country will reach 4.9 lakh by 2019 fiscal compared to 4.63 lakh a year ago. However, it is unlikely to bring good news for the tower industry as base transreceiver stations (BTS) will decline due to migration of network from 2G and 3G, the report said.

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