On 6 February, shares of India’s largest telecom-tower company, Indus Towers, rallied 13%, buoyed by the government’s decision to convert cash-strapped Vodafone Idea’s (Vi’s) interest dues worth ~Rs 16,000 crore (~$2 billion) into equity. That’s because the company’s fortune is intricately tied to the survival of India’s third-largest telco—one of Indus’s largest tenants, accounting for one-third of its revenues.
The company, which builds and sets up tall metal structures across the country to help telcos put up radio and antennas to connect nearly a billion subscribers, has a tenancy ratio—the average number of mobile operators or tenants per telecom tower—of ~1.8. However, if Vi doesn’t survive, the ratio will come down to ~1 or 1.1.
Indus will be reduced to serving a single anchor tenant—its mother company, Bharti Airtel. India’s top telco, Reliance Jio, too has ~45,000 tenancies with Indus—many of these sites are places where Jio couldn’t put up its own towers, said a former senior Indus Towers executive. Multiple executives from telecom-tower companies The Ken spoke to didn’t want to be seen commenting on Indus publicly.
A ratio of more than 1.3-1.4 is imperative for a tower company to remain profitable, the former senior executive told The Ken.
Telecom-tower companies follow an annuity model—telcos sign long-term rental contracts, or master-service agreements (MSA), for 10 to 15 years.
In the quarter ended December 2022, Indus had to provision Rs 2,300 crore (~$279 million) for doubtful debt to Vi. Thanks to the ageing receivables from the telco, the company has practically written off Rs 5,000 crore (~$606 million) in the first three quarters of the year ending in March 2023.
Brokerage firm Ambit Capital has slashed Ebitda estimates for the company by 27%, 12%, and 5% for the years ending in March 2023, 2024, and 2025, respectively. It forecasted the company’s compound annual growth rate to be a mere 3% during the three years ending in March 2025.
The company, which has 187,000 towers and more than 300,000 tenancies, came into existence in 2008, two years after the government initiated the tower-sharing project called mobile-operator-shared tower (MOST). The success of Indus, one of the first shared-telecom-infrastructure providers in the world, became a case case Harvard Business Publishing Collaborating with Competitors on Infrastructure Read more study study Harvard Business Publishing Indus Towers: From Infancy to Maturity Read more for Harvard University. Many countries in Europe, Asia, and Latin America would go on to adopt the model in later years.
But that was before Reliance Jio entered the sector in 2016, triggering a rapid consolidation in the Indian telecom market. Earlier, there were many telcos and a few tower providers, which is no longer the case.