Tower companies are now discovering that higher valuations, lower rentals and poor tenancy ratios could stretch payback periods up to 15 years. In comparison, most sectors have a payback period of five-seven years. “We believe that the return generated by 1-1.5-tenant towers, at current rental rates, is not enough to drive current valuations for tower companies,” says James Taiclet, CEO of American Tower Corporation (ATC). Take, for instance, the SBA Communication-TowerCo Llc (US) deal and the Quippo-WTTI (India) deal that happened at an enterprise value of $451,163 and $151,817 per tower, respectively. When this is compared to the ballpark revenue per tower of $60,000 (Rs 30 lakhs) in the US and $10,000 (Rs 5 lakhs) in India, one would find that the payback period would be 7.5 years for the US buyer and 15 years for the Indian buyer. It costs approximately $250,000 to build a tower in the US, compared to $70,000 in India, says Manoj Tirodkar, chairman of GTL Infrastructure.
Interestingly, unlike in the US, where independent tower firms such as ATC and SBA Communications own 60 per cent of towers, in India, telcos dominate with 90 per cent market share. This is the root cause of lower tenancy ratios, which is the number of clients a tower firm is able to bring on board to share its infrastructure.
The lease rentals are not encouraging either. “We have to cope with lower lease rentals,” says ATC’s Taiclet. “Currently, it is $10,000 a year in India, almost one-sixth of that in the US.” While industry estimates the requirement of 6,70,000 cell sites by March 2011 — which neatly fits the planned tower population of 3,40,000 to give the preferred tenancy ratio of 2 — not all is hunky dory
Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at email@example.com