Jio’s entry is putting pressure on Airtel, Vodafone and Idea to improve services

Jio’s entry is putting pressure on Airtel, Vodafone and Idea to improve services

Jio’s entry is putting pressure on Airtel, Vodafone and Idea to improve services

October 12, 2016

While The Development Would Help Bharti Airtel, Vodafone India And Idea Cellular, New Agreements Could Hit Bharti Infratel Hard, HSBC Global Research Says. (Reuters)

Top three telecom operators – Bharti Airtel, Vodafone India and Idea Cellular – have renegotiated rental agreements with tower companies such as Indus Towers and Bharti Infratel.

According to new agreements, telcos will pay a uniform rental fixed at the last price they paid in FY16, while the tenure of the lease agreements has been extended. The development assumes significance as operators are now under pressure to expand networks to address the issue of call drops and improve internet speed on 3G/4G networks, especially with the entry of Reliance Jio Infocomm.
As per the reworked deals, Indus Towers and Bharti Infratel would charge as per a rate card based on the last rental that the operators paid on April 1, 2016, and there would be a uniform 2.5% increase in rentals for all operators.

At the same time, the rental agreements which were to come up for renewals from FY18-FY19 have now been extended till FY21-FY22.

The change in master services agreements would mean that rentals would remain frozen at a uniform rate for all the operators, leaving extra cash for telecom companies to expand their networks. For instance, operators currently pay R33,500 each for a Bharti Infratel tower with a tenancy ratio of 2.2X, but after moving to the rate card, they would end up paying R34,791 per tower until 2022, estimates HSBC Global Research.

For Bharti Airtel, network operating costs, including rental payments to telecom tower companies, constitute about 10% of its overall expenses.

While the three operators have already finalised the deals with Indus Towers, a three-way joint venture company, Bharti Infratel is in the process of finalising the agreements, according to a person with direct knowledge of the matter.

The change in contracts comes as incumbent and older operators were paying higher rentals to tower companies while new entrants pay lower rentals, taking advantage of the sharing factor by the incumbents, as tower companies extended the benefits of sharing as discount to new entrants.

While the development would help Bharti Airtel, Vodafone India and Idea Cellular, new agreements could hit Bharti Infratel hard, HSBC Global Research says. The analyst firm said it does not see the base rates going up by 2.5% each year, as it expects Bharti Infratel giving discounts in near and medium term. Operators moving to active infrastructure sharing could also impact the growth prospect of tenants.

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