Telecom | Update
18 March 2019
Densification of network to continue
Tower capex to realign with lesser tenants/towers, pricing could see
We met a senior telecom expert working in the tower industry to understand the current
issues in the entire telecom network space. Below are some key takeaways:
The huge hype surrounding 5G, massive MIMO technology and small cells seems to
have lost steam. While 5G is still a good five years away, the huge MIMO deployment
has not picked up well, while small cells have limited utility.
Increasing 4G network densification via site addition across players should support
tower industry growth, but rental rates will come under pressure when contracts
come up for renewal. The capex/tower is also reducing with a capacity of 2-3 tenants
v/s the earlier 4-5 tenants.
New investments should grow; fiberization is growing but its monetization model has
not evolved yet. Demand for IBS is also on the rise.
Competition for Bharti Infratel is expected to increase. ATC (American Tower
Company) has grown rapidly with Vodafone and Idea’s independent tower acquisition.
Also, RJio too is in the fray with recent tower, fiber hive-off plans.
5G, Massive MIMO, small cells — more hype, less substance
Massive MIMO deployment not picking up
The massive MIMO as a technology has not picked up due to (a) high capacity
requirements, (b) high equipment cost of ~2.5-3x of normal BTS, and (c) MIMO’s
performance-related benchmarks not being met. In 2H2018, there were limited
massive MIMO towers deployed. Large players chose to shelve deployments. Also,
massive MIMO may not substitute independent towers.
5G still a good five years away
A question mark still lurks over spectrum bands, equipment and the standard of 5G
technology — all three factors that needs to be addressed. The 5G technology may
not actually supplement 4G technology. 5G is likely to see auctioning in the 2800-
3500 mhz band and capex for 5G may take another 3-4 years to get deployed from
the time of the auction. Further, equipment cost for 5G technology will depend on
its usage; it may largely be used for enterprise and automation services, instead of
data throughput increase, which can be done through network densification. The 4G
commercial services took nearly six years to advance from auction to operations and
therefore, 5G may not evolve before 2023.
Small cells have limited utility
Small cells are still in an evolutionary phase. Since it has a mere 25-35 meter
radiation capability, it has low utility, which translates into limited deployment
opportunities. Currently, small cells are deployed on single-port restricting tenancies
to one/equipment and moving to deployment of multi-port small cells will be more
economical. Operators use small cells to cover a small but dense location with high
capacity requirement. According to the IP1 (Infrastructure Provider) contract, DoT
does not allow tower companies to own small cells, which has restricted its
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Aliasgar Shakir – Research Analyst
(Aliasgar.Shakir@motilaloswal.com); +91 22 6129 1565
Hafeez Patel – Research Analyst
(Hafeez.Patel@motilaloswal.com); +91 22 6129 1568
18 March 2019
Motilal Oswal research is available on
Bloomberg, Thomson Reuters, Factset and S&P Capital.