Mobile tower companies to grow revenues by 8-10%: Moody's

Indian tower companies have larger scale thanks to a much larger population and greater number of mobile subscribers as compared to Indonesia, says the ratings agency

Moody's Investors Service expects telecom tower companies to continue to grow revenues between 8-10 per cent, as mobile operators build out and strengthen their third and fourth-generation (3G and 4G) footprints. Indian tower companies have significantly larger scale thanks to a much larger population and greater number of mobile subscribers as compared to Indonesia, says the ratings agency. India has more than five times the number of towers as Indonesia and also has more towers per subscriber, which should theoretically mean better mobile-network coverage and quality.

The ratings firm expects overall year-on-year revenue growth of about 8-10 per cent for the next one to two years, as mobile operators lease more space on independent towers as they expand their 3G and 4G networks and sell their own towers. Moody's Investors Service says that telecommunications tower companies in India and Indonesia are the most developed in Asia and expected to continue growing - but geographical, operational and regulatory differences between the two countries will affect their growth rates and financials. "We expect continued growth in both markets as mobile operators, building out and strengthening their third and fourth-generation (3G and 4G) footprints, will seek to lease tower space and sell more of their own towers," says Nidhi Dhruv, a Moody's Assistant Vice President and Analyst.

Indian tower companies have stronger operating metrics but lower profitability. Indian companies also have higher tenancy ratios, but their reported EBITDA margins are lower owing to higher fuel costs and the associated accounting, as well as lower tower rental rates, says the Moody's report on tower companies. "M&A and consolidation are likely in both markets during the next two to three years. Mobile operators are looking to sell their towers and use the proceeds to fund capex and reduce debt, because -- for them -- there is a limited strategic benefit to owning towers versus leasing them. Purchasing these towers will help independent operators achieve scale and a competitive edge through expansion of their geographic footprints," adds Dhruv.