Indus Towers is riding on strong tailwinds, with quite a few growth avenues in the coming future, CEO Bimal Dayal told ET’s Subhrojit Mallick. He said that all the private and publicly-owned telcos are talking about 5G, and they are also catching up with each other in different circles. India’s largest telecom tower company is also thinking of entering the fiber space and Dayal also sees the tower network as a big fit for EV infrastructure, and even for advertising. Edited excerpts:
Merger between Bharti Infratel and Indus Towers was a massive step…
We announced our merger in April or May 2018. We were almost in a situation wherein the merger was announced but was not happening. So, I think it was almost like two years. Finally, we went in, consummated this merger on 19th of November 2020.
Post that I think from a chronology perspective, we got into this COVID situation, and two years went by in that.
And I think it’s important that the role Indus ended up playing and what we managed to do during these times is something which I would like to emphasize with you.
How difficult was it to pull off the merger?
It has been a classic merger for us. Not a single pink slip. I think as the MD and CEO, I’m absolutely proud of this. Both companies prepared for this in a good way. We got the time as well to do so. And we have merged our platforms, our policies…in record time. While we did this, we managed to increase our rollout to the customers as well. So even if you go back to last year, or last to last year, some of the quarters were the highest ever quarters in 10 years’ time. So, with all this going on, I think we’ve managed to increase the rollout, and support our customers as well.
How did Indus function during the COVID wave?
While all this was going on, the degree of difficulty went up for us with COVID. Now please remember last year around the same time, we were struggling with the Delta variant. Ever during those times, we managed to do north of 3000 sites in the quarter, which increased more in Q2 and Q3. Q4, which we just finished, was a little muted. With all this, it has been a great couple of years for Indus. We supported the customers, and even the network well, during this COVID period.
Are the bad times for the industry over?
We were discussing AGR (adjusted gross revenue) issues a couple of years back. I think there was a serious threat of further consolidation in the industry. We’ve moved past that as well. With the government getting into participation with one of the customers, I think a good story is developing there. I have always said that we will see three healthy customers competing against each other. Plus, BSNL and MTNL are actually showing signs of getting into 4G, and later on, 5G as well. So, I think we’re entering a very exciting phase. But this was all enabled, in a very good way, when the government came up with the security package, both in terms of giving some lease of life to existing TSPs (telecom service providers), and getting into some structural changes. You would have looked at Gati Shakti and the portal which has come out as well. It’s part of the package itself. It’s a great enabler for industry like ours, where we have the government, themselves looking at NOCs, etc and making this a vital step across states. And let me also say this, it’s working. Constant follow ups are happening on this account. So very good tailwinds to ensure that there is further penetration of towers, penetration of these technologies. Before I go into the future technologies, I also want to touch upon the fact that 4G percolation has been phenomenal. Out of 1,84,000 towers, I can confirm we have 1,78,000 towers with 4G. This technology has been extremely successful, and has served very, very well as a base for what is coming in the future.
If I look at it from a distance, I think Indus, you know, being the largest passive infrastructure provider, not only in the country, but outside as well, I think we’ve played a major role in enabling 4G across the country as well. And I think our excitement and our participation in 5G is going to be similar, if not bigger than 4G.
Right now, what would be the split line between say three operators, approximately?
All three customers, BSNL and MTNL, are using our towers. If you look at the tenancy ratio which is important in this, I think we are sitting with 1.8, that is the industry best tenancy ratio, which should give you a little bit of a clue about (Indus’ participation with) Jio.
There were issues around Vodafone Idea’s payments. What is the status there? What are the receivables?
For seven to eight years, it’s been a great customer relationship with Vodafone and Idea. Then the industry went into a little bit of a frenzy. But we have been supporting them and we have been transparent with our numbers when it comes to receivables. But as a testimony of Indus supporting the customer, we took a very big and maybe an innovative step. If you remember during the merger, we had also announced that there is a security package, which we received as well. We did have the receivables, and in order to help the customer bring the money back, and also secure our receivables, we restructured it in the month of January or February. For that, we saw our receivables coming down this (Jan-March) quarter…I think from VIL’s perspective, they have been living up to their commitments within their security package restructuring as well. So, it has gone well.
There’s also a part of the receivables which you can draw on from the Vodafone Group. Do you have any intention to do that?
When it comes to the part of receivables which we could draw on, that was the one which was kind of restructured. And it was restructured in such a way that it came as part of the equity into VIL, that we did share with you that an odd Rs 3,400 crores we received as part of that. Then comes the other commitments which VIL had made, and they have been fulfilling those commitments as well. This arrangement is up till July 15, and we will see what happens after that.
What is the amount in play till July 15?
These are possibly the running bills which we are talking about. I don’t think we can give you the numbers here, but we are encouraged by the discussions which have been taking place on the VIL front, and on their funding. We stand by our customers. I’m hoping that this closes sooner than later, for the sake of the industry.
There has obviously been a lot of churns from your ownership perspective. From an Indus Towers point of view, isn’t that a bit unsettling?
Look, I have been at the helm of this company for 12 years now, out of which I have led this company for more than six years. The way this company is run, and I think this is a great tribute to the board members and the shareholders, we remain immune because the tenets of governing this company are not threatened at all. They still remain the same.
We will remain unbiased, we will always be about first come, first serve basis, etc. So I’ve never been, you know, challenged on that account that I need to kind of change the basic tenets. I think that has kind of preserved this company in a good way and I have managed to perform during bad times as well, when we were threatened by further consolidation, or even when the times were good, before the AGR issue. And even now, when we are starting to sense the excitement as well. Nothing changes as such, and I think the tenets and the board remain the same.
The reason I’m asking this is that Airtel’s stake is now over 46% now. Now with one customer owning so much, does that affect your positioning as an independent player in the market?
I can talk about what we are exposed to. External perception, I don’t think I’ll be able to comment on that, because I think that’s a derivative. But I will only say that we have remained as neutral as ever before. We are committed in our IP1 registration itself that we will operate in an unbiased manner, and as CEO, I can say that this has been the case, when we had both Airtel, Vodafone and Idea operating out of the same boardroom pre-merger. There were three customers in the room at that time, and they were fiercely competing in the room. Indus served as a great meeting ground, and I think as a tower company of worldwide stature, I think it has always provided a great platform for, let’s say, our customers or our shareholders to meet and get into some innovative stuff as well, not only for the present, but for the future as well. And I think this is one of my tasks as the CEO is to insulate the two and remain neutral. This is the plain and only truth.
India has always been a very price sensitive market. Now, there are some contract negotiations coming up. So what’s your sense on the pricing?
You asked two different questions. One is with the advent of Jio, has the pricing changed? Answer to that is that in the tower industry, the pricing has been fairly constant. Rentals have been fairly constant, including whatever we know from unconfirmed sources as well, that we are all in the same or similar range, in terms of conditions, etc. being the same.
Now your second question. There has been a reasonable amount of discipline in the industry, not to possibly pull each down. It’s a large capex investment with the returns coming over a period of time. I think knee-jerk responses could be fairly lethal in this case.
Coming back to our renewals, it’s a stage which is almost like we are reinventing a decade for us. We have operated a beautiful annuity model in which companies have given steady returns. If you look at Infratel and Indus, steady dividends have been shared with the shareholders, and I think a good steady predictable ship has been run as well.
We are entering into another decade of renewals. At the moment, I’m very happy that during the contentious times, and it’s contentious because, look at what operators have gone through, and operators have seen almost a near-death experience due to AGR, and I think we’ve remained a substantial cost as well. And I was extremely happy to share during our last earnings call that we have closed our discussions with one of the larger customers. And I think I’m hoping that we finish this off with our second customer, which is the two customers who are coming in for renewals. I think the third one will possibly follow a few years later. What is important is that we have laid a very good framework for the next decade. And that is for the industry as well. I do believe that it’s a win-win. I think since we are still in the process of not having closed with the second customer in the negotiation, I don’t think there’s any color on what this will be. It might jeopardise the negotiation. But all I’m saying is it’s a great framework for tower companies’ annuity model to possibly go through another good decade.
So, do you feel pricing pressure?
There’s always pressure, but we also hold cards as well. We also realize that you need to make large scale investments in this industry. So from that perspective, I’m pretty happy about the current pricing.
From a revenue growth trajectory and profitability role, could you give us some colour about what FY23 will look like for Indus?
Let’s put it this way that where we stand right now, there is a great progression going on for the rollout of 5G. So let’s look at each customer. Airtel, Vodafone Idea, Jio, BSNL – all of them are talking about 5G. There is a lot of catching up which operators have to do over the other. If you have an X operator in Y circle, you have two or three operators who are doing the trailing and catching up. Purely by those numbers, which are fairly large, even at the national level, that catching up certainly needs to be done, and that obviously provides growth to us as well.
Second, hotspots and areas where you have higher demand, they are continuing to grow. I think we have come up with newer models of our sites. We have larger portfolios, where lesser capex sites are being rolled out, which is more on the lean product portfolio, and then the small cell variety as well, which will go in highly dense areas as well.
Next, the technology upliftment that will take place with 5G, all this will play out now. What better time than this to easily say that we have good amounts of tailwinds happening. It requires a mention that last quarter, significant input from all three operators was that ARPUs (average revenue per user) went up, and I think that is the lifeline of the industry.
As the industry moves towards 5G, what are the kinds of adjustments that you need to make on the towers?
Firstly, with 5G, there is a major role Indus is already playing in preparing the infrastructure. Firstly, we participated in all the trials along with our customers to know what needs to be done with our sites. With their input, we are clearly saying that we need to prepare these sites now for a very quick rollout. The telcos will tell you about their own strategies but let me say that we are working feverishly to ensure that the time to market for 5G would absolutely be the shortest from the passive infrastructure side, and most of our sites are ready for getting 5G.
Good news with 5G is since we are rolling out in higher spectrum bands, and since the sizes are smaller, and equipment is a lot more manageable. So first we would roll out 5G, then obviously everybody understands that on one side you need to get the technology, and on the other side, you need to get the use cases. For the technology to work in a very good way, we need to have higher percolation of sites at the right place. Without the street furniture, which is the topical discussion right now, I don’t think this entire package would work. The discussion comes at the right time…if we start to get the street furniture at the right price, we will see a great customer experience.
So out of the 1,84,000 towers, you said about 1,78,000 are 4G enabled. By FY23 end, how many towers do you envisage supporting 5G?
This depends purely on the operator strategy. Whether they are going carpet bomb, or whether they would be going city-wide. If you look at 4G, we saw different strategies from different operators. However, all of them have landed in a very similar situation. In this context, I was reading this Deloitte report which states that the cost of production of MB in 5G is going to be less by an order of 10. Now on one side, the cost of production which is of this nature, and on the other hand, we have excitement on the revenue use cases and industry uptake, it’s only a matter of time. I think 4G is a great lesson.
You have 4G which has still not reached the total population. From your perspective, would a 2G-mukt Bharat have any positive implications on your side of the business?
Any migration is good for Indus. Any network activity always results in good stuff for Indus. We then come at the helm of affairs and puts us right in the center. When operators roll out new spectrum, we are at the centre of affairs. Even if there’s consolidation, we are at the centre. Our relevance only goes up. If you actually look at where all a tower company can play, the arena is only increasing. We’ve been talking about areas where a tower can get into, even though we have not been able to ink them, but those areas still remain a playground we could play on.
Could you throw some light on those playgrounds?
These playgrounds are happening globally, and this is one excitement that we are certainly wanting to enable as well. We have taken some time as to what is Indus’ strategy here. For me, it’s fairly straightforward. On one side, there’s an inherent growth we will see. Second, the technology rollout will give good impetus on an organic basis. Where we’ve been talking about, and our track record has been very good for reasons outside our hands, is around the adjacencies. These adjacencies like last mile fiberisation. Lot of things have been on the table, but we have not managed to conclude a strategy. We do have some fiber now, but it is coming from our industry-leading position on smart cities, managing the street furniture, etc. I call them as adjacencies, and in these lies the adjacencies of managing and owning fiber.
Will there be a conscious effort into getting into the fiber business?
This depends on the canvas, and the possibilities. Initially, I thought I would be sharing these possibilities with you in a couple of quarter’s time, but we got delayed because of lots of things which are taking time, and hence we got delayed with our directional intent.
Another thing I certainly want to point out is that a lot of trials and pilots have been conducted about towers becoming a point of advertisements. Towers don’t look good, but they attract eyeballs. We conducted trials around both indoor and outdoor advertisements, not necessarily but at a larger scale, but in a more controlled way.
I also see a big fit of EV infrastructure. No other industry can boast of so much penetration into hinterland with such available power, and this can get converted into EV corridors.
Will FY23 be the year when you make a foray into advertisements and EV corridors?
I don’t think I can comment on this, but this is on the table.
What is the source of power for most of your towers?
When we were operating in 13 circles a couple of years back, our EB-diesel ratio was around 80-20 or 90-10, diesel being the smaller, and it went up as we got into some of the circles that were difficult to power, post the merger. And we still sit in the range of 75-25. But these are high level numbers. Overall, if I look at the EB situation, it has become a lot better, and there’s a good amount of stability. However, outages do happen, but cooperation from the power ministries and power companies is only growing. We see a lot of tailwinds there, and hence it is helping us to automate a lot of things in the back-end.
But this diesel price rises must be acting as a significant headwind?
For the ecosystem, it is a problem. For us, it isn’t because we pass it through to the customers, hence being a responsible player, we’ve done two things. One, last earnings call we detailed out our long-term plans about ESG, and around emissions. We gave our commitments in alignment with our customers. We also have intense large-scale programs going on about energy reduction. It means both looking at efficiency of the equipment, the best way to generate, and the right amount of money is spent on the sites when it comes to diesel. Last two years, we reduced consumption of diesel by 20%, which is extremely significant.
Why has the industry never managed to execute these alternate energy plans?
We are always excited and ready to execute and ramp up alternate energy. We have been toying with solar at sites. Sometimes the consumption at sites grows, so we have encountered various challenges. We are closely looking at ramping up alternate sources, which could be PNG, etc.
Have Indus ever thought of taking its services outside of India?
Where we stand right now, we have been primarily focused very inward. I think there’s enough to do here.
What kind of an opportunity do you see from private networks?
That’s running into a bit of controversy. I will rely on the EY report, there is an industry poll which EY has published which brings private networks as one of the good use cases. I believe in private networks as a use case. For some of the manufacturing industries and logistics companies, it makes a lot of sense. It certainly depends on how the regulation goes, and how the ecosystem will look forward to as a go-forward. Whether there will be a conflict on this or not remains to be seen.
My thumb rules are fairly straightforward. As long as there’s churn in the network, we are always there. Whether it’s a company setting it up, or a telco setting up, we are there.
If there is a situation where a private company rolls out a network, will they be an additional tenant for you?
I see it as an opportunity as long as we don’t run into any conflict with our TSPs. I think our intention is to complement our TSPs, and if we need to work with them in this area, we will do so.
When we move towards a SATCOM network, is that something you see as competition, or something where you can play a role as well?
These are complementary technologies. Satellite communication has always been a connect-the unconnected-kind of a solution. The current tariff indicates there’s a long time before we can think of equating anything. But that technology is developing. From a risk to the tower industry, we don’t see this on the horizon.
