American Tower Corp (ATC) Chairman & Chief Executive James D. Taiclet said the Boston-based independent tower company would eye more big-ticket tower asset buys to augment operations in India — its biggest international market. ATC’s immediate focus, he said, would be integrating the 20,000-odd combined captive towers it acquired last month from Vodafone India and Idea Cellular for $1.2 billion, but added that US tower operator would scout for additional tower assets that meet its return on investment requirements in India. In an exclusive interview to ET’s Kalyan Parbat, Taiclet said the rapid consolidation underway in India’s towers sector would ring in an era of independent tower companies, especially as big telcos switch to 4G and see a jump in capital costs. Edited excerpts:
After acquiring Vodafone India and Idea Cellular’s 20,000-odd captive towers, is ATC looking to buy more tower businesses to further expand its towers portfolio in India?
Our near term focus will be on the integration of the Vodafone and Idea (tower) portfolios with ATC’s existing operations. With that said, given our financial resources, local market knowledge and existing base of experienced management, skilled employees, and first class systems, we expect to continue to evaluate potential future opportunities to acquire additional assets that meet our return on investment requirements. We may seek to acquire additional assets in the future to further augment our operations, depending on their characteristics and return potential.
Since ATC, Vodafone and Idea now have a preferred partner structure, would ATC be interested in buying Vodafone and Idea’s stakes in Indus Towers at a mutually acceptable valuation?
We do not comment on specific portfolios, but we would evaluate any future opportunities in the context of my prior comments.
What steps does ATC propose to take in the coming months to grow its leasing business in India?
We believe we can play a meaningful role in the ongoing digitalization of India, given our expansive portfolio and commitment to working with our tenants to bring connectivity to more and more people across India. More specifically, once we close the Vodafone and Idea transactions, we would anticipate rapidly integrating those sites into our existing portfolio while marketing them to all operators in the wireless space.
We continue to implement the latest technology and best practices in order to optimize the efficiency of our operations, especially the management of energy and fuel, and our focus will remain on striving to be the market leader in the towers sector when it comes to site uptime and customer responsiveness.
Will rapid consolidation in the Indian telecom towers space ring in an era of truly independent tower companies?
Historically, in other markets, we have seen the majority of tower assets ultimately end up in the hands of independent tower operators, given the significant capital costs required to roll out 3G and 4G networks and the ability of the carriers to utilise their passive infrastructure as a way to finance those investments.
As the Indian market shifts towards 4G, and as the carriers find themselves with significant funding needs for network investments, we believe that such a scenario becomes increasingly likely.
Independent tower operators tend to be best positioned to support rapid rollout of broadband, given their strong motivation to serve all operators equally and eagerly. They also tend to be the most operationally proficient since leasing, maintaining and providing reliable power to mobile transmission sites is their primary business. As a result, we believe that independents such as ATC India are best able to optimally fulfill the needs of their customers, and ultimately bring the highest levels of service to consumers of wireless services.
We believe that a move towards a truly independent tower model in India would be a net positive for the tower industry, for Indian broadband and for the Digital India initiative as a whole.
Is India among ATC’s Top 3 global markets from a strategic and investment perspective?
India is our largest international market in terms of number of towers, even before taking into account the pending Vodafone and Idea transactions, and accounts for roughly 12% of our property segment gross margin as of Q3 2017. We believe India presents a compelling long-term growth opportunity for us for a number of reasons. These include the fact that the wireless market is still in the early stages, there are more than 1.3 billion people in the country, and the Indian government is committed to bringing broadband to more and more of those people. Further, we believe that a much improved structural market framework both in the wireless sector and in the tower sector is likely to emerge after the current carrier consolidation process concludes.
As a result, we continue to view India as a key market for the company and expect it to remain an important market for us going forward.
Global private equity players, pension funds and sovereign funds are enthusiastic about investing in India’s towers sector as they view the business as a stable one with negligible technology risks and steady cash-flows. Does ATC agree?
We absolutely believe that the tower business in India, much like in our other markets, is a fundamentally attractive business and, as a result, we have made significant investments in India since our market entry in 2007. Tower assets on a global basis have been very consistent generators of growing cash flows over the long term, and our expectation continues to be that tower assets in India will yield similarly attractive growth. It is therefore not surprising that Global PE players and pension funds are looking to buy into the Indian telecom tower sector.
Experts say another reason behind growing global investor enthusiasm about India’s towers sector is they now have the option to convert such asset revenues into a real estate investment trust (REIT) structure in India too as in other established towerco markets such as the US? Is this true?
REITs have had a positive impact on the US real estate and infrastructure market but while we are encouraged by the expansion of REITs globally, inclusive of the InvIT (Infrastructure Investment Trust) structure in India, we have no immediate plans to convert our Indian operations into a REIT. We expect to continue to evaluate REIT structures in each country we currently do business in for possible conversions in the future but our Indian business is attractive to us even without taking into account a possible local REIT designation.
Has Tata Teleservices offered ATC an additional 26% in local JV, Viom Networks, to avoid potential penalties following its reported decision to discontinue some 30,000-odd tower tenancies with ATC?
We do not comment on market speculation, but we continue to work with all of our tenants in India and around the world to ensure that our mutual contractual obligations are fully and consistently met.
