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RIL plays volume card for cheaper tower rent

February 14, 2011 16:31 IST

As it firms up its telecom re-entry strategy, Reliance Industries subsidiary Infotel Broadband has told telecom tower companies that it will pay only half the prevailing rental for towers taken on lease.

Since such deep discounting will pinch many tower operators, they are likely to abstain from the tendering process that Infotel initiated last month.

According to three independent sources involved in the talks, Infotel has told the tower companies that it will pay only Rs 16,000-18,000 a tower every month as rent.

Telecom towers are broadly ground-based or rooftop. For ground-based towers, rentals are Rs 27,000-33,000 each a month. Rooftops rentals are less, Rs 19,000-21,000.

Rentals are typically the highest for an anchor tenant and fall as more tenants come on board. The anchor tenant pays a premium for the best facilities.

Over and above the rental are power and fuel charges, which are levied on actuals. These average another Rs 20,000 a tower, although in power deficit states they can even match the rental.

Sources said Infotel is playing a volume card. Its initial requirement is 26,000 towers, but will step that up to 60,000. It is expected to eventually need more than 100,000 towers.

India's total telecom tower base is around 350,000. So, Infotel alone is looking to be a tenant in at least 17 per cent of towers, which may go up to 28 per cent.

It is expected to split tenancy among two or three infrastructure providers. These tenancies will be long term; most vendors insist on 10-15-year lock-in clauses.

"Infotel is offering bulk volumes when there is sluggish demand overall. That's why it is seeking the discount. Many will accept the stiff condition for a bulk deal," said an industry player.

Infrastructure providers say that at a monthly rent of Rs 30,000, a tower can break even in six to eight years with a single tenant. Obviously, a higher tenancy means a quicker break even.

"At a rent of Rs 16,000 a month, Infotel as an anchor tenant will be unviable. As the second or third tenant, the economics may still work out," said a tower company official on condition of anonymity.

With an aggressive rollout plan and a year-end deadline, Infotel will probably use existing infrastructure.

An RIL spokesperson did not comment on specific commercial terms still being thrashed out, but company officials admit that any discount will be passed on to consumers.

In a statement on January 21, issued while announcing its results for the December quarter, RIL had said: "Infotel is in the process of finalising the arrangement with leading global technology players, service providers, infrastructure providers, application developers, device manufacturers and others to leapfrog India to the 4G revolution."

Vendors are to supply broadband equipment based on long-term evolution (or, LTE) technology.

Last June, RIL announced its re-entry into the telecom space by acquiring 95% stake in Infotel Broadband Services, a privately-held firm, for Rs 4,800 crore (Rs 48 billion).

Infotel had bagged pan-India spectrum for broadband wireless access (BWA) last year. In June, it received spectrum to roll out services in 22 designated service areas across India in a government auction by paying Rs 12,847.77 crore (Rs 128.477 billion).

RIL chairman Mukesh Ambani had exited the telecom business in favour of younger brother Anil Ambani when the two split their business empire. They had also signed a non-compete agreement.

However, last May, the Ambani brothers terminated this agreement, facilitating RIL's re-entry into telecom.

Arijit Barman in Mumbai
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