Amid sustained pressure to check call drops, telecom tower companies are being squeezed tight by the government and resident bodies, a scenario that could compel them to pass on additional payouts towards site installations to mobile carriers.
"Tower installation costs have increased manifold, primarily due to exorbitant permission fees being charged by municipal corporations and local authorities across the country," a Tower & Infrastructure Providers Association (TAIPA) spokesman said in an emailed response to ET's queries.
The association warned of tough days ahead for the telecom industry as rental agreements of a sizeable chunk of India's 4.5 lakh-odd towers are due for renewal shortly, adding that site "premise owners, including resident welfare associations (RWAs), were demanding manifold increases in rent/lease charges".
"Multiple levies under the guise of renewal fees, sharing fees, development charges coupled with property tax demands are being imposed on tower companies with the sole aim of revenue maximisation for the government exchequer," said TAIPA, an industry grouping representing tower firms, including Indus Towers, Viom Networks, Bharti Infratel, GTL, Reliance Infratel, Tower Vision and American Tower Corp.
It declined to hazard a guess on the precise jump in tower installation costs in absolute terms, saying that "the numbers vary across geographies, state to state, district to district and locality to locality".
According to a top executive of a leading international tower firm, tower installation costs have sharply risen in the metros, class A & B cities and state capitals as municipal corporations have increased overall permission costs for putting up new sites, renewing old sites and even bringing in new tenancies on existing towers.
So much so, tower operators believe the escalation in tower rollout costs will inevitably hit margins.
"The margins impact will vary from towerco to towerco and will depend on the extent the additional costs can be passed on to mobile operators as per their master service agreements (MSAs), especially since monthly site rentals have gone up by at least an average 10% in the last six months, and the number is much more in Mumbai and Delhi," a top executive of a leading global tower firm told ET.
Mohit Rana, partner at telecom consultancy AT Kearney, agrees costs for operators and towercos will go up both with the increased number of sites and higher opex per site, but rules out any significant impact on call charges in the immediate term, given the competitive intensity.
According to him, though towercos can (technically) pass on the uptrend in (site) landlord rentals in tier-1 cities as part of their MSA provisions, they are taking steps to negate the impact. "Towercos are relying on improved energy management to reduce power & fuel costs and are also cutting capex through value engineering and better material management to limit the increase in infrastructure provisioning (IP) fee for operators," Rana said in an emailed response to ET's queries.
The Cellular Operators Association of India (COAI), which represents the country's biggest carriers such as Bharti Airtel, Vodafone India and Idea Cellular, did not reply to ET's queries on the potential impact of higher tower rollouts costs on telcos.
Tower company concerns about possible margin erosion amid rising costs comes on the heels of the telecom regulator recently urging mobile carriers to add towers on a war-footing to spruce up mobile coverage and arrest call drops. Analysing the call drops menace, the Telecom Regulatory Authority of India (Trai) had said there is an urgent need to increase the number of towers to cater to demands of a growing subscriber base since mobile towers do not have unlimited capacity to handle the current network load.
But mobile carriers and tower firms contend that they are not entirely to blame for calls drops, which they feel has in recent months been compounded by rampant tower sealing by civic bodies in India's biggest cities.
"When a mobile tower is sealed, getting a new one in the same location without an increase in existing cost is impossible since the site rent on an average increases by 50-100%, and in case of a site relocation, there are additional relocation and rehabilitation costs," said the executive of another leading tower firm who did not wish to be named.
TAIPA officials did not mince words, accusing municipal corporations and local authorities across states of indulging in untoward tactics like tower sealing as a pure money spinning ploy. "The sealing drive is solely aimed at generating extra revenue and has increased the financial burden of tower infrastructure companies for their (subsequent) de-sealing and maintenance costs," a spokesman of the tower industry association told ET.