Reliance Jio Welcome Offer has totally disrupted the Indian network services. The company is offering free 4G data services until 31st December. The top three telecom operators have sprung into action. All three have been coming up with new offers and signing new deals. While the three operators have already finalized the deals with Indus Towers, Bharti Infratel is still in the process of finalizing the agreements.
Operators are now under pressure to expand networks to improve internet speed and address call drops issues. Bharti Airtel, Vodafone India, and Idea Cellular have renegotiated rental agreements with tower companies such as Indus Towers and Bharti Infratel. As per new agreements, the telecom providers will have to pay a uniform rental. The tenure of the lease agreements has also been extended till FY21-FY22.
Indus Towers and Bharti Infratel will charge as per a rate card based on the last rental paid by operators on April 1, 2016. There would be a uniform 2.5% increase in rental for all operators. The new change means that operators will have to pay a uniform rate. As per HSBC Global Research, operators are currently paying R33,500 each for a Bharti Infratel tower with a tenancy ratio of 2.2X. With the new changes, they would have to pay R34,791 per tower until 2022.
The new move by operators towards active infrastructure sharing will definitely improve the quality of services. It will also impact the growth prospect of tenants. Earlier, the older operators were paying higher rentals to tower companies, while new entrants had to pay lower rentals. Because of the sharing factor, the tower companies could pass on the discounts to new entrants.
While the new deal will help Bharti Airtel, Vodafone India and Idea Cellular to offer better services, it might affect the Bharti Infratel inversely. For Bharti Airtel, network operating costs constitute about 10% of its overall expenses. As per HSBC Global Research, Bharti Infratel is not likely to increase the base rates by 2.5% each year, as it might be offering discounts in the near and medium term. We will have and see, where this competition takes us.