Lack of tower sites leading to call drops: Bharti Infratel

Below is the verbatim transcript of Akhil Gupta's interview with Reema Tendulkar & Latha Venkatesh on CNBC-TV18.

Reema: The latest news today is that Telecom Regulatory Authority of India (TRAI) will impose some penalties or they have come out with a proposal to impose penalties because of call drops. Can you broadly elaborate what this means for the industry?

A: Call drops as all operators have said are due to some capacity constraints in some main cities for which all operators are committed to optimising and putting capital expenditure (capex) but the bigger problem or an equally big problem is in terms of difficulties in getting sites. As you know as the traffic increases and the spectrum is limited, you have to put more and more sites and sites are becoming a problem. One because of some myth and fears about radiation and two, some of the prime locations where there is big problem of call drops, there is government property. I would say that as Tower and Infrastructure Providers Association (TAIPA) & Cellular Operators Association of India (COAI), we have a done a lot of work with the government and I am really pleased to say that the Department of Telecommunications (DOT) and the Minister of Communications personally have been of immense support in this. They have formed guidelines, given it to the states. The Ministers personally attend to all state governments and other government ministries asking them to give their sites to the tower company. So I am sure over a period of time this problem would be much better handled.

Latha: Tenancy outlook for the company is expected to increase due to Rel Jio, in fact generally the 4G guys taking up and of course other factors as well. From the current 2.13 times, how much can it increase?

A: We don’t give a guidance, so I won’t give you anything specific in terms of expectation but it is very clear that the way data networks need to be rolled out, many more new towers will be needed and many more tenancies on the existing towers will be needed. So the tenancies and the overall number of sites are bound to go up in times to come.

Latha: If you can broadly give us this direction, absolute tenancy has been around 3,000 or more for almost 7 quarters now, do you think you can maintain this run rate?

A: I would expect that as more and more data networks get rolled out which we are seeing the acceleration happening, I would expect that to accelerate.

Reema: What about tower addition, you indicated that apart from increasing tenancy, Bharti Infratel could also be interested in adding more towers? You have been adding about 500 towers per quarter, will that be the run rate going forward?

A: We do not make towers on a speculative basis, so we do it on actual order and actual demand but what I am seeing as the trend in the industry and all of the players going more and more after data networks, it is the need because so much of investment has been done in spectrum, I do expect those numbers to be going up in years to come.

Reema: What is the sensitivity of tenancy increase to improving your margins? So for instance hypothetically if the tenancy goes up by 0.1x, how much would be the benefit to your margins?

A: Ours is a business where you basically set out an existing asset and therefore as tenancy increases, the margins automatically increase.

Latha: Your share was rising every time crude prices fell, can you explain what the relation of crude price movement to energy reimbursement revenues and margins is for your company?

A: As per our contracts with the telecom operator, energy gets adjusted as soon as there is a change in the oil price or in the diesel price and therefore it is not something which affects our margins to any extent. There is a mechanism, an inbuilt formula of the reimbursement going up or down according to movement in the diesel price.

Latha: So if energy margins sustain at these levels, would your margins be consolidating or will they go up?

A: Energy is not the main source of our margins as you know, it would give 3-4 percent margin but that is how the whole industry is structured.

Reema: Infratel has also been in the news for possible tower acquisition, you have hinted at it in the past. Can you give us an update?

A: Nothing that I can talk about at this point, we will keep looking at opportunities but nothing is in the horizon.