Last week, Data Infrastructure Trust, an Infrastructure Investment Trust sponsored by Canada’s Brookfield Asset Management, completed the acquisition of American Tower Corp’s India unit for $2.2 billion (Rs 18,200 crore) by beating Indus Towers to become the biggest telecom towers company in the country.
In an interaction with Moneycontrol, Arpit Agrawal, Managing Partner, Head of Infrastructure, India & Middle East, Brookfield, discussed the rationale behind Brookfield’s acquisition of American Tower Corporation's India assets, the evolution of the tower market in India, and how the company is positioning itself for future growth. He also touched upon Brookfield's broader investment themes, including digitalisation, decarbonisation, and de-globalisation, and shared insights into the company's strategy for navigating India’s dynamic infrastructure landscape.
Edited excerpts from the interview:
Q. With the ATC acquisition you have become the largest tower company outside of China; can you share the strategic reasoning behind this expansion plans? Given the oligopolistic nature of the market, with only three major players, how do you envision the business evolving?
When we made our first investment in the tower space in 2020, it was in the backdrop of significant regulatory changes in the telecom sector. At the time, there was uncertainty in the market, with many questioning whether it was the right moment to enter. However, we tend to view opportunities from a more thematic, long-term perspective. We asked ourselves, 'Will India have a stable telecom market in the next five-10 years?' The short answer was yes. We believed that eventually, the market would stabilise, making it a sound investment for us to be part of that journey. This was the rationale behind our first investment.
We made a second investment in Crest Digital, a company specializing in small cells and in-building solutions, aiming to capitalise on the growth of the 5G market. Since closing the acquisition in 2022, Crest Digital has grown 40% year-on-year, performing exceptionally well for us. More recently, we completed the acquisition of American Tower's India business. By this point, we had gained substantial experience in the telecom market over four years, and were more comfortable taking on increased risks and responsibilities.
Initially, O&M services were outsourced to a Reliance subsidiary, but with the ATC acquisition, we gained an in-house O&M team, which was a major advantage for us. Additionally, this deal significantly expanded our customer touch points, allowing us to establish deeper, more meaningful relationships and engage in stronger conversations with them. These two factors were the primary reasons for our decision.
If you consider the timing (of the acquisition) and the outlook for the future, today, the average Indian subscriber consumes about 31 gigabytes (GB) of data per month on their phones, which is already among the highest in the world. In fact, it's the highest, and it's projected to grow to 75 GB by 2029. This indicates significant growth potential ahead. Much of this growth will be driven by 5G, along with some 4G catch-up from certain telecom operators. Our portfolio is well-positioned to meet this demand, and we're approaching this with a forward-looking growth mindset.
This aligns perfectly with one of our global strategic themes—digitalisation. We often talk about the 'Three Ds,' one of which is digitalisation, and this investment fits seamlessly into that theme.
Q. From a revenue perspective, there are many questions surrounding the sector. How do you see revenue evolving? Do you expect tenancies to increase?
We are confident that, while receivable cycles may vary, the market would ultimately stabilize. Conversations with government officials reinforced our belief that there is a strong intent to ensure this market's stability, which gave us a lot of conviction.
Of course, there will always be short-term fluctuations, but that's the nature of our approach — we don't get swayed by temporary negative or positive news. Whether short-term valuations spike or there's volatility, as long as our long-term view remains intact and we see the investment progressing as expected, we're comfortable with our position.
In terms of increasing revenue streams, our combined portfolio offers significant potential for co-location by other tenants. Based on our knowledge of various operators' networks, we know that many of the towers in our portfolio will be attractive for co-location. Co-location will be a key driver of growth. We’re aloso open to investing capital in new tower build-outs, but only when the risk-return dynamics are right. We won’t build towers just for the sake of it. For instance, building a tower next to an existing one would be imprudent. However, if there's a solid long-term case for a location that benefits multiple operators, we’ll certainly invest.
Growth will be driven both by co-location and new tower builds, including macro towers, micro towers, and small cells. Currently, India has about 650,000 towers (both small cells and macro towers), a number expected to double by 2030, with a significant portion being small cells. Thanks to our investment in Crest, we're well-positioned to capitalize on this growth. Our diverse portfolio equips us with various tools and solutions to meet the evolving needs of our customers, positioning us for future success.
Q. How do you assess the 5G rollout's progress, and do you believe it will drive the next growth phase as expected? What are your capex plans on this front?
We’ve definitely experienced tailwinds from the growth of 5G, and it has significantly benefited our business. Looking ahead, the next phase will largely depend on how telecom operators move forward. They’ve already started taking steps in that direction by raising tariffs. It will be crucial for them to see a return on their 5G investments to build confidence for further expansion. Whether that happens in the near term or takes a bit longer remains to be seen, but there’s certainly a clear business case for 5G beyond just the current applications. New use cases are being developed, and 5G has the potential to bridge the last-mile connectivity gap in areas where fiber access has been challenging.
I’m confident that our telecom operator partners will eventually see returns on their investments. While it’s difficult to pinpoint the exact timeline, the potential is undeniable.
In terms of CapEx, it depends on the specific situation. If it involves co-locating on existing towers, the capital expenditure will be minimal. However, building out small cells will require us to invest capital. While I don’t have a specific number in mind, this is a well-capitalized platform, backed by strong partners like GIC, BCI of Canada, and Indian institutional investors. There’s ample capital to support growth, and we’re not hesitant to invest where it makes sense. As always, our approach will be case-by-case, ensuring the right risk-return dynamics before we commit.
Q. Is the industry at an inflection point, driven by Vodafone raising equity and its upcoming debt financing, marking a significant turning point for sector growth?
Since we acquired the tower assets, we've seen several positive developments. As you mentioned, from the time of acquisition until now, ARPUs for operators have grown by about 10% annually. From a revenue perspective, things are improving and becoming more stable. Additionally, some operators have raised capital, which is great for their financial health.
Everything is moving in the right direction, and it aligns with the thesis we had from the beginning—that this market would stabilize over time. Whether it's through tariff increases or capital raises, the market is progressing as we had anticipated.
Q. Besides Telecom, which other spaces in the infrastructure sector are looking promising to you right now?
Aside from telecom, there are several sectors that look promising to us right now. As you know, our investment strategy is based on three key themes—what we call ' the 3Ds.' The first theme is digitalization, which includes our investments in towers and the data centres we're building across the country in partnership with Digital Realty and Reliance. Fibre is another avenue that could be of interest within this theme.
The second theme is decarbonisation. As infrastructure investors, we focus on enabling the renewable energy ecosystem. For example, we’re interested in transmission lines and smart meters—these are the kinds of infrastructure that help integrate renewable capacity and contribute to the country’s overall decarbonization goals.
The third theme is deglobalisation. Post-Covid-19, supply chains have increasingly become fragmented, leading to shifts in trade flows. One example is our investment in Triton, a global leader in multimodal shipping containers. This not only proved to be a strong investment but also provided valuable insights into the changing nature of global trade. These insights help guide our decisions on where to invest next, such as in port assets. India’s port capacity is expected to grow fourfold over the next 25 years, with 85% of that growth happening through public-private partnerships (PPP). This opens up significant opportunities for us to participate, whether in greenfield or brownfield projects.
In some cases, legacy players may seek to recycle capital, and we’ll be there to provide the necessary investment. A lot of new port capacity will be developed for captive users, creating opportunities for corporate partnerships similar to what we’ve done with Reliance and our semiconductor work with Intel in the US.
While time will reveal exactly how we play these sectors, thematically, digitalisation, decarbonisation, and de-globalisation are the three key areas of focus for us right now.
Q. What about airports? Is Brookfield interested in that sector?
Airports in India are certainly an area of interest. Over the past decade, passenger volume growth has averaged more than 10%, and this trend is expected to continue in the future. From a demand perspective, India is a strong story, much like many other infrastructure asset classes—demand is not a concern. The focus is more on identifying the right opportunities. As the government explores the potential for further privatisation of airports, we will be keenly evaluating those opportunities moving forward.
Q. Despite your optimism about the India story, do you anticipate potential bumps along the way? What's the single biggest risk that you're mindful of, and how do you plan to navigate it?
We're fully invested in the India growth story. We've reached a point where our investment committees no longer question 'why India'—that was a question for the first investment. Now, everyone recognizes the key macroeconomic drivers, the demographic dividend, and India’s status as one of the brightest spots in emerging markets.
One of India's advantages is its predictable currency. While it's not flat or immune to volatility, the long-term trend is clear, and despite short-term fluctuations, the rupee's behavior is relatively foreseeable. Another critical factor is the stable policy environment. Unlike some emerging markets where political instability leads to policy uncertainty, India is a functioning democracy with continuity in governance. It’s rare for a new government to come in and completely overturn existing policies, which gives us confidence in the long-term stability of the market.
Of course, there are always things that could be improved, but nothing is stopping us from moving forward. In fact, India has made significant regulatory progress in recent years. For example, in our telecom business, 100 per cent foreign direct investment (FDI) is now automatically approved by the Reserve Bank of India, a change that came as recently as 2021. Similarly, when we launched our first InvIT in 2019, banks were not allowed to lend to InvITs, but that has since changed. Insurance companies can now invest as well. Everything is moving in the right direction, even if it's incremental.
Even when regulatory changes may not align perfectly with investors' preferences, India provides ample notice and opportunity for consultation, ensuring a smoother transition.
Q. What impact do you see of the interest rate cycle on your business, with the Fed expected to cut rates and central banks around the globe likely to follow suit? What impact do you see on valuations?
We are largely neutral to interest rate cycles due to our long-term focus. Interest rate volatility has minimal impact on us, particularly since India's bond markets are well-developed. Most of our debt in India is fixed-rate, fixed-coupon debt, shielding us from interest rate fluctuations.
In fact, we benefited from issuing bonds before the interest rate hike cycle three years ago. Our assets also naturally hedge against interest rate changes, making rate movements less relevant.
From a competitive standpoint, our investors understand our model, which insulates us from public market euphoria surrounding specific sectors. We've already accessed domestic debt markets to raise capital, with notable successes. We did our first bond issuance in India in 2019, raising Rs 6,452 crore. We raised Rs 6,452 crore in the domestic market to refinance our pipeline debt, this year. And we have raised approximately Rs 4900 crore from domestic banks and investors for the ATC acquisition. These transactions demonstrate our ability to navigate domestic capital markets and banks, effectively.
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