Independent telecom tower companies in India are expected to spend Rs 21,000 crore between fiscal years 2025 and 2026 to help telecom companies develop rural networks and improve service quality in metropolitan regions, according to a report released on Tuesday.

According to the CRISIL Ratings research, the push for enhanced coverage and connectivity, as well as the launch of 5G, has spurred Rs 23,000 crore in capital expenditure (capex) over the last two fiscal years.

"The industry has seen a significant increase in towers to serve 4G and 5G services over the last two fiscal years. "Now that the major rollout of 5G services has been completed, network capex for telcos is expected to gradually decrease," said Anand Kulkarni, Director, CRISIL Ratings.

Nonetheless, strong tower additions will continue, as a geographically diverse tower portfolio is crucial for carriers seeking competitive coverage.

"Telcos will continue to focus on tower densification in underserved rural areas, where teledensity was just 59% at the end of fiscal 2024, compared to 134% in urban areas. Some telecoms' plans to increase their 4G and 5G coverage may also drive tower capex, according to Kulkarni.

Towercos' tenancy percentage has been declining in recent years, as the telecom industry has consolidated.

"Going forward, the tenancy ratio is expected to remain steady at 1.41-1.42 tenants per tower, but this would be on the back of additional tenancies coming from telcos with relatively weaker credit profiles," according to the report.

Furthermore, the consolidation of the telecom industry has resulted in a change in bargaining leverage in favour of telcos.

According to the survey, even as the number of towers increased in recent fiscal years, average rental realisations have moderated by 3-5 percent due to renewal discounts and desire for leaner 4 buildings.

However, the forecast for towerco profitability remains solid, owing to their annuity-like cash flows resulting from long-term price contracts with telecoms, cost passthrough clauses, and built-in annual price escalations, the report stated.