How has ATC performed over the past one year?

ATC has performed well despite the slowdown in the telecom market in the past 18 months. In fact, the telecom sector is experiencing what can be termed as de-growth. Most players including those that have not been affected by the Supreme Court’s cancellation of 122 2G licences are re-evaluating their investment decisions. Further, as per our estimates, there has been no net addition in terms of tenancy in the past six months.

ATC currently owns and operates over 10,500 towers in India with an average tenancy of 1.8 per tower. So far, the company has invested $800 million in India. ATC plans to significantly increase its tower base and investments over the next three years. It expects the telecom sector to pick up by December 2013 and be back on the growth path by March 2014. The company is also looking at expanding its business in other countries in the Asia-Pacific region.

What are the key growth drivers and opportunities in the telecom infrastructure segment?

In the medium term, there are several growth drivers that will make the Indian telecom sector an attractive investment destination. At present, only 80 per cent of the country’s population has access to telecom services. Mobile penetration has not reached optimum levels – the overall teledensity stands at 75 per cent while rural teledensity is less than 40 per cent. Moreover, 95 per cent of the population does not have access to broadband services. Several key government initiatives – such as providing mobile handsets for families below the poverty line – will require telecom coverage in rural areas to be enhanced significantly.

This, coupled with the fact that over 20 per cent of the population remains uncovered, will generate lucrative opportunities for both telecom operators and tower companies. The National Optical Fibre Network project, which is aimed at offering broadband services in rural areas will take fibre to a rural node. However, providing the customer access to this network will require towers to be constructed in rural areas to enhance coverage and provide voice and broadband services.

Further, since the spectrum band allocated for 3G and long term evolution (LTE) is 2100/2400 MHz, operators need to increase the number of tower sites by 30-40 per cent in order to cover the target customers. This, in turn, will require both new towers and increased sharing of existing ones, thereby driving tenancy growth.

How has the landscape of the telecom infrastructure segment changed with the roll-out of 3G and 4G networks? How is the industry gearing up to meet this demand?

While the current 3G/4G customer base is low, data has tremendous growth potential. 3G roll-outs in India have witnessed slow uptake as operators have only been allotted 5+5 MHz of spectrum in the 2100 MHz band for deploying their networks. However, the proposed conversion of the 1800 GSM band to liberalised spectrum will provide additional spectrum bandwidth for 3G/LTE services. Refarming of the 900 MHz spectrum band will also allow data services to be deployed in this spectrally efficient band.

The increasing data demand will encourage operators to roll out overlay networks in multiple bands, thereby driving the need for more sites as well as a greater degree of infrastructure sharing.

The tower industry would benefit from increased tenancy on urban towers. However, as data usage and wireless broadband take off, more towers would need to be set up outside the cities to provide voice/data coverage up to the gram panchayat level.

The last mile in mobile networks will always be rural. The government ought to revive its earlier policy of utilising the Universal Service Obligation Fund to ensure each village has access to mobile and broadband services.

Further, the tower industry is expected to witness consolidation over the next few years. Currently, the total investment in the industry stands at about Rs 1 trillion. Over the next three to four years, another Rs 500 billion is likely to be invested. These investments will ensure consolidation in the space.

Following consolidation, a few financially strong players will be able to raise the capital required for future roll-outs. Thus, the gap between large and small infrastructure providers will widen further and the remaining smaller players may have to become niche players.

\What are the key challenges faced by the company and the industry as a whole? How can these be addressed?

There are several issues in the telecom infrastructure space.

On the demand side:

•  The 2G spectrum issue marked the beginning of a turbulent period for the telecom sector, especially with the cancellation of 122 telecom licences in 2012. The slow uptake of 3G services in India has adversely impacted the short-term plans of tower companies.

•  The industry is expected to witness steady growth once certain policy issues are resolved. These include introduction of the spectrum pricing and sharing policies by the Telecom Regulatory Authority of India (TRAI) and the merger and acquisition (M&A) policy by the Department of Telecommunications (DoT). Most importantly, the government is yet to release the terms of licence renewal in 2014 and refarming of 900 MHz spectrum.

On the supply side:

•  The government has put the proposal to bring tower companies under the unified licensing regime on hold. As towers are “critical” infrastructure, there is little merit in combining them with operators providing telecom services to customers.

• Unreliable power supply is a major issue in delivering network uptime levels, especially in the rural areas. Tower operators, therefore, opt for diesel generator sets, which results in increased costs. DoT’s mandate for operating 50 per cent rural and 20 per cent urban towers on renewable energy also poses a challenge for tower companies. In order to meet this target, 2 GW of renewable energy is required to be installed by the telecom industry, which is twenty times the current off-grid installed base in the country. Moreover, this will require an investment of Rs 450 billion, which is currently not feasible for the telecom industry. Thus, viability gap funding of 30-35 per cent is required, which will have to be provided by the government.

•  Zoning/Radiation: DoT, in consultation with the tower industry, has issued radiation guidelines. However, concerted efforts are required to implement these guidelines at the municipal level.

 What are the initiatives taken by ATC for greater adoption of green energy?

ATC has undertaken various pilot projects to explore opportunities offered by green energy solutions to reduce diesel consumption. The company is looking at biogas, fuel cells, wind and solar energy-based projects as sources of clean fuel. However, given the different topography and climate of each place, no single solution can be deployed across telecom sites.

Currently, ATC is using biogas, solar energy and a combination of solar and wind power for its pilot projects. We are gradually looking to increase the number of towers covered under these projects. The key learnings from these projects indicate that biogas is the cheapest energy alternative. However, it cannot be used across the country due to logistical issues. At some sites, wind power is the most viable form of energy but it is not available throughout the year.

A deployment model tailored to meet the specific area requirements of customers is being developed. Once the results of the pilots are available, we will increase efforts to reduce diesel consumption progressively and the carbon footprint of our operations.

 What is your regulatory wish list?

In 2012, TRAI had recommended that tower companies, currently registered with DoT as IP-1 players, be brought under the unified licence regime, along with the imposition of licence fees of 8 per cent. This proposal has been put on hold, on the grounds that telecom towers are part of the infrastructure industry and have nothing in common with cellular operators, internet service providers and wireline operators, which serve end-users.

The industry was recently awarded infrastructure status and must be given the benefits associated with it, including tax holidays, power connection at commercial rates and clarity on value added tax and service tax. Further, clear guidelines and policies related to spectrum pricing, M&A and spectrum refarming for mobile operators are required.

The government needs to formulate zoning and radiation guidelines at the municipal and state levels. Moreover, the one-time registration charges at the local level must b reasonable, based on the costs incurred.

 What are some of the emerging trends in the infrastructure segment?

Going forward, infrastructure providers will extend network management services to clients across active, passive and backbone platforms. Various technologies such as mobile, broadband and Wi-Fi/Wi-Max will be provided through common networks. Further, given the increased data usage following the nationwide roll-out of 3G and 4G technologies, telecom growth in urban areas would receive a major fillip.