The rapidly increasing uptake of data services has put pressure on the telecom infrastructure industry to provide for capacity to manage the heavy data traffic. While this has created growth opportunities for infrastructure providers, it has also brought in fresh challenges. At a recent tele.net conference, Amit Sharma, executive vice-president and president, Asia, American Tower Corporation, highlighted the various issues faced by the infrastructure industry, which need to be addressed by the government as well as stakeholders to bring about growth in the sector. Excerpts.…

The Indian telecom infrastructure space faces several challenges, which impede not only the growth of broadband services and the Digital India project, but the provisioning of even basic voice and data telephony. To understand and overcome these problems, a few lessons should be learnt from international experience. Let us first consider the case of spectrum scarcity in the country and compare it with the international scenario. Globally, operators hold about 30 MHz to 60 MHz of spectrum in different bands and even then they are unable to cope with the growth in data demand. Data growth in most of the global markets continues to double every year. For example, if at present a 1 MB link is able to support data growth, five years and 20 years down the line, operators will require a 20 MB pipe and a 100 MB pipe respectively to support the high speed data demands of consumers. Despite the large quantum of spectrum available, virtually all international operators are using massively complex hybrid networks to meet the growing data demands. Globally, operators are using spectrum in various bands including 2300 MHz, 2100 MHz, 1800 MHz, 700 MHz, 900 MHz and 800 MHz for offering data services. There is hardly any major operator that is not running at least three concurrent networks, which results in tremendous technical complexities.

Given the growing data demand, the critical aspect that needs to be looked at is the infrastructure required for supporting complex data networks. Infrastructure service providers cannot provide network support for high speed data transfer without having sites that are almost ubiquitous. All these networks, therefore, use a mix and match of micro sites, macro sites, outdoor distributed antennae system and in-building solutions. Eventually these get aggregated at a macro site and are then backhauled from there. There is no other way to backhaul such huge high speed data to a central node except through fibre to the tower. The fact is that massively complex networks are dependent on a lot more sites.

To achieve the dream of Digital India, it is important to take into consideration the broadband experience outside cities. Both internationally as well as in India, no stakeholder has managed to deploy broadband networks outside urban areas without huge investments, and inevitably those investments have the required government support and true partnership between the government and the industry. Be it Chile, Brazil or any developed country, operators have taken 10-15 years, and in some cases, 20 years to increase broadband penetration to over 50 per cent in rural areas. Further, broadband-related challenges outside cities are difficult to identify and address. Even in a developed market such as the US, operators cannot expand even the basic network for data services in rural areas unless the government plays a major role.

In India, where spectrum availability is far less and is incredibly expensive on a per-MHz or a per-subscriber basis as compared to any other global market, the reality is that networks are choked just by delivering simple voice calls. Therefore, telecom and infrastructure service providers have a huge challenge ahead of them in terms of providing broadband connectivity across the country. However, the infrastructure industry is not well-equipped to meet these challenges under the current regulatory and policy framework.

For instance, there are concerns about radiation emitted from towers. The government and the industry have not done a good job of educating people and dispelling this myth surrounding towers. At present, it is extremely difficult to set up a tower and ensure that it is not removed following its installation. Some agency or the other will raise objections against the tower location and ask for its removal. Consequently, the industry is finding it very difficult to increase the tower footprint. Secondly, with the growing demand for data, the networks cannot run on microwave backhaul alone; the industry has to get fibre to each tower. As per industry estimates, we need about a hundred thousand towers in the top 500 cities in the next five years, or else the 3G and 4G network expansion plans cannot be realised. This growth needs to be achieved in an environment where the industry’s net additions are zero; in fact, many towers are being pulled down.

Another challenge facing the industry pertains to interference from various municipal authorities while setting up telecom towers. There is hardly any jurisdiction where the local body is not trying to impose charges on infrastructure providers and this adds to the costs borne by them. Also, taking fibre to the tower is a daunting task. India lacks well-designed high capacity metropolitan networks. In fact, the optical fibre cable in the country is spread in a haphazard manner, is largely operator owned and is controlled with a certain amount of sharing and swapping. In India, many operators have to struggle with large parts of their network not functioning due to inadequate access to fibre.

Therefore, without government regulations that permit the installation of urban sites and the linking of these sites through fibre, it is difficult to achieve tower growth. One of the biggest constraints that the infrastructure service industry faces is that it does not have the financial strength to invest Rs 500 billion over the next five years to convert the existing towers into green towers. It will cost Rs 500,000 to Rs 600,000 per tower to achieve the government’s green mandate. Meanwhile, energy management continues to be the biggest challenge for infrastructure service providers and clients. Given the high fluctuation in power supply, the industry is better off running tower sites on generator sets. The industry has been able to curb its expenses only because of lower diesel prices.

Funding is also a critical issue as banks are not willing to fund the telecom infrastructure sector. Many tower companies have taken to corporate debt restructuring, which shows that even earlier, when the segment was growing by 20 per cent per year and interest rates were relatively low, the companies were unable to break-even. Currently, barring one or two companies, none of the other companies is profitable. Going forward, it will be difficult to raise funding when the return on invested capital is 8 per cent and the cost of capital is 12-14 per cent.

Two years ago, the tower industry was given infrastructure status by the Ministry of Finance but it has received none of the benefits that are associated with infrastructure industry status. On the other hand, the industry is burdened with all types of new costs, which are not essential to the business of building networks and delivering services to consumers. In all, there is a huge need for new tower sites. This will require more government and industry partnerships as opposed to public-private partnerships.

These challenges also present opportunities. The right structure for the industry not only includes shared towers but also shared backhaul. This could be driven by either operators or large infrastructure providers or both. Going forward, the industry will witness aggregation of backhaul in networks. As a result, there will be more opportunities for infrastructure companies, which will undertake backward integration from towers into backhaul.