As the Indian telecom industry shifts its focus from voice to data, infrastructure requirements in the sector are likely to increase. With the launch of new services like 3G and broadband wireless access (BWA), the need for rolling out new networks and upgrading the old ones has become more pronounced. The past year has seen the operators rigorously expand their 3G footprint. Also, in a bid to launch BWA services in 2012, operators have conducted technology trials and some have already awarded their network contracts.

For tower companies, the rollout of new towers had slowed down significantly over the past one year due to the change in focus from greenfield tower rollouts to increasing tenancies. Meanwhile, state-owned operators Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL) considered the option of leasing out their towers to private operators.

tele.net looks at the key developments in the telecom infrastructure space over the past year...

Tower infrastructure

On the infrastructure provider’s end, the focus shifted from new tower rollouts to increasing tenancy. In addition, state-owned operators planned to venture into the infrastructure sharing space. Some private players like Reliance Infratel looked to offload stake.

Indus Towers – a 42:42:16 joint venture between Bharti Airtel, Vodafone and Idea Cellular – currently owns more than 110,000 towers and has operations in 16 of the 22 telecom circles in the country. The company has announced plans to add nearly 5,000 telecom towers to its tower portfolio every year for the next five years. Indus Tower crossed the 200,000 tenancy mark in January 2011 and at present has a tenancy ratio of 1.87x.

GTL Infrastructure is currently facing financial difficulties with an accumulated debt of around Rs 120 billion. Of this, Rs 100 billion is being restructured through corporate debt. Further, it is planning to sell its majority stake in the company and is looking for prospective buyers. On the operational front, the company plans to achieve a tenancy ratio of 2.5-3x by 2013-14 and has decided not to roll out any towers until it reaches that ratio.

Viom Networks currently has a tenancy ratio of around 2.4x, the highest achieved by any tower company in the country. The company has a portfolio of over 38,000 towers and 95,000 tenancies across the 22 telecom circles. It is also the strongest player in neutral host-shared in-building solutions (IBSs).

Reliance Infratel’s tower portfolio comprises about 50,000 towers, of which around 33 per cent are linked with its optic fibre network. Its coverage spans 22 circles, covering more than 25,000 towns and around 600,000 villages. However, it has been looking for a buyer as its parent company, Reliance Communications (RCOM), aims to offload majority stake in it. Two private equity funds, Blackstone and the Carlyle Group, have expressed interest to jointly acquire majority stake in Reliance Infratel.

Founded in 2007, Bharti Infratel currently has 33,000 towers across 11 telecom circles spanning 18 states. It also has a 42 per cent stake in Indus Towers. As of end-2011, it had a tenancy ratio of 1.83x. In mid-2011, Bharti Infratel announced plans to raise around $1 billion through an initial public offer. However, this has been put on hold for the time being as Bharti Airtel, Idea Cellular and Vodafone are planning to consolidate their tower assets. The three operators are looking to create a holding company to accommodate the passive infrastructure owned by them. The single entity, if created, will be the biggest tower company in India with around 170,000 towers.

Both MTNL and BSNL are looking to capitalise on their infrastructure to create additional revenue streams. MTNL invited expressions of interest from private telecom operators for sharing its base transceiver stations and other passive infrastructure in the Delhi circle in 2011. MTNL, which offers services in Delhi and Mumbai, has about 1,400 towers and plans to add 700 towers in 2011-12.

BSNL signed a tower-sharing MoU with Tata Teleservices Limited (TTSL), Etisalat DB, Videocon Telecom, Bharti Airtel, Aircel and RCOM in 2011. Also, as the public sector utility cannot hive off its towers like private players, it is likely to outsource the entire infrastructure to bring down the cost of ownership. It intends to outsource the management of its tower and optic fibre cable network across the country to private telecom infrastructure companies.

Infrastructure expansion by telecom operators

3G rollouts, 2G network expansion, and wireline and BWA service expansion were the key areas of telecom operators’ infrastructure spends.

3G

In the first half of 2011, operators were involved in rolling out their 3G networks and announcing service launches. The launch of 3G services increased the demand for infrastructure upgradation. Most of the operators awarded network contracts based on the managed services model to international vendors.

Ericsson, Nokia Siemens Networks (NSN), Huawei and ZTE were the network partners for Bharti Airtel, Vodafone, Idea Cellular, RCOM, TTSL and Aircel. While the initial estimates had pegged the total value of these contracts at $3 billion, post the award of all contracts by the six auction winners (except S Tel), the total value of the 3G contracts was estimated at $2 billion.

Bharti Airtel opted for Ericsson, NSN and Huawei Technologies as network partners to launch 3G services in the country. RCOM selected Chinese equipment vendors ZTE and Huawei to upgrade its mobile network for 3G services, as its GSM network is fairly new.

Vodafone’s 3G network contract was won by NSN and Ericsson with the deal size estimated at roughly $500 million. Idea Cellular’s 3G network contracts were won by Ericsson, Huawei and NSN. At the time of launch, the operator earmarked a capex of Rs 30 billion for the first 12-14 months of 3G service rollout.

TTSL, the first private operator to roll out 3G services, selected NSN and Huawei for its 3G network rollouts. The combined deal size for TTSL is estimated to be under $300 million.

Aircel signed up three network partners – NSN, ZTE and Ericsson – for its 3G network rollouts. It signed a loan agreement with the Nordic Investment Bank (NIB) for financing its 3G network rollout in India. The NIB loan amounts to $100 million and has a 10-year maturity.

2G

The past year also saw operators upgrading, expanding and enhancing their existing 2G networks. For instance, TTSL obtained a Rs 5 billion loan from infrastructure finance company IDFC as a long-term debt for carrying out its network expansion plans. For its TATA DOCOMO GSM services, TTSL signed a multi-million dollar contract with US-based wireless infrastructure solutions provider Vanu for supplying radio access network solutions. It also recently entered into a partnership with Kavveri Telecom Infrastructure for IBSs.

Bharti Airtel renewed its managed services contract with Ericsson for five years. Under the contract, Ericsson will manage and maintain Airtel’s mobile networks in 15 circles. It also renewed its contract with NSN for managing and maintaining its network in eight circles. The managed services contract, which is applicable for three years, is estimated at over $300 million.

BSNL, which has been facing a huge capacity crunch due to repeated process-related delays and several contract cancellations in 2010, has placed some orders and is intending to sign a few more in 2012. Currently, it is in the process of placing an equipment order worth $1.12 billion, which is expected to be finalised by March 2012. During the year, BSNL also plans to order equipment to add 14.37 million GSM lines. Several telecom equipment manufacturers including Alcatel-Lucent, Ericsson India, NSN, Huawei and ZTE have submitted bids for the contract.

Aircel entered into a three-year $120 million managed services contract with Huawei to provide network management, planning and maintenance services for Aircel’s GSM networks in the Maharashtra and Goa, Karnataka, Andhra Pradesh and Kerala circles. In Punjab, one of the company’s recently acquired circles, it invested Rs 2 billion to strengthen its 2G network, expanding its retail presence and infrastructure.

The new operators also implemented their expansion plans. For instance, Sistema Shyam TeleServices Limited (SSTL) awarded a CDMA expansion and an EV-DO Rev. B Phase II upgrade contract to ZTE. ZTE upgraded the operator’s network in 10 circles. SSTL also signed a three-year managed services deal with Ericsson for four telecom circles – Uttar Pradesh (East and West), Gujarat and Rajasthan. The contract included management of fibre transport and wireline networks in Rajasthan, as well as network service provisioning, customer problem management and spare parts management. However, following the Supreme Court’s directive asking all new players to surrender the licences and spectrum given in 2008, the fate of the new operators remains undecided.

Broadband and BWA

The launch of BWA services is one of the most awaited developments in the telecom industry in 2012. BWA licensees spent the last year carrying out trials for their networks. Long term evolution-time division duplex (LTE TDD) emerged as the preferred technology for BWA launch.

Network and equipment vendors are already gearing up to win contracts from BWA spectrum holders. Ericsson, Alcatel-Lucent and Huawei are competing against each other to win RIL’s contract for supplying broadband equipment. RIL is expected to invest around $1 billion in its broadband venture. Of this, 70 per cent will be utilised for building and maintaining infrastructure, and the remaining 30 per cent will be spent on equipment. Also, Infotel Broadband has invited bids from telecom tower operators to lease out around 26,000 towers across India.

Bharti Airtel is reported to have identified four vendors for rolling out its BWA services in four circles where it acquired licences in 2010. ZTE will reportedly manage the Kolkata circle, Huawei the Karnataka circle, Ericsson the Punjab circle and NSN the Haryana circle. Each contract is likely to be in the range of $75 million to $100 million.

Augere, another BWA licensee, has entered into a contract with Ericsson for managing its LTE network in India. The company is reportedly investing $50-$60 million for BWA rollout in India. The deal will provide Augere with an end-to-end LTE TDD solution, including managed services in 14 cities in the Madhya Pradesh circle, where it won the licence in 2010.

Aircel is planning to invest $10 billion in India in the next four years to roll out BWA services and expand its existing network capacity. The company has already made investments worth $5 billion in the Indian telecom space.