With a more positive and stable regulatory environment in 2013, the telecom infrastructure segment marked several key developments in the past year. Leading telecom infrastructure players partnered to leverage their combined infrastructure to ensure the provision of improved telecom services across the country.

In December 2013, Bharti Airtel and Reliance Jio Infocomm Limited (RJIL) signed an agreement to share each other’s infrastructure across the country. Under the agreement, the companies would share assets including optic fibre, submarine cable networks, towers and internet broadband services. The partnership is aimed at avoiding duplication of infrastructure, and reducing capex. In April 2013, the companies had signed an agreement that provided RJIL an exclusive right to use Bharti’s 3,100 km i2i submarine cable connecting Chennai and Singapore.

Another key deal involved RJIL signing a tower deal worth Rs 120 billion with Anil Ambani-led Reliance Communications (RCOM). As part of the deal, RJIL would utilise up to 45,000 ground- and rooftop-based towers across RCOM’s nationwide network for rolling out 4G services in early 2014. The agreement provides for joint working arrangements to explore the scope for setting up additional towers at new locations. The partnership followed another infrastructure sharing deal between the companies in April 2013. Earlier, the companies had signed a Rs 12 billion agreement, which allowed RJIL to utilise RCOM’s optic fibre network across the country for rolling out 4G services. As per industry experts, these deals show infrastructure service providers’ commitment to pursue individual as well as industry growth by combining their stand-alone assets.

On the regulatory front, the infrastructure industry received a fillip with the government putting on hold the proposal for bringing tower companies under the unified licensing (UL) regime. Under the current regime, tower companies are not required to hold a licence and have to pay an annual revenue share of 6-10 per cent. However, under the UL regime, tower companies would have to pay a flat revenue share of 8 per cent, in addition to a licence fee.

As per industry leaders, since towers are “critical” infrastructure, there is little merit in clubbing them with telecom service providers.

Growth opportunities

Currently, the infrastructure service segment is dominated by eight to nine players along with operators who own tower assets. The leading industry players are Indus Towers, Bharti Infratel, GTL Infrastructure, Viom Networks and Reliance Infratel, among others. Among the operators, Bharat Sanchar Nigam Limited has the largest infrastructure comprising 61,622 towers.

Going forward, most tower companies are optimistic about their expansion plans as the low telecom penetration in rural areas provides operators and infrastructure providers a major business opportunity. In addition, infrastructure service providers are expecting operators to make large investments in 3G and 4G networks over the next two years to meet the growing demand for data services. In fact, since they are offering 3G and 4G services using less efficient spectrum bands (2100 MHz and 2400 MHz), operators need to increase the number of tower sites by 30-40 per cent in order to expand coverage. This will create a demand for new towers and lead to increased tower sharing, thereby driving tenancies for infrastructure service providers.

To tap this growth potential, infrastructure providers have prepared aggressive expansion plans for the next few years. For example, Bharti Infratel, which has a portfolio of 82,321 towers and a tenancy ratio of 1.91 (including its share in Indus Towers), plans to install over 4,800 towers in seven circles at an investment of Rs 10.86 billion by 2016. In addition, Bharti Infratel plans to invest Rs 12.14 billion in upgrading and replacing its existing towers. Meanwhile, Viom Networks plans to add 10,000-15,000 towers over the next three years to its existing portfolio of 42,000 towers. Further, the company is exploring opportunities for offering managed services to clients in international markets, especially in Myanmar, as an end-to-end network service provider. In fact, Viom Networks is planning to enter new businesses like integrated data solutions and in-building solutions. Other major players such as Indus Towers and ATC India also plan to significantly increase their tower base and investments over the next three years.

Challenges

Even though infrastructure service providers are upbeat about the growth opportunities in the telecom industry, they face several key issues. One of the key challenges is energy management. Unreliable power supply impacts network uptime, especially in rural areas. With unreliable power supply, operators have no option but to use diesel generators, which adds to the cost of running a telecom tower site. Moreover, the green energy targets set by the Department of Telecommunications (DoT) have burdened telecom tower companies. DoT’s green policy requires telecom companies to power 50 per cent of all towers in rural areas and 20 per cent in urban areas on hybrid power by 2015. And by 2020, operators would be required to run 75 per cent and 33 per cent of towers in rural and urban areas respectively on hybrid power. In order to meet these targets, 2 GW of renewable energy is required to be installed by the telecom industry, which is 20 times the country’s current off-grid installed base. For meeting these green energy targets, the industry needs to invest about Rs 450 billion. This translates into an additional financial burden for infrastructure service providers who are already paying high energy bills. The government needs to step in and provide viability gap funding to tower companies to meet the green energy targets.

Besides adhering to green energy norms, telecom tower companies have to comply with DoT’s new radiation norms. According to industry leaders, the radiation norms are too stringent and the industry requires government support to implement these norms across circles. In addition, tower companies face issues in obtaining regulatory approvals from multiple state authorities for setting up new towers and for their day-to-day operations. However, with DoT announcing a uniform tower policy, the industry is looking forward to the establishment of a single-window clearance mechanism for timely approvals.

Emerging trends

With the increasing uptake of 3G and 4G services and infrastructure development across small cities, operators need to further strengthen and support their macro networks with the deployment of small cell architecture through in-building solutions, Wi-Fi offload and distributed antenna systems. In addition, technologies such as mobile, broadband and Wi-Fi/Wi-Max are likely to be provided through common networks. Going forward, tower companies are expected to play a key role in facilitating growth in the digital infrastructure space by supporting and offering multiple applications, thereby ensuring asset optimisation.

Further, infrastructure providers will aggressively use their core assets (towers) to enter the network management service space. Increasingly, infrastructure service providers will offer clients network management services across the active, passive and backbone platforms. Moreover, over the next few years, the tower industry is expected to witness consolidation, following which, a few financially strong players will be able to raise the capital required for funding future network roll-outs. As a result, the gap between large and small infrastructure providers will widen further. To stay a float, the small players will have to become niche players providing customised low-cost solutions to clients.

The way forward

As per industry estimates, the telecom infrastructure segment in India is expected to witness a compound annual growth rate of 20 per cent during 2008-15 to reach a tower base of 571,000 in 2015. 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.

Moreover, following about two years of regulatory uncertainty, the industry now has clarity on critical issues. A sense of regulatory clarity and stability is expected to drive the infrastructure services industry and sector growth. For example, operators which had bid and won back their licences, are rolling out services. Further, the roll-out of 3G and 4G networks will require a large base of telecom towers, which will contribute to growth in the infrastructure segment.

Going forward, the industry is expected to witness steady growth as certain policy issues are resolved. These include spectrum sharing, 3G roaming and the merger and acquisition policy.