The year 2014 provided some respite to the telecom industry after the subdued growth witnessed during the past few years. Clarity on the regulatory and policy fronts, forward-looking initiatives by the government and a simplified licence framework have raised industry hopes. These developments also augur well for the telecom infrastructure segment, which serves as the backbone for providing telecom services.

tele.net takes a look at the key developments in the infrastructure segment in 2014, the challenges facing the players in this space and the way forward….

In its 2013 guidelines pertaining to clearances for tower installation, the Department of Telecommunications (DoT) had recognised telecom towers as lifeline installations and critical infrastructure. In line with this, several states put together supportive policies for providing single-window clearances and prioritising power supply to towers. While this work is still in progress, the tower industry should soon have a uniform set of guidelines in place.

Another key development for the industry in 2014 was the Ministry of Transport’s guidelines for the installation of towers on national highways. These guidelines address issues related to right of way (RoW), single-window clearances for permissions, and fees and licences, thereby facilitating faster roll-out of telecom infrastructure at various sites.

On the operational front, the year witnessed several infrastructure sharing deals. Reliance Jio Infocomm Limited (RJIL) remained at the forefront of these deals and signed agreements with Ascend Telecom, Tower Vision, ATC India and Viom Networks. The most recent one was signed in September 2014 with GTL Infrastructure Limited. The latter, together with Chennai Network Infrastructure Limited, has a combined tower portfolio of over 27,800 towers across the 22 telecom circles in the country. The deal with GTL Infrastructure Limited will enable RJIL to share towers in the metros and Category B and C circles. Besides tower companies, the state-owned operators Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited, which have their own telecom assets, also signed tower sharing deals with private players for increasing their revenues. For example, BSNL currently shares about 4,000 towers with Bharti Airtel. The company also has a tower leasing pact for 4,000 towers with RJIL.

Further, tower companies such as Bharti Infratel expressed their interest in buying tower assets owned by operators such as Vodafone India and Idea Cellular. In addition to its own tower portfolio, Bharti Infratel has a 42 per cent stake in Indus Towers (a three-way joint venture between Bharti Airtel, Vodafone India and Idea Cellular), which has 112,144 towers in 15 telecom circles. As per industry reports, Bharti Infratel has plans to take over the towers of Vodafone India and Idea Cellular at a valuation of Rs 50 billion. Bharti Infratel is looking at the tower assets of the two service providers in seven out of the 22 circles where the company is the sole operator and Indus Towers does not have a presence. Currently, Bharti Infratel has no overlapping business with Indus Towers in Jammu & Kashmir, Himachal Pradesh, Madhya Pradesh, Chhattisgarh, Bihar, Jharkhand, Odisha, Assam and the Northeast.

Growth drivers

The roll-out of 4G networks by operators is expected to create new business opportunities for infrastructure service providers. With the higher uptake of data services, operators will have to augment their existing data networks for meeting coverage and capacity requirements. As a result, service providers will require additional infrastructure support from tower companies. Although telecom operators are not likely to add many tower sites for supporting the growing data traffic, they will co-locate new base transceiver stations on the existing tower sites. This will improve tenancies for tower companies and bring in additional revenue without the need of making investments.

According to industry experts, spectrum liberalisation, the entry of greenfield 4G operators and industry consolidation are expected to result in a net increase of about 55,000 tenancies over the next three years. Having acquired spectrum in the 900 MHz band at a high price in the spectrum auction, most operators are expected to shift their base network to the 1800 MHz band. They are likely to use spectrum in the 900 MHz band for providing 3G networks while spectrum in the 1800 MHz band will be used for offering voice services. The shifting of base networks from the 900 MHz band to the 1800 MHz band will result in higher tenancies for tower companies. Further, service providers that do not hold spectrum in the 900 MHz band will deploy 3G network in the 2100 MHz spectrum band, thus contributing to a partial increase in tenancies. Another driver for higher tenancies will be the roll-out of long term evolution (LTE) networks by greenfield 4G operators. These operators are likely to use the 2300 MHz spectrum band for providing capacity in dense urban areas. Further, operators will deploy LTE-frequency division duplex technology using 5 MHz of spectrum in the 1800 MHz band to support higher capacity in urban areas, which will result in higher tenancies for tower companies.

The $4 billion National Optical Fibre Network project also offers major growth opportunities for tower companies. The project, funded by the Universal Service Obligation Fund and implemented by Bharat Broadband Network Limited, a special purpose vehicle of the government, aims to provide broadband connectivity to 250,000 villages. The project involves rolling out an extensive optic fibre network (OFC) across the country. As part of the project, the government aims to leverage the existing fibre network while rolling out additional cable of about 500,000 km. The roll-out and OFC network expansion offer significant opportunities to infrastructure service providers in the areas of dark fibre leasing (between districts and blocks), equipment supply, internet bandwidth provisioning as well as operations and maintenance of networks post implementation. Further, the growing fibre-to-the-home market and the increasing demand for in-building solutions (IBS) in sectors such as education, retail and real estate offer business opportunities for infrastructure service providers.

Key challenges

Energy management continues to be a key challenge facing the tower industry. The unavailability of grid power supply at the majority of the sites has increased tower companies’ dependence on diesel, which is expensive and eco unfriendly. Consequently, infrastructure service providers have taken several measures to reduce their dependence on diesel usage. These range from deploying battery solutions at sites to adopting renewable energy technologies such as solar, wind and biomass. For instance, by using a combination of measures, Indus Towers has been able to significantly reduce its diesel consumption and thereby its energy costs. It has been able to convert 36,000 sites (around 32 per cent of its tower portfolio) into diesel-free sites. Similarly, Bharti Infratel has 19,500 towers running without diesel across its network. To that end, the company has used a healthy mix of solutions such as battery banks, free cooling units and solar technology. Under its Green Towers P7 programme, Bharti Infratel operates over 2,200 solar-powered towers with an installed capacity of about 9 MW. It has deployed additional battery banks at about 13,000 tower sites to ensure that diesel generator sets run in the optimum load range to minimise consumption. Further, in its bid to lower energy costs, the tower company has shut down air conditioners at another 13,000 tower sites by using free cooling units. Similarly, Viom Networks, the country’s second largest telecom tower company with over 42,000 sites, runs 50 per cent of its total sites (about 21,000) as diesel generator-free. A majority of these sites are powered by renewable energy, mainly solar. In fact, as part of its plan to further reduce energy consumption for running its towers, Viom Networks signed an agreement with Japan’s New Energy and Industrial Technology Development Organization in August 2014. The tie-up includes the introduction of renewable energy and lithium-ion batteries and the application of energy management systems supplied by Japan’s NEC Corporation to demonstrate efficient power usage at tower sites. GTL Infrastructure Limited too has undertaken various initiatives for achieving energy efficiency. With a portfolio of more than 30,000 towers, the company is carrying out trials and pilot installations for green energy solutions through the deployment of solar photovoltaic, lithium-ion batteries and aircon performance improvement solutions.

Despite the increased effort to bring renewables into their energy mix, tower companies are finding it difficult to comply with the stringent green targets set by DoT. The department’s green telecom policy requires players to reduce diesel consumption and run 50 per cent of their towers in rural areas and 20 per cent in urban areas on hybrid power (renewable+grid) by 2015. Further, by 2020, the proportion of hybrid-powered towers is required to go up to 75 per cent of the total towers for rural areas and 33 per cent for urban areas. However, given the high capex involved in implementing these technologies, the industry has been struggling to achieve the targets set by DoT. The industry is urging the government to let tower companies decide on the type of technology they want to deploy in order to meet the targets. Further, tower companies are seeking financial aid from the government to implement green technologies on a mass scale.

As far as fibre infrastructure providers are concerned, the costs and complexities involved in seeking RoW approval is a key concern. One, the RoW charges are exorbitant and vary across states. Two, receiving approval for RoW is a tedious task due to the lack of policy uniformity across states and of a single-window clearance mechanism. In addition, frequent fibre cuts owing to the construction of new roads and expansion of existing roads weakens the business case for fibre roll-out.

Emerging trends

With the changing dynamics of the telecom industry and operators’ focus shifting from voice to data, the tower industry also needs to realign its business strategy to cater to the demands of service providers. In order to support the data revolution being witnessed by the Indian telecom industry, infrastructure service providers will be required to invest in new technologies to help operators enhance capacity and coverage.

Over the next few years, tower companies are expected to make significant investments in solutions such as small cells and pico cells. This would enable them to help operators achieve higher network speeds, larger coverage, efficient spectrum usage and lower operational costs, especially in dense urban areas.

Further, with surging demand for smartphones and other wireless devices, infrastructure service providers will focus on IBS such as Wi-Fi hotspots and distributed antenna systems for providing seamless mobile connectivity to customers. The need for providing 24x7 connectivity and ensuring a satisfactory customer experience will be the two key demand drivers for the IBS market in India. Given the high cost of providing indoor coverage, in the majority of the cases, infrastructure providers are expected to take the lead in bearing the costs for setting up IBS infrastructure, which can be leased out to multiple operators on completion.

Further, in a bid to reduce the cost of managing independent tower sites, tower companies are extensively using analytical tools for data collection and analysis. Increasingly, infrastructure service providers are monitoring towers on a real-time basis, particularly for effective energy management at towers. In fact, round-the-clock monitoring has helped players in reducing diesel pilferage and opting for preventive maintenance at various tower sites. Tower companies are also working towards optimising their existing resources by integrating various processes through the use of IT and automation.

The road ahead

The Indian telecom market is unique as it supports the lowest ARPU in the world. Low ARPUs, coupled with intense competition, call for greater collaboration between infrastructure service providers and operators. Tower companies need to redefine their business model by broadening their scope of work beyond master service agreements. The infrastructure service segment will receive a fillip if the Department of Economic Affairs (DEA) fast-tracks the process of approving a host of incentives, which will help tower companies in taking advantage of the infrastructure status provided to the telecom industry in 2012.

At present, the DEA is examining the proposal for allowing accelerated depreciation benefits and paving the way for concessional loans with longer tenors of 10 to 15 years in order to help tower companies roll out infrastructure projects. In addition, the department is looking at whether infrastructure services companies can avail of overseas borrowings to meet their working capital needs and to repay rupee loans. Currently, the Ministry of Finance only allows telecom companies to tap the external commercial borrowings (ECBs) route for spectrum payments and capex. It does not allow repayment of Indian debt through ECBs. Going forward, if the proposed set of financial incentives is approved by the government, the tower industry will be better positioned to play a pivotal role in supporting the expansion plans of operators by providing them the required infrastructure support.