Sharing resources in a capital-intensive industry maximises the value to all stakeholders. We have seen this value being derived recently by the new licensees, who were able to roll out their networks with great speed.  Infrastructure sharing is also a means to optimise operations through a service level agreement, which is driving lower costs of operations by having multiple tenants share the operating expenses. On the whole, this cost optimisation in capex and opex enables a fair market play. Moreover, shared telecom infrastructure is a major contribution that the sector has made to the “go green” cause of civil society.

It is a well-known fact today that the telecom sector is the second highest consumer of diesel in the country, after the railways. The reason for this could be the lack of availability and reach of quality grid power in areas of telecom operations. In fact, telecommunication services have penetrated geographies faster than other basic services like health and education. In the future too, strict enforcement of rollout commitments through the licensing conditions laid down by the Telecom Regulatory Authority of India (TRAI) will drive infrastructure sharing.

Prospects of shared infrastructure in India

The growth of this sector is driven by the overall outlook for telecom carriers, and as of today, the growth remains promising. The sector is targeting the next billion-user mark and hence, the subscriber growth cycle will continue unabated in the short and medium terms. Voice and data traffic will continue to grow due to higher penetration of services across geographies and demographies. However, this growth in numbers does not necessarily reflect in the overall earnings of the individual players. Nevertheless, the gross revenue from the industry will see moderate growth due to the falling revenue of each incremental subscriber addition. Data growth driven by optimised carrier technologies along with the development of local content on the web will drive horizontal and vertical expansion in coverage. This, in turn, will drive the tower requirement in the next two years.

This requirement will be met by increased sharing of passive infrastructure wherever available or else by building new towers. However, the demand for new towers will progressively fall and will be limited to expanding geographies.

Challenges confronting infrastructure sharing

The tower sharing industry is still nascent in India. It was carved out of the carrier business as a separate entity to maximise shareholder value. However, within a short span of about five years, the infrastructure sharing sector has evolved, showing signs of maturity.

However, the challenges confronting the sector are manifold. Currently, the industry is wholly dependent on telecom carriers for its tenancy, unlike the scenario in North America or Europe. Hence, the challenges of the telecom operators’ business scenarios get reflected on the IP business too. Unrelenting pressure on cost optimisation is bringing out greater innovations in terms of capex and opex management.

This is an extremely capital-intensive industry. The cost of passive infrastructure is over 70 per cent of the overall cost of rolling out a mobile telecom network. Therefore, the bulk of the capital investment required to roll out and maintain the network is under the aegis of the IP industry. Almost all the new/independent players in the industry have a huge debt portfolio in their balance sheet and are, therefore, being highly leveraged. The challenge is to run the business model successfully while honouring all stakeholder commitments.

Unregulated growth in the past is throwing up new challenges for the industry. Very often, one sees multiple towers on a single roof or a plot of land. This is affecting the optimum tenancy occupation of such investments. There needs to be much more collaborative competition within the telecom industry. It is in the overall long-term interest of all the stakeholders to collaborate in areas such as building a common database of towers to enable prudent future investments, in order to maximise the returns of every penny invested in the sector. This sector needs huge investments in the future, so the investor should see value and maturity in the investment arena to enable further flow.

Achieving operational excellence is another area where the individual managements  have to drive standard operating procedures to achieve cost optimisation. Due to the non-availability of grid supply or the poor quality of grid-alternative sources of power, diesel generator sets are primarily used to feed continuous power to remote networks. Pilferage in diesel at the local operating level throws up a humongous challenge to the operations and maintenance (O&M) activities of an IP.

This escalates the cost of maintaining the site. The use of alternative/renewable energy sources is gaining traction in the sector, even though the benefits of large-scale deployments are still under evaluation. The initial high cost of deployment is another challenge. This is the reason that each player is trying out innovative business models to make the green initiative succeed.

The lack of a standard approval process to enable faster rollout of tower sites has been the bane of this industry. Each of the state and local bodies/agencies follows different norms to give a no-objection certificate (NOC). The fees for such NOCs are sometimes unreasonable and do not justify the investment.

A sense of heightened fear due to health-related concerns arising from EMF radiation issues and negative publicity in the local media have also had a  detrimental effect on the growth of this sector. In some cases, functional tower sharing sites have been stripped off and dismantled due to public protests.

However, the overall tenancy growth of each player in the market today shows the confidence to overcome such challenges in sharing. Hence, sharing will only grow in the days to come and the industry will mature to make the business model more attractive for all the stakeholders.

Benefits of infrastructure sharing

There are multiple benefits of sharing such high-capex infrastructure. For an operator, it reduces the cost of rollout, hastens the rollout and drives overall cost competitiveness within the O&M of the network cost. Competition-driven price concerns will force carriers to look at site sharing rather than the construction of new anchor towers.

The responsibilities of operating a world-class telecom network are shared between the carrier and the infrastructure provider in order to deliver maximum value to the customer with regard to QoS, at the least cost. The IP industry has emerged as a major employment source for semi-skilled and unskilled labour. The overall spin-off effect to the economy is obvious and cannot be overlooked by policy planners.

Likely future trends

Competitive pressures will force the sharing of infrastructure and there will be continuous growth of tenancy on the existing towers. Tenancy growth suffered in the first half of this financial year on account of a base transceiver station shortage with operators because of certain tightened import procedures. The rollout of 3G in the first phase will enhance loading of the existing towers. As and when the rollout extends to Tier 2 towns and cities, a requirement for new towers will come up. The first phase of 3G rollout is likely to be done on existing 2G towers and hence, there will be minimum anchor build for 3G.

Strict enforcement of licensing commitments by the Department of Telecommunications and TRAI’s rollout guidelines, will lead to increased coverage. Currently, ICR arrangements between carriers have been a boon as far as meeting customer demands for coverage is concerned. However, with increased capacities, sharing of passive infrastructure will become a more likely scenario.

The expansionary demand for 2G rollout will continue to be the driver for towers/tenancies. However, the 2G rollout of the incumbent operators will slow down in the future as they near 80 per cent of their geographical coverage. In addition to coverage expansion, there will be cell site demand from capacity expansion. However, with 3G capacity coming on board, some of the 2G expansion may be reallocated to 3G.

The Indian tower space has experienced some consolidation in the past few years. The top five tower companies (Indus, Bharti Infratel, Reliance Infra, Viom Networks and GTL Infrastructure) control about 80 per cent of the total market. As the bulk of the tower assets now belong to the telecom operators or the larger independent tower companies (Viom Networks and GTL Infrastructure), future rollouts are likely to be more measured and demand driven.

The current competitive pricing scenario in the carrier business will drive energy efficient tower operations and hence, being energy efficient and having a reduced opex will be a competitive advantage in the long run. Investments on energy management solutions and use of alternative sources of energy will become the norm.

Operators have transitioned to a matrix of overall cost per site (IP fee plus energy charges) when selecting cell sites for occupation. Operators tend to feel that rural site rollouts are competitive only if there is a reduction in the overall passive infrastructure costs, as compared to current levels.

Finally, flexible pricing models tailored to the specific needs of operators will become the order of the day.