Telecommunications infrastructure lies at the heart of increasing access to communication services that have transformed India’s socio-economic life. The Indian telecom sector – the world’s second largest wireless market with a total wireless subscriber base of over 850 million – is a poster boy of the country’s liberalisation story and has made significant contributions to the national GDP.

Telecommunication activities have a multiplier effect on the growth of the economy due to the business opportunities they create by providing greater connectivity, which leads to improved operational efficiency. The telecom infrastructure industry has played a key role in the growth of the sector.

The concept of infrastructure sharing has further fuelled the growth of the telecom sector, with operators rolling out networks across the country. Cost-effective solutions and innovative offers, such as 1 paise per second calling, have been made possible through the numerous cost benefits offered by telecom infrastructure companies to operators.

Sector potential

With infrastructure companies benefiting the sector in diverse ways, the telecom industry has realised the immense potential of this segment. Currently, telecom infrastructure provisioning costs account for almost 65-70 per cent of an operator’s opex. An operator offering wireless services can save up to 30 per cent of its capex and around 15 per cent of its opex by sharing infrastructure. By reducing the burden of building and managing their own networks (as was the case earlier) through infrastructure sharing, operators are now able to focus more on improved network coverage, customer services and competitive tariffs in order to stem their falling average revenue per user (ARPU) levels.

The 3G and broadband wireless access spectrum auctions held in 2010 will certainly be the game changer for telecom companies. India is yet to witness the phenomenal growth in data traffic witnessed by developed countries like the US in the past couple of years. The demand for data is expected to come primarily from video traffic, social networking sites, agriculture services, healthcare through telemedicine, m-governance, m-education, m-banking, etc.

Rural India, with its low penetration rate, is the last greenfield opportunity that remains to be tapped by operators. With urban markets fast saturating, operators are increasingly turning to rural regions to grow their customer base. Though revenues will continue to be driven primarily by urban markets, the next round of subscriber growth will come from the rural areas. Infrastructure companies will play a vital role in helping operators expand their rural base. The rural regions will offer the next level of growth for both operators and infrastructure companies.

Looking at this opportunity, telecom infrastructure companies are coming up with various innovative and cost-effective solutions for operators to help them expand their footprint in the hinterland. Viom Networks, for example, has taken various initiatives to provide cost-effective and energy efficient rural solutions to its operator partners. Its solutions have been designed to optimise power requirements, especially for remote areas that have poor or no grid power, low ARPUs and low customer density. This will empower wireless service providers to roll out services in the smallest rural markets in a capex-neutral environment, as required in the current scenario of cut-throat competition.

Telecom infrastructure sharing works on a business model with a dependence on multiple operators rolling out networks simultaneously against aggressive timelines. Multiple tenancy at a single site helps reduce the rental for each operator as well as lowers their operational costs due to cost sharing. For any operator to remain successful in the rural market, it is imperative that they share their infrastructure. This will not only help them expand faster and tap newer markets, but will also ensure that they remain profitable in these low-ARPU, low density markets.

Exploring green energy solutions

Infrastructure companies have been investing significantly in research and development (R&D) to tap alternative energy sources such as biomass-based gensets, fuel-saver catalysts, fuel cells, compressed natural gas and energy storage platforms. Trials of alternative energy sources such as windmills and solar energy are also being conducted by telecom infrastructure companies. Though the initial cost of deploying these renewable energy solutions is higher as compared to conventional equipment, the cost can be offset over a period of time with wider implementation.

Viom is currently in the process of implementing some of these alternative energy sources on a large scale, with a preference for high opex sites that face recurrent power problems. It is also exploring the possibility of using piped natural gas, free cooling units and fuel catalysts to reduce diesel consumption at its sites.

These initiatives will not only help the telecom infrastructure companies tap alternative sources of energy and reduce opex for operators in the long run, but will also result in lowering the sector’s carbon footprint.

What lies ahead

Telecom markets the world over have gone through various stages of growth and have adopted different models of infrastructure sharing in order to promote the growth of the sector and enhance the efficiency of telecom operators. India may also witness international trends such as active infrastructure sharing, spectrum sharing, mobile virtual network operators (MVNOs) and intercircle roaming.

The sector is eagerly awaiting permission for the sharing of active infrastructure, which is currently under deliberation. Even though network sharing requires additional planning and deployment efforts to accommodate each participating operator’s capacity requirements, this will significantly reduce the investments of new operators.

Spectrum sharing is a recently developed model prevalent only in mature markets and involves the leasing of spectrum by one operator to another on a commercial basis. With spectrum being a scarce resource that is often underutilised, spectrum sharing is a viable option that can be explored in the near future.

The MVNO model is also prevalent in many developed countries. MVNOs typically do not have their own network, nor do they have rights to spectrum; they have to rely on infrastructure sharing to reach subscribers and offer services.

Meanwhile, intra-circle roaming (ICR), when formalised, will enable new operators to provide national coverage by sharing the networks of incumbent operators in areas where they don’t have their own network. ICR accelerates competition by enabling new players to launch their services within shorter time frames.

Key challenges

While the telecom infrastructure industry has witnessed significant growth over the past few years, it has its own set of challenges. Telecom infrastructure-related capital and opex have been increasing significantly in the wake of falling profitability. Maintaining a high tenancy ratio is vital in the infrastructure sharing business. The higher the tenancy, the greater and faster are the returns on investment. With a large number of infrastructure players competing for a greater market share, achieving higher tenancy becomes a challenge.

An infrastructure provider needs to understand the implications of the operator’s growth strategy in the market and align its business accordingly. With growing demand from operators for simultaneous rollouts, there is an urgent need to invest in the network expansion programme. However, the global financial crisis, the recurring challenge of high inflation and higher interest rates in India, along with the volatility witnessed in the domestic markets, have made fund-raising from the market a major challenge for infrastructure players.

Rural penetration has been a key focus area for the government. Rolling out new sites and maintaining them is an arduous task. While the majority of the new subscribers are from the semi-urban and rural areas, falling ARPUs in these markets have become a deterrent for service providers looking to enter these markets. Even if an infrastructure player develops its site in the rural belt, recovering costs by acquiring tenants in these markets is a huge challenge. This is where telecom infrastructure companies have been particularly helpful. By offering low-cost solutions, they have helped to reduce the capex and opex requirements of operators in these markets.

Need of the hour

The infrastructure industry in India has played a crucial role in the development of the wireless sector. The extent to which India can realise the untapped potential of the telecom sector will depend on how well it can improve the economies of developing telecom infrastructure and optimally utilise the same. Therefore, the importance of telecom infrastructure should be considered at par with that of other infrastructure sectors such as power, ports and natural gas distribution. This warrants that telecom infrastructure companies be provided incentives similar to those offered to other infrastructure companies by the government.

The high level of growth in the sector will continue to drive huge investments in infrastructure and ensure a speedy rollout of networks into new areas. Given the substantial investments required in building infrastructure, it is important to encourage private sector participation in infrastructure development. The government should extend a tax holiday to telecom infrastructure companies that develop towers and other telecom infrastructure. This will provide a major boost to the sector and result in increased telecom penetration in rural areas of the country. In order to incentivise private sector participation in infrastructure projects, the state governments need to extend the exemption from state levies like value added tax, entry taxes and stamp duties to these projects. There is an urgent need for authorities at the central and state levels to work in tandem for achieving the objective of overall telecom infrastructure development.

In addition, being a highly capital-intensive sector, the benefits of accelerated depreciation would encourage further investments in expanding telecom infrastructure to rural areas. The launch of advanced technologies such as in-building solutions and distributed antenna systems as well as the use of green solutions would result in a significant increase in overall capital investments. To promote new technologies, the government needs to provide accelerated depreciation of equipment to the telecom infrastructure companies. This could address issues related to low rural teledensity and technology adoption among players.

Conclusion

The telecom sector has played a vital role in the overall growth of the economy. It has been amply supported by the innovative concept of infrastructure sharing, which resulted in reducing costs for operators while benefiting customers. In today’s highly competitive market and with growing rural penetration, the only way service providers can sustain their growth and profitability is by adopting infrastructure sharing as a model for reducing their financial burden. With its strong and diverse portfolio of innovative, cost-effective and energy efficient telecom infrastructure solutions that are 3G ready, Viom is confident of gaining a healthy share of this business in the coming years.