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On A Growth Path: 4G network roll-outs to drive infrastructure growth

March 13, 2014

In recent years, an overall slowdown in the Indian telecom sector owing to regulatory uncertainty and poor operator finances has impacted growth in the telecom infrastructure segment. Operators with a huge debt burden have faced challenges in raising capital. This is evident from the limited new infrastructure roll-outs. Meanwhile, rising energy costs and deployment challenges continue to impact segment growth. The increasing uptake of data services is seen as a key growth driver for the industry and will result in higher tenancies in the future. Further, the grant of infrastructure status to the industry will provide a major boost to the segment. tele.net talks to industry experts on the challenges facing the industry, the technology trends and the way forward…


What are the key growth drivers for the telecom infrastructure segment in India?

Pankaj Agrawal

The expected increase in tenancy at existing tower sites owing to the growing demand for data services will be a key growth driver for the telecom infrastructure segment. At present, the country has two tenancy models in place – a full tenancy model and the colocation or loading model. Going forward, the translation of data growth into full tenancies as against colocation tenancies will be crucial.

From the revenue perspective, full tenancies will result in maximum gains for infrastructure service providers. The industry can expect significant growth in full tenancies in case Reliance Jio Infocomm Limited decides to roll out 4G services using spectrum in the 1800 MHz band. In addition, the industry could witness marginal growth in tenancies with the expansion of existing 2G networks and the roll-out of 3G services using spectrum in the 2100 MHz band. Going forward, refarming of spectrum could also contribute to industry growth with operators migrating from the 900 MHz band to the 1800 MHz band. These developments will collectively account for about 20 per cent of the telecom infrastructure industry’s total revenues, while full tenancies will account for the remaining 80 per cent.

Further, the growing fibre-to-the-home market and the increasing demand for in-building solutions in sectors such as real estate offer business opportunities for infrastructure service providers. They are also targeting retail businesses and educational institutes through connectivity solutions like Wi-Fi.

Benoy C.S.

Next-generation technology deployments and the associated network roll-out, coupled with government initiatives in bridging the digital divide, will drive growth in the telecom infrastructure market. Data will drive the next phase of growth and operators are looking at broadband services to improve their ARPUs, and as a differentiating service.

Operators’ focus on data services would drive growth in the telecom infrastructure market as they upgrade their networks to support packet-based IP traffic as opposed to legacy time division multiplexing traffic. Besides, poor mobile and internet/broadband penetration in rural areas coupled with increasing demand for high quality, seamless broadband connectivity in metros will result in higher network spending.

Umang Das

The key growth drivers for the industry will be voice and data.

Currently, India sells over 50 million smartphone devices annually and data usage is growing at 25 per cent quarter on quarter. By 2015-16, the country will have 200 million smart devices. To support the exponential increase in data usage, the industry requires stronger networks.

Despite the encouraging growth in data usage, the contribution of data to total operator revenue is quite low in India as compared to other developed markets. The primary reasons for this include lack of adequate spectrum, affordable handsets and operator focus. However, with the introduction of advanced technology and more affordable devices, a mobile data boom is under way in India and this trend will gain momentum over the next few years.

To meet the growing demand for data services, operators will make further investments in existing 3G networks as well. Moreover, with the large-scale roll-out of 4G services, data services will continue to drive industry growth over the next six to seven years. Going forward, 3G network expansion and 4G network roll-out will continue to provide an impetus to the tower industry.

How has the grant of infrastructure status benefited the industry?

Pankaj Agrawal

The grant of infrastructure status has ensured easy access to capital for telecom infrastructure providers. Currently, access to capital has become easier as compared to two to three years ago. However, the key challenge for the industry is not related to securing capital but increasing tenancy on the existing infrastructure. With lower tenancies, the issue lies on the demand side rather than the supply side. Since players are not rolling out new towers, their capital requirements are not very high.

Benoy C.S.

Operators have faced issues in raising capital, which has resulted in low spending on network expansion. Considering the situation, the central government granted  infrastructure status to tower infrastructure providers in 2012. This move will benefit infrastructure providers by making them eligible for viability gap funding (VGF), a higher limit on external commercial borrowing (ECB), lower import duties and exemptions on excise duty on telecom infrastructure equipment. The provision of accelerated depreciation is unlikely to result in significant gains as the assets are already well depreciated.

Umang Das

Telecom towers are key to distribution of telecom services under a public-private partnership model, and, therefore, it is important for the industry to create a win-win proposition for all stakeholders.

The benefits of granting infrastructure status to the telecom tower segment are yet to be realised. However, we are hopeful that the recent recommendations made to the High Level Committee on Financing Infrastructure will bring in the advantages of infrastructure status to the industry. The recommendations made to the committee for further provisions for telecom financing include higher lending limits at low interest rates on domestic borrowing in the priority sector category and ECBs; and making infrastructure projects eligible for VGF.

These benefits are available for other infrastructure sectors and the industry expects that these will be provided to the telecom infrastructure segment as well.

What are the key challenges and issues faced by telecom infrastructure service providers? What steps are being taken by the industry to address these challenges?

Pankaj Agrawal

One of the major challenges for the industry is the existing structure of contracts between operators and infrastructure providers, which limits the scope for increasing tenancy.

For example, the US has adequate zonal regulations which allow a limited number of towers in a particular zone. The regulation ensures that the supply of tower assets remains constrained, which will increase tenancy. With increasing consumer awareness about health hazards resulting from tower radiations, India is also expected to adopt zonal regulations similar to the US and other countries.

In addition, telecom infrastructure providers are faced with operational challenges such as identifying appropriate sites to establish towers and obtaining regulatory approvals. Also, the industry has been unable to come up with a sustainable and effective solution to address its energy needs. In regions with low grid power availability, players continue to depend on small-scale renewable energy solutions. So far, the majority of clean energy initiatives have been taken on a pilot basis covering only 1,000 to 5,000 tower sites.

Going forward, the demand for more capacity on networks is expected to increase tenancy and also drive industry growth.

Benoy C.S.

The telecom sector witnessed slow growth in 2010 and 2011. The uncertain regulatory environment has posed various challenges for the industry. The sector was impacted by reduced sales as well as negligible telecom infrastructure spending on network roll-outs. Tower companies’ growth was also affected by lower-than-expected adoption of 3G services and slow roll-out of 3G networks. There were issues related to raising funds, which had a limiting effect on operators’ investments in network expansion. Further, hyper-competition and falling margins impacted operators’ expansion plans. The lack of a viable business case in semi-urban and rural areas has limited network roll-out in these regions. The industry also faces issues related to right of way (RoW) and high energy costs.

Umang Das

The industry faces various issues related to RoW, and interference by local municipalities or authorities while setting up telecom infrastructure. The government needs to ensure that all towns and cities are subject to uniform rates while establishing infrastructure assets so that the players are not discriminated against. In some states, multiple agencies including district-level/state-level committees are involved in issuing clearance, leading to considerable delay in the roll-out of telecom infrastructure. Moreover, policy decisions on relocation of telecom infrastructure should not be taken on an arbitrary basis.

Passive telecom infrastructure is a national asset, which has an important role to play in sectors other than telecom. The telecom sector is the first customer of established tower-based infrastructure. Over the next few years, the telecom infrastructure segment is going to play a key role in supporting growth in other sectors as well. Increasingly, telecom tower infrastructure is being used for offering IT, financial and educational services.

It is important to have a large passive infrastructure base to bridge the digital divide. Instead of focusing on complex policy issues such as RoW clearances, which involve coordination with local panchayats and municipalities, the industry should focus on facilitating telecom services.

The Tower and Infrastructure Providers Association has held many discussions with the Department of Telecommunications (DoT), the Telecom Regulatory Authority of India and several state government functionaries to address the issues being faced by telecom infrastructure service providers. For example, we have written to the chief secretaries of several state governments, drawing their attention to DoT guidelines which state that a copy of the Standing Advisory Committee on Radio Frequency Allocation’s (SACFA) clearance or a copy of the SACFA application for the said location submitted to DoT’s Wireless Planning and Coordination Wing and the registration number are sufficient for obtaining clearances.

As an industry, we have proactively taken steps towards building public awareness through operator-supported localised programmes with state authorities to address public concerns regarding issues such as health hazards from radiation  emanating from towers.

What are the emerging technology trends in the telecom infrastructure segment?

Pankaj Agrawal

With networks supporting higher traffic, the industry will witness widespread use of small cells along with macro cells. The usage will further pick up as operators provide services using spectrum in the 2.3 GHz band. Besides, solutions such as the distributed antenna system will witness greater uptake in the coming years.

Umang Das

With the ongoing discussions regarding refarming of spectrum, operators may deploy different technologies in individual circles instead of deploying an identical technology on a pan-Indian basis.

With “lite-anchor” sites, Viom Networks is well placed to help operators optimise their infrastructure. With more transparency on spectrum refarming, one-time charges and the cost of spectrum, there is huge potential for tenancies to increase over the next couple of years. On the technology front, outdoor base transceiver stations are an important part of the company’s roll-out strategy from an economic viewpoint.


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Discussion Board

A Shared Vision: Collaboration key to 5G development and deployment
  • Jean Pierre Bienaimé, Secretary General, 5G IA
  • Satish Jamadagni, Vice Chairman, TSDSI and Vice President, Reliance Jio Infocomm Limited
  • R.K. Pathak, Member Secretary, 5G HLF, and Deputy Director General (International Cooperation), DoT
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