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Defined by Data: Key drivers, trends and strategies for telecom infrastructure industry

March 18, 2016

The unprecedented telecom growth in India has been achieved on the back of robust tower and fibre infrastructure across the length and breadth of the country. In recent times, the telecom infrastructure industry has seen the emergence of new growth drivers and changing business dynamics. The increasing roll-out of 3G/4G networks to address the surge in data demand has resulted in new tower roll-outs as well as a rise in tenancies on existing towers. Meanwhile, the growing operator interest in rural areas to drive business growth has opened new avenues for tower industry players.

Government initiatives like Digital India and the Smart Cities Mission will require massive infrastructural support, allowing tower companies to play a bigger role in their successful implementation. The BharatNet project has already given a major boost to fibre roll-outs with its aim of providing broadband connectivity to 250,000 gram panchayats by 2017 through optical fibre cable (OFC).

“Go green” has become a central theme for the tower industry’s operations as players try to reduce diesel usage and fuel costs by deploying renewable energy hybrids. Energy storage solutions are also finding many takers.

The year 2015 has been a particularly significant one for the infrastructure industry, with some level of consolidation taking place. The American Tower Corporation (ATC) merged with Viom Networks by acquiring 51 per cent stake in the latter for Rs 76 billion. Considered one of the biggest foreign direct investment moves in India since 2014, the deal will result in ATC holding nearly 65 per cent in the merged entity, which will be the second largest tower company in the country. The combined entity will own 56,000 towers, second only to Indus Towers, which is the world’s largest independent tower company with over 100,000 towers. Prior to this, in May 2015, ATC had acquired KEC International Limited’s assets in Chhattisgarh, Meghalaya and Mizoram.

A look at the main trends in the telecom infrastructure segment, along with the prevailing challenges and the way forward…

Data as the key growth driver

As the industry records an explosion in data usage, the capacity at existing sites is proving to be inadequate. With all major players having enhanced their 3G and 4G reach in the country over the past few months, additional sites are being rolled out and tenancies on existing ones are being increased.

For instance, Idea Cellular, which launched 4G services in December 2015 in four southern circles, adopted the strategy of transplanting 4G equipment on existing 2G and 3G towers. It recently enhanced its 4G reach in Karnataka to 39 cities, making around 1,000 towers 4G-ready. Similarly, Vodafone India set up 250 3G-enabled towers in Kolkata and 783 other such sites in the West Bengal circle during April-December 2015.

Monetising tower assets

Monetising tower and fibre assets, either by sharing or fully offloading them, has emerged as a key strategy for debt-laden operators to seek fresh capital. With its robust infrastructure, Bharat Sanchar Nigam Limited has been considering this option for reviving its financial health. It recently got the cabinet’s nod for hiving off its tower assets into a separate company. Meanwhile, Bharti Airtel divested its tower assets in Africa as part of an ongoing deleveraging exercise. Idea Cellular is also reportedly scouting for a buyer for its 11,000 towers. Similarly, GTL is planning  to sell the operations and maintenance business of its 28,000 towers. It is also open to diluting its stake and forming joint ventures.

In a major development, Reliance Communications (RCOM) finally managed to find suitors for its tower arm, Reliance Infratel. The operator had been trying to sell its tower business for many years in a bid to use the proceeds to pare its debt. It has now signed a term sheet with private equity (PE) firms Tillman Global Holdings and TPG Asia to transfer the ownership of its towers to a separate special purpose vehicle, which will be 100 per cent owned by the two PE firms. RCOM will continue using the towers as an anchor tenant. Tillman and TPG will also evaluate the purchase of RCOM’s extensive nationwide intercity and intra-city optic fibre assets in a separate and independent transaction.

Strong case for fibre deployment

The surging data uptake has also given a major boost to fibre deployment across the industry. Given the massive bandwidth capacity of OFC, operators are keen on building robust fibre channels for delivering high speed services. Reliance Jio Infocomm Limited (RJIL), for instance, is betting big on fibre as the appropriate channel for sustaining 4G data traffic on its networks, and has rolled out more than 250,000 km of OFC. Meanwhile, Vodafone India is planning to acquire cable operator YOU Broadband in a bid to leverage the latter’s OFC capacity. YOU Broadband has around 3,000 km of OFC and 6,000 km of last mile cables across 12 cities, including Mumbai. Operators are now fiberising their backhaul in a big way as cabled backhaul can significantly enhance tower capacity.

Shift towards small cells and Wi-Fi

As the traffic on macro sites shoots up, operators are exploring new strategies to offload data, instead of opting for the traditional route of rolling out macro sites. In such a scenario, tower companies are leveraging emerging opportunities in in-building solutions, small cell solutions and Wi-Fi. In developed markets, they derive a significant portion of revenue from small cell network solutions. For instance, ATC generates 2-3 per cent of its revenue through small cell offerings. In the US, the deployment of such solutions is still limited, though some activity is now being recorded. In September 2015, Bharti Infratel incorporated a new subsidiary, Smartx Services Limited, to focus on setting up Wi-Fi hotspots to serve telecom operators and others on a shared basis. Bharti Infratel has also done some in-building coverage projects for airports. It is also looking at hotels and hospitals and offering in-building solutions on a shared basis with operators.

Even Indus Towers is taking the small cell route for supporting 4G launches. It is in talks with municipal authorities to host small cell towers on city infrastructure like street lights, bus stops and billboards.

Potential risks and challenges

Operational challenges during tower installation and fibre roll-outs are common in the telecom infrastructure industry. However, in recent years, they have been magnified by policy inconsistencies at the state level. State governments have their own regulations pertaining to tower installation and the grant of right of way (RoW) for fibre deployment. Operators are often not allowed to install towers near schools and hospitals due to potential health risks from electromagnetic field radiation. Tedious RoW approval processes and exorbitant charges have also discouraged operators from undertaking significant fibre roll-outs. In addition, energy management has emerged as a key pain point for tower infrastructure providers as about one-third of the opex of a tower site is on account of power requirements.

Apart from operational issues, the telecom infrastructure industry will now have to brace itself for fundamental risks arising from the trend of operator consolidation. This will affect the need for additional sites and also have a negative impact on the tenancies for tower companies. There are increasing instances of tower and fibre sharing, which will become more prominent as operators opt for spectrum sharing and trading going forward. RCOM recently signed a spectrum trading agreement with RJIL for spectrum in the 800 MHz band in nine circles and also agreed to spectrum sharing in the same band across 17 circles. Earlier, Idea Cellular had announced buying spectrum from Videocon in two circles in the 1800 MHz band.

Outlook 2016

The telecom infrastructure industry is exhibiting a mixed growth outlook in the near term. Operator consolidation is likely to hit the tower business as there will be limited or no new roll-outs, while some existing sites will be made redundant. However, this downslide in the growth forecast will be balanced by the surging demand for more 3G/4G tenancies and towers as incumbents venture into new geographies. As per Deloitte, industry tenancy is expected to grow from 1.77 (2015) to 2.48 by 2020, primarily due to the focus on data. Data network roll-outs will be driven by capacity enhancement in urban areas and by coverage expansion in semi-urban and rural areas.

Expanding their scope from traditional macro site installations to include micro sites, small cells and Wi-Fi deployment will also open up new opportunities. ensure the timely completion of projects. For instance, TRAI’s BharatNet recommendations suggest increased private sector involvement, coupled with support from state governments. Meanwhile, an international gateway with collaboration from Bangladesh was set up within a record time of six months. Similar innovations are required for wireless services projects as well as they are currently being executed at a slow pace.

Another important aspect in setting up rural telecom infrastructure is the timely disbursement of finances from the USO Fund. According to USO Fund data, a total of Rs 213.3 billion has been allocated, while the total collection stands at Rs 701.2 billion. The efficient utilisation of unallocated funds and regular monitoring of the physical progress of government projects will enable the establishment of rural telecom infrastructure in a time-bound manner. This will help bridge the mobile and digital divide between rural and urban areas.


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