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Tele Data

Mobile Subscribers Yearwise comparision

Riding on 4G: New growth avenues for infrastructure providers

April 04, 2017

The telecom infrastructure industry is on a growth path, driven by an operator focus on data network roll-outs. Further, initiatives like Digital India and the Smart Cities Mission require massive telecom infrastructural support, bringing new opportunities for infrastructure providers. The recently released right-of-way (RoW) rules have also given a major breather to the industry. Going forward, operator consolidation may slow down the roll-out of new infrastructure, but operators’ 4G push will ensure continued business momentum. Sector experts comment on the industry’s performance, growth drivers and outlook…

What have been the key trends in the telecom infrastructure space over the past few years?

Bharat Bhargava

The Indian telecom tower industry has expanded at a healthy pace and grown from around 100,000 towers in 2007 to over 450,000 towers in 2016 and installed over 1.3 million base transceiver stations (BTSs) by 2016. Infrastructure sharing has reached a mature stage, and the industry is reaping the benefits of reduced operational costs and needs fewer new towers. India enjoys an average of over two tenants per site, facilitated by neutral host tower companies (towercos). The entry of a new player has provided a fillip to the telecom infrastructure industry. Along with its co-location on towerco sites, the new entrant has self-deployed over 25,000 sites and announced plans to deploy a further 45,000.

The changing trends in the industry have led to a transformation for towercos as well. Even as telecom companies (telcos) have expanded their focus from just increasing coverage to investing in network quality and operational efficiencies, towercos too are aligning their capabilities with high efficiency equipment, data analytics and new technologies. Exponential growth in data usage has led to a need for network densification, giving rise to data traffic offload to micro sites. To meet this increase in infrastructure demand, towercos are investing in more micro sites, resulting in increased small-cell deployments. In-building solutions are also gaining prominence, as telcos aim to improve the quality of service (QoS) and further densify the networks.

Energy consumption has long been a concern for the industry. An estimated 2 billion litres of diesel is consumed per annum by telecom towers. Towercos have been steadily adopting green technologies to make operations more environment friendly.

The tower industry is also looking at consolidation, with scope for acquisitions in the tower business and divestments by telcos. Trends suggest that the proportion of telecom towers owned by independent operators is likely to rise over the next few years. Telecom operators are seeking to offload their towers, and use the proceeds to fund their capex and reduce debt. Moreover, leasing towers, rather than owning them, seems to be a more strategically viable option, especially in areas where there is a significant overlap in coverage. Another prominent trend is the regulatory support being given to infrastructure providers. Regulators and policymakers are facilitating the ease-of-doing business with initiatives such as improving spectrum availability through auctions, policies around the installation of towers on government land, and simplified RoW guidelines. The Indian Telegraph Right of Way Rules, 2016, is especially a welcome move, as it addresses one of the biggest concerns of infrastructure providers. The government’s BharatNet project is expected to give a further boost to telecom infrastructure in India.

Sharat Chandra

In the past few years, the telecom infrastructure industry has moved closer to opex reduction targets. It started with fragmented steps including technology changes that involved operational efficiency improvements, a shift from indoor to outdoor sites, energy hybridisation, energy footprint reduction and the introduction of renewable energy solutions.

Nitin Soni

Over the past five years, the telecom operators have expanded their 3G and 4G network infrastructure considerably. Operators have added substantial number of towers and network equipment to strengthen their network positions. Notably, Reliance Jio Infocomm Limited (RJIL), which has launched its commercial operations in September 2016, has added substantial infrastructure assets in the past five years. Its network is all internet protocol (IP)-based and is at par or, in some areas, better in terms of technology than the incumbents. Most telecom operators have segregated their tower assets by creating separate tower entities. For example, Bharti Airtel, Idea Cellular and Vodafone India formed a joint venture company called Indus Towers. Bharti Airtel transferred rest of its tower assets to Bharti Infratel. Similarly, Reliance Communications established Reliance Infratel. Jio has added its own towers and is renting towers from the incumbents and independent tower companies.

What has been the impact of 4G service roll-outs on telecom infrastructure companies?

Bharat Bhargava

The shift in focus from voice to data and the entry of a new telco have triggered competition among operators, driving them to build and expand their 4G networks. As per industry estimates, data consumption in India is expected to grow twelve-fold by 2020, driven by a sharp fall in data prices and a rise in smartphone penetration. High data demand and the need for network upgrades will lead to higher tenancies for towercos as telcos rapidly expand their 4G services. Another direct impact of 4G launches on infrastructure providers is the diverse spectrum holdings in India. Each operator has a unique mix of spectrum, from 800 MHz to 2500 MHz, while 4G has largely been rolled out on higher frequencies, which suffer from higher propagation losses. To maintain the QoS of data services in dense areas and to mitigate propagation losses, telecom operators require additional sites even in areas that already have coverage. This gives a boost to the infrastructure business in the form of new tenancies and deployments.

Sharat Chandra

The roll-out of 4G means higher data speeds with reliability and ubiquitous coverage. Reliability or availability is a pre-condition which the subscriber demands, as data services require online transaction readiness and five nines uptime. This calls for infrastructure that can deliver to such high expectations and a compromise here is unacceptable. Traditional modes of transformation, acceptability of failure rates and lack of accountability in multi-party-multi technology play at telecom sites will not yield the desired results. It demands a comprehensive shift towards handing over end-to-end technology, performance, and outcome-oriented service level agreements to a single party capable of handling large contiguous geographies for a multitude of towercos.

Nitin Soni

There has been only a limited impact of 4G roll-out on the tower companies. This is because the demand for 4G has been quite less. Unlike countries like China where there has been a phenomenal growth in the data demand, mobile internet has been only gradually gaining ground in India. Moreover, except in metro cities where 4G data consumption is increasing, most consumers in the country are still using 3G. The scenario is likely to change with RJIL’s entry, as it has been able to add a large number of 4G subscribers. The tower companies have definitely added more towers because of more demand for mobile data, which has not been particularly of 4G.

To what extent will the new  RoW rules be instrumental in addressing the challenges that the infrastructure industry faces?

Bharat Bhargava

The Indian Telegraph Right of Way Rules, 2016 is a promising step for the industry. It is a significant and bold move by the government, which will facilitate process simplification and offer a stable regime for future investments in telecom infrastructure. The new guidelines, which aim at ensuring uniformity across the country, will streamline the roll-out process for both over-the-ground and underground telecom infrastructure. High RoW costs, the absence of a single-window clearance process and the lack of uniformity in rules and RoW charges, with some states having exorbitant charges, are the long-standing pain points for the industry. This policy has addressed these concerns. The new guidelines aim to simplify the process for RoW approvals and land acquisition, and promote the speedy roll-out of optic fibre cable (OFC) networks. To reduce the time period for RoW authorisation, the new guidelines have introduced an online application system that will expedite the process and allow applicants to track their applications online.

The guidelines have brought in changes that reduce ambiguity and ensure more predictability to the overall process. They lay out a clear procedure and cost structure for obtaining permits to set up tower infrastructure, reducing the anomalies in non-uniform practices. Steps such as defining a 60-day time period for permit grants, and a written reason by the concerned authority for a rejection, will make the process more time-bound and transparent.

Sharat Chandra

The new RoW rules are a means but not an end in themselves. While they will assist fresh deployments and improve speed of action, the biggest gain will be in enabling fibre access. The new rules will certainly improve broadband penetration since OFC roll-outs are needed for the crucial backhaul. All projects that are aimed at boosting broadband penetration, such as BharatNet and public Wi-Fi, are likely to get a big boost with the issuance of these rules. However, it does little to remove the agonising lack of power infrastructure for tower sites.

Nitin Soni

Infrastructure companies have to obtain a lot of approvals at various stages for deploying towers and laying fibre. In this regard, the notification of the new RoW rules is a welcome step. However, their proper implementation will be the key to address the various challenges the industry faces.

How has the infrastructure industry’s energy cost changed in recent years? What are the key trends in the energy management space?

Bharat Bhargava

Energy costs contribute up to 50 per cent of the total operating costs of a typical tower site. These costs vary depending on factors such as BTS configuration, area of coverage and teledensity. As power costs continue to be a major challenge for the industry, towercos have taken measures to address this concern. For instance, towercos are moving away from their conventional diesel generator (DG) sets towards battery packs to avoid high diesel costs and carbon emissions. Eliminating or reducing diesel usage helps towercos save costs on diesel logistics and avoid theft. The tower infrastructure industry is also looking at renewable energy technologies. The adoption of solar, wind and biomass as alternative sources of power has emerged as a long-term power solution, with significant cost savings. As per industry estimates, 15 per cent of the total capex of towercos in 2014-15 was incurred on towers running on green energy. As another measure, towercos seek to reduce their overall energy consumption at tower sites. Towercos have traditionally been using air conditioning to cool the shelters in case of BTS overheating. These companies are now replacing these indoor air-conditioning units with alternative cooling systems such as free cooling units (FCUs), which substantially reduce the electrical load requirement. FCUs reduce energy consumption at tower sites by up to 30 per cent. Telcos are also opting for multi-technology BTSs, which are outdoor or pole-mounted.

Sharat Chandra

There has been an improvement in grid availability, which has resulted in an overall reduction in energy costs due to reduced DG run time. Various other measures that have been taken up by the industry include an indoor to outdoor shift of the power plant and batteries, hybridisation of energy, inclusion of renewable energy solutions and the introduction of lithium battery platforms. All these measures have helped reduce costs by 5-10 per cent year on year, depending on where they are deployed, the extent of deployment and the intensity of top management engagement in doing so.

Nitin Soni

There has been only a limited improvement in terms of energy management. Some of the operators and tower companies have been able to reduce energy costs and do away with the diesel generator sets by using new and less energy intensive equipment. However, any major structural improvement has not yet taken place.

With the telecom industry heading towards consolidation, what is your outlook for the tower industry?

Bharat Bhargava

The telecom industry has witnessed some significant deals in the past few years and is likely to see further consolidation with two leading telecos confirming their merger discussions. Telecom operators have lately been in distress due to higher debt and declining margins, further affected by the entry of a new player offering free voice and data. The need for investments in networks has prompted several operators to consolidate as well as monetise their towers. Industry consolidation is likely to have an impact on telecom infrastructure providers. In the short term, consolidation will negatively impact the tower industry due to reduced demand for new sites and tenancy loss because of site overlaps. However, this short-term impact is expected to be largely offset by the infrastructure demand arising from exploding data usage and network upgradation with the roll-out of 4G and other new technologies. Also, in the medium-to-long term, as a result of industry consolidation, an increase in demand is expected when networks integrate and coverage gaps get addressed. Additionally, with increased network congestion in dense areas and higher indoor usage, there is a huge opportunity for towercos to deploy in-building solutions and smaller cell sites.

Sharat Chandra

Consolidation yields several benefits, including more efficient use of resources – financial, manpower and infrastructure. It eliminates duplication and redundancies. Most of all, it makes available additional resources in technology and capabilities that are individually not available to entities not yet consolidated. Consolidation will bring all these benefits to the telecom industry as well. When large players become larger, there is a risk of monopolistic control, which in the case of the telecom industry does not bring much worry as there is enough competition to ward off such threats. Consolidation will bring a more organised ecosystem for energy management and the business play of comprehensive outsourcing, which has so far remained dormant and fragmented due to lack of understanding, interest and consequent willingness for mass-scale deployment.

Nitin Soni

Consolidation in the operator space will not necessarily be disadvantageous for the tower industry. With consolidation, there would be a temporary decline in the demand for new towers. But in the medium to long term, the demand for towers will increase with the increase in demand for data. Moreover, consolidation will reduce some inefficiency by combining the tower assets of the merging companies or the towers of other independent towercos used by these operators.

 
 

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