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Shared infrastructure in India: Jaideep Ghosh, Executive Director, and Dipayan Ghosh, Manager, KPMG Advisory Services, India

March 24, 2011

Evolution of the telecom infrastructure industry in India 

The Indian telecom industry has witnessed phenomenal growth in recent years. With 790 million subscribers across 23 circles and 16 operators, it is currently the second largest and fastest growing industry in the world. To support such accelerating volumes, there has been a huge growth in the telecom tower industry with significant investment from the investor community in the past three years. India currently has approximately 340,000 towers with 500,000 tenants. This is expected to increase to 450,000 towers with 900,000 tenants in the next three years.

The number of mobile switching centres (MSCs), which stood at 613 in March 2007, had grown to 1,234 by September 2010. The number of base transceiver stations (BTSs) also showed a considerable increase, growing from 72,550 in March 2006 to 560,276 in September 2010.

High costs of telecom infrastructure 

A high initial capital investment is a major challenge faced by the industry. On an average, the capex for a rooftop tower is Rs 1.5 million to Rs 2 million and for a ground-based tower is Rs 2.4 million to Rs 2.8 million. However, this can be a high EBITDA business through a tenancy of 1.7 to 1.9.

Towards cost optimisation of telecom infrastructure 

To enable the efficient running of their businesses, tower companies and telecom operators are increasingly focusing on graded methods of capex and/or opex savings. Towards this, various business models have evolved in recent years, such as energy audits benchmarking, critical process improvements and field maintenance. However, infrastructure sharing and energy management have proven to be prominent and efficient ways of reducing costs.

Sharing telecom infrastructure 

In general, the type and form of infrastructure sharing prevalent in a country is mostly dependent on its regulatory framework. As such, there are four prevalent forms of infrastructure sharing.

Passive infrastructure sharing (site sharing) 

In this form of sharing, the non-electronic infrastructure at the cell site is shared, such as site space, buildings and basements, towers and masts, power supply and transmission equipment. This kind of sharing is suitable for densely populated areas that have limited availability; expensive sites such as underground subway tunnels; and rural areas with high transmission and power costs.

The key strategic drivers for passive infrastructure sharing are:

• Lower site acquisition times for entrants

•  Access to locations of strategic importance, particularly where space for new sites is limited

•Increased likelihood of obtaining planning permission for new sites

•  Reduced opex (site lease)

•  Expansion into previously unprofitable areas by reducing capex and opex needs.

•    Environmental and alleged health concerns, for example, increasing pressure from environmental groups on existing operators to reduce the number of cell sites due to health concerns.

In India, TRAI has allowed sharing of passive infrastructure. To unlock the potential of site sharing, the key tower companies that were formed include Indus Towers (formed from the aggregation of towers held by Bharti airtel, Vodafone and Idea Cellular), Bharti Infratel (Bharti airtel towers in some telecom circles), Viom Networks (after merging Wireless TT Info Services Limited – the tower arm of Tata Teleservices – and Quippo Telecom Infrastructure Limited) and Reliance Infratel (the tower arm of Reliance Communications). Besides this, independent tower companies also emerged such as Quippo Telecom Infrastructure Limited, Essar Telecom Infrastructure, Global Telesystems Infrastructure, etc. International companies such as the American Tower Corporation and Towervision also established a presence in the past few years, through organic and inorganic routes.

Active infrastructure sharing (network sharing) 

In this model, operators typically share the RBS, RNC, mobile services switching centre/visiting location register (MSC/ VLR), and serving GPRS support node (SGSN). Each operator, however, has its own individual home network that contains the independent subscriber databases (such as HLR and AUC) services, subscriber billing and connections to external networks. TRAI has allowed active infrastructure sharing limited to antenna, feeder cable, node B, radio access network and transmission systems only.

While active infrastructure sharing will help the new operators survive in an increasingly competitive scenario, it will be a new source of revenue for existing operators, who will derive benefits from capex and opex savings. However, bottlenecks in the adoption of active sharing are the lack of points of interface for interconnections and degree of loss of control over the shared equipment.

Spectrum sharing 

Also known as spectrum trading, this model has recently surfaced in mature, regulated environments. It entails operators leasing part of their spectrum (if under-utilised) to another operator on commercial terms. However, spectrum sharing is not permitted in India yet.

Mobile virtual network operator 

Mobile virtual network operators (MVNOs) typically have no network and spectrum rights of their own; although some advanced MVNOs build parts of their core network needs, they basically rely on infrastructure sharing to get access to subscribers and offer services.

Global examples of infrastructure sharing 

Globally, tower sharing has emerged as a key growth driver for the telecom industry, providing such benefits as reduced carbon emissions, cost reduction, faster rollout and improvements in asset turnover.

Current status of tower infrastructure industry in India 

The Indian tower infrastructure industry is highly fragmented, with over 50 tower companies and a low average tenancy ratio. This leads the market to tilt in favour of the large tower companies. The tenancy levels have not been increasing at the rate that was expected. This has been primarily due to the slowdown in equipment imports and uncertainty over the licensing conditions of the new operators.

The large tower companies, with a wide portfolio, established tenancy and strong financial position are more geared to provide attractive discounts on rentals and invest in research and development. Moreover, with the launch of 3G, BWA and MNP, the competitive pressures would increase further, making it more challenging for smaller companies.

To retain attractiveness, the tower infrastructure providers need to focus on lowering power costs for telcos. Passive and active infrastructure sharing can provide efficient energy savings to telecom operators.

Energy management through infrastructure sharing 

Almost 86 per cent of a communication service provider’s (operator’s) energy is consumed by its network. The energy needs of a telecom tower in India are currently met through electricity mains,diesel generators  (DGs), and UPS/battery racks.

Due to electricity shortages in major parts of India, diesel generators are used to power telecom networks as a power back-up. On an average, DGs operate for 8-10 hours in rural areas and three-five hours in urban areas, putting a stress on the environment by way of carbon emissions and noise pollution. The diesel consumption figures are as follows:

• ~30 litres of diesel is consumed per tower per day

•  1 litre of diesel emits 2.6 kg of CO2.

Therefore, if there was no tower sharing in India, the total consumption of diesel would have been about 15 million litres per day. Due to the current tenancy level of 1.55, this consumption has reduced by almost 5 million litres per day.

Further, if the tower industry achieves the desired tenancy levels of 1.9, infrastructure sharing alone would provide an energy saving potential of 20 million litres of diesel, reducing about 50,000 tonnes of CO2 emissions per day.

It is also estimated that active sharing of sites can reduce the number of elements in the network by 40 per cent for the same coverage, thereby consuming close to 40 per cent lesser energy.

However, given the power shortage in India, each tenant currently consumes nearly 3,000 litres of diesel every year on an average, even on a shared tower. This means that the telecom industry is expected to consume 2.5-3 billion litres of diesel every year, depending on the extent of sharing. To arrest the increasing expenditure on energy by telecom networks, various energy efficient solutions are gradually being adopted. Some of them are free-cooling (about 20 per cent saving), passive cooling (about 25 per cent saving) underground batteries and solar sun roofs.

Alternative sources of energy 

Tower infrastructure companies have been keen on reducing carbon emissions further by concentrating on alternative sources of energy and innovative methods.

Photovoltaic (PV) cells – PV cells or solar energy can be widely used to power telecom sites. Solar energy has a good saving potential of up to 3 kW of DC load and is best suited for ground-based outdoor towers. By replacing DGs with solar panels, a significant amount of carbon emissions (more than 5 million tonnes) could be prevented. On an average, tower costs account for 30 per cent of the total operating expenses of a telecom tower company. Moving away from diesel and towards alternative sources of energy would result in savings worth $1.4 billion in operating expenses for tower companies.

Telecom players are now investing heavily in energy efficient systems that will involve a domestic trading scheme for energy efficiency, certified under the National Mission on Enhanced Energy Efficiency under the National Action Plan on Climate Change. Assuming that 30 per cent of the 500,000 rural towers will use solar PVs by 2015, at Rs 3 million per tower, the business magnitude is Rs 450 billion.

Fuel cells – Fuel cells that require hydrogen and air to create DC electricity have a high efficiency of conversion and can operate in environments from 0 °C to 50 °C.

Wind and solar energy – Renewable sources such as wind energy can be used abundantly in various parts of India. A typical project for implementation of a 7.5 kW wind turbine, battery bank and 15 kVA DG would be Rs 1.8 million-Rs 2.2 million  and provide a load of 15 kW to the BTS along with DC air conditioners. However, it saves about 600 tonnes of greenhouse gases and about 3.6 tonnes of air pollutants over a life of 30 years. Similarly, solar energy is emerging as an alternative source for telecom towers, especially considering its increasingly favourable economics, reduced logistical aspects and environment friendliness.

Conclusion 

To enable operators to take the next leap forward in the implementation of advanced technologies, it is pertinent that telecom infrastructure proves cost effective. The optimisation of costs, as already initiated through the effective sharing of infrastructure, needs to be further supported by energy reduction. Given the current scenario of the industry, large cash-rich players are more suited to direct the industry towards the right path, by investing in research and development. Smaller and newer players would, in the near future, join the big players through consolidation. Indeed, passive and active infrastructure sharing could contribute considerably towards introducing green telecommunications in India.

 
 

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