Network Growth: Challenges and opportunities for towercos

Mobile telephony has become an integral part of life, serving as the backbone of India’s economic and social development in multiple ways. In recent years, it has revolutionised digital financial transactions and supported the JAM (Jan Dhan-Aadhaar-Mobile) initiative, aiding in financial inclusion and streamlining welfare schemes.   These achievements are made possible by the extensive network of telecom infrastructure, consisting of over 750,000 macro towers and numerous micro sites.

The telecom infrastructure industry came into existence in the early 2000s, with passive infrastructure companies (towercos) signing up for the Department of Telecommunications’ Infrastructure Provider Category I (IP-I) registration process.  Over the past two decades, the contributions of the telecom infrastructure industry are undisputed for enabling rapid telecom growth.

However, since the telecom sector has undergone changes in its outlook, it makes sense to review the achievements, assess the challenges and gain a perspective on the changing dynamics of the industry.

Here are the noteworthy achievements of the telecom infrastructure industry:  

• Elevated India’s overall tele density to over 85 per cent.
• Through sale and leaseback, telcos have hived off their passive infrastructure assets and unlocked value from their balance sheets.
• The towerco model has brought benefits of sharing, reducing telcos’ opex.
• Facilitated future-ready towers for 4G and 5G network technology deployment.
• Towers equipped with DC power ensuring network uptime better than 99.9 per cent.
• Average data consumption in recent years has grown multi fold to over 17 GB per subscriber per month, which has correspondingly increased the average revenue per user for telcos.
• With cost-effective operations, telcos in India offer the lowest data tariff rates.
• 95 per cent of towers are now grid connected, and 40 per cent are fibre backhaul-connected.
• Mobile connectivity in rural areas has reduced the digital divide.
• Energy is no longer a pass-through for telecom operators; it is now efficiency-driven and tariff-based.
• Implemented power backup with high efficiency valve-regulated lead-acid and lithium-ion batteries. These energy efficiency initiatives have helped telcos limit their fuel costs, contributing to overall cost savings.
• Reduced diesel consumption has contributed to carbon emissions reductions.

“By adopting innovative strategies, addressing regulatory challenges and diversifying their service offerings, towercos can position themselves for longterm success in the dynamic
telecom infrastructure space.”

Thus, the introduction of the towerco model has ushered in significant benefits for both telecom operators and infrastructure providers.  By outsourcing the management of passive infrastructure to towercos, telecom operators have been able to focus on their core business of providing telecom services.

Towercos, on the other hand, have benefited from shared infrastructure services contracts with long-term revenue streams and economies of scale.

Now, India’s total subscriber base is approximately 1.2 billion, of which 916 million are broadband subscribers. Through this extraordinary progress in the telecom sector, the country has been able to achieve a compound annual growth rate of almost 7 per cent in GDP over the past decade, becoming the fifth largest economy.

However, the journey of the telecom infrastructure industry has not been without its challenges.  Despite the significant achievements, towercos have had to navigate through various hurdles that have impacted their operations and growth prospects.

• One of the early challenges faced by towercos was the loss of tenancies due to licence cancellations of telecom operators by the Supreme Court, leading to revenue losses and, consequently, a decrease in the need for tower infrastructure.
• Furthermore, due to the entry of a new entity in the telecom space in 2016, several of the then-existing telecom operators had difficulty in managing competition and subscriber churn. Their unsustainable businesses resulted in consolidation among them, and in the past 10 years, the telecom operator count reduced from 10 to just three private and one government telco. With fewer telecom operator clients in the market, towercos have had to adjust their business strategies and struggled to maintain profitability and growth.
• Another related challenge faced by towercos was excessive delays in receiving outstanding payments from clients month over month. This created financial strain and liquidity issues.

In addition to these challenges, towercos may face further risks on account of the following:

• In the near future, financially burdened telcos’ additional investments in 5G network equipment and spectrum procurement may result in cash starvation. This may increase towercos’ efforts to collect dues. The associated potential risk is pricing pressure on towercos’ service offerings.
• With the proliferation of towers and in-fill sites, the demand for tenancy co-locations is likely to plateau in the near future.
• On the commercial front, for additional loading requirements of tenants, fees may be insufficient to justify additional capex spend.
• Any further consolidation in the four-player telecom market will pose a serious risk of substantially reducing tenancies beyond the viable limits of the towerco business.

Fortunately, despite the challenges, there are several emerging opportunities for additional revenue streams for towercos that can potentially offset the risks and drive future growth.

• One such opportunity is the fiberisation of towers for high speed backhaul connectivity into 5G radio access network. Towercos can capitalise on this opportunity by offering fibre backhaul solutions to telecom operators.
• An opportunity to provide additional power provisioning for radio and other active equipment on towers to meet the ever-increasing data consumption of subscribers.
• Deployment of small cells for network densification presents another opportunity for towercos to expand their service offerings.
• Further, towercos can utilise their field teams for first-level maintenance services for telcos’ active equipment after suitable upskilling. By offering maintenance services, towercos can provide value-added services to telecom operators while generating additional revenue streams.

Overall, these emerging opportunities present new avenues for towercos to transform themselves into “digital infracos” and create diversified revenue streams to drive future business growth in the telecom infrastructure space.

The way forward

The telecom infrastructure industry has made significant strides over the past two decades, playing a pivotal role in facilitating the growth and development of India’s telecommunications sector. From enabling widespread connectivity to driving technological advancements, towercos have been at the forefront of the industry’s evolution.

Looking ahead, it is imperative for towercos to navigate through the challenges and capitalise on emerging opportunities to ensure sustainable growth and success.  By adopting innovative strategies, addressing regulatory challenges and diversifying their service offerings, towercos can position themselves for long-term success in the dynamic telecom infrastructure space.

With the wisdom gained through experience, each towerco is better positioned to weigh its options and make decisions after carefully assessing growth opportunities and creating strong risk mitigation strategies.  This can protect the interests of its stakeholders, forming a win-win approach with the telco client for sustainable and healthy business engagement.

The telecom infrastructure industry will continue to evolve, adapting to technological advancements, market dynamics and regulatory changes. By embracing opportunities, addressing challenges and adopting a forward-thinking approach, towercos can navigate the changing dynamics of the telecom infrastructure space effectively, ensuring a robust and resilient industry for the future.

“The introduction of the towerco model has ushered in significant benefits for both telecom operators and infrastructure providers. By outsourcing the management of passive infrastructure to towercos, telecom operators have been able to focus on their core business of providing telecom services.”