Telecommunications infrastructure lies at the heart of increasing access to communication services that have transformed social and economic life in the country. The Indian telecom sector is the second largest wireless market in the world with a total wireless subscriber base of over 700 million. The flagship of the country?s liberalisation story, the telecom sector has made significant contributions to the GDP.
The exponential growth of the sector has been possible in large part by the telecom infrastructure industry. The concept of infrastructure sharing, in particular, has fuelled this growth, enabling rapid expansion by existing operators and facilitating service rollouts by new operators. Infrastructure sharing has made it possible for operators to offer price-effective solutions by providing them various cost benefits.
Growth promise
The telecom industry is realising the potential of infrastructure sharing. Currently, telecom infrastructure provisioning costs account for 65-70 per cent of an operator?s opex. A telecom operator offering wireless services can save up to 30 per cent of capex and 15 per cent of opex by sharing telecom infrastructure. As a result of the reduced burden of building and managing their own network infrastructure, which was the case earlier, telecom operators today are focusing on offering innovative and cost-effective products to the consumers and enhancing their ARPUs.
Now, as telecom operators gear up to roll out services in the hinterland and enhance mobile penetration in rural areas, following the auction of 3G and broadband wireless access spectrum last year, infrastructure companies are set to play a key role in this journey. For both telecom operators and infrastructure companies, rural India ? the last remaining greenfield opportunity ? presents significant scope for growth, given the low teledensity in these areas.To tap this opportunity, telecom infrastructure companies are coming up with offerings for telecom operators. For instance, Viom Networks has taken initiatives to provide cost-effective and energy efficient rural solutions to its operator partners.
Telecom infrastructure sharing works on a business model that depends on multiple operators simultaneously rolling out their respective networks against aggressive timelines. Multiple tenancy at a single site helps reduce the rental for every operator while at the same time reducing operational costs due to cost sharing. For operators to remain successful in the rural markets, it is imperative that they share infrastructure and reduce their operational costs. This would not only help them expand faster and tap newer markets but would also ensure that they remain profitable in these low-ARPU, low-density areas.
Exploring green energy solutions
Infrastructure companies have been investing significantly in R&D to tap alternative energy sources such as biomass-based gensets, fuel-saver catalysts, fuel cells, compressed natural gas and energy storage platforms. Telecom infrastructure companies are undertaking trials on renewable energy sources such as windmills and solar energy at their sites. Although the initial cost of these renewable energy solutions is higher than that of conventional equipment, the cost difference can be offset over a period of time with wider implementation. They also offer the benefits of generating clean energy while reducing the carbon footprint.
What lies ahead
Telecom markets across the globe have gone through various stages of growth and adopted different models of infrastructure sharing to promote growth in the sector and enhance the efficiency of operators. India too may witness international trends such as active infrastructure sharing, spectrum sharing, mobile virtual network operator (MVNO) and intercircle roaming (ICR).
The sector is awaiting permission to share active infrastructure, which the government is currently deliberating over. Even though network sharing requires additional planning and deployment efforts to accommodate each participating operator?s capacity requirements, if allowed, this move would significantly reduce the investment made by new operators. Spectrum sharing is a recently developed model, prevalent only in mature markets, involving the leasing of spectrum by operators to other operators on a commercial basis. Spectrum, being a scarce resource that is often underutilised by an individual operator in a given area, makes a good case for sharing as a viable option that could take shape in the near future.
Similarly, the MVNO business model is prevalent in many developed countries. Typically, MVNOs do not have a network and rights to spectrum and usually have to rely on infrastructure sharing to get access to subscribers and offer services. On the other hand, ICR, when formalised, will enable new operators to provide national coverage by sharing the networks of incumbent operators in areas where they don?t have their own. ICR accelerates competition by allowing new players to launch their services within shorter time frames.
Key challenges
While the telecom infrastructure industry has witnessed strong growth during the past few years, the players in this space have their own set of challenges to deal with. Telecom infrastructure-related capex and opex are becoming unmanageable with profitability falling. Maintaining a high tenancy ratio becomes extremely crucial in a sharing business. The higher the tenancy, the greater and faster is the return on investment. With a large number of infrastructure players competing for greater market share, achieving higher tenancy becomes even more challenging.
An infrastructure provider needs to understand the implications of an operator?s growth strategy and align its business accordingly. With significant demand for simultaneous rollouts coming from new operators, there is an urgent need to invest in the network rollout programme. However, with the global financial crisis, the recurring challenge of high inflation and hence, higher interest rates in India, as well as the volatility witnessed in the domestic markets, raising funds has become a Herculean task for infrastructure players.
The government has a strong focus on rural coverage. The rollout of new sites in rural areas and their maintenance is a challenging task. While the majority of new subscribers are coming from semi-urban and rural areas, falling ARPUs in these markets are acting as a deterrent for telecom service providers looking to enter these geographies. Even if an infrastructure player sets up its site in the rural belt, recovering costs by getting tenants in these markets is a big challenge. This is where telecom infrastructure companies have been playing a big role by reducing the capex and opex requirements of operators and offering them low-cost solutions.
Need of the hour
The infrastructure industry in India has played a key role in the development of the wireless sector. The extent to which India realises its untapped telecom potential will depend on whether it can improve the economies of setting up telecom infrastructure and creating conditions for its optimal use. Therefore, it is imperative that telecom infrastructure is considered at par with other infrastructure sectors such as power, ports and natural gas distribution. This warrants that telecom infrastructure companies be provided incentives that are similar to those given to other infrastructure companies by the government.
Given the substantial capital investment required in building infrastructure, it is also important to have private sector participation in infrastructure development. The government should extend tax holidays to telecom infrastructure companies offering towers and other telecom infrastructure as is given to the power sector, ports, natural gas distribution, etc. This would provide an impetus to the sector and result in increased telecom penetration in rural India. In order to incentivise private players to participate in infrastructure projects, the state governments need to extend the exemption from state levies like value-added tax, entry tax and stamp duty for these projects. The authorities at both the central and state levels need to work in tandem to achieve the objective of overall telecom infrastructure development.
In addition, being a highly capital-intensive sector, benefits such as accelerated depreciation would encourage further investments in expanding telecom infrastructure to rural areas. The introduction of newer technologies such as IBS and DAS, and use of green energy solutions would lead to a significant increase in the overall capital investments. As an incentive to promote innovative technologies, the government needs to extend the accelerated depreciation of equipment scheme to telecom infrastructure companies. This scheme could address current infrastructure deficiencies such as low rural teledensity and lack of adoption of newer technologies among the players.
Conclusion
The telecom sector has played a vital role in the overall growth of the economy, amply supported by the innovative concept of infrastructure sharing, which has resulted in reducing costs for operators while benefiting customers. In today?s extremely competitive market, and with a view to enhancing rural penetration, the only way service providers can sustain their growth and profitability is by adopting infrastructure sharing as a model to reduce their financial burden. With a strong and diverse portfolio of innovative, cost-effective and energy efficient telecom infrastructure solutions that are 3G-ready, Viom is extremely confident of garnering a healthy share of this business in the coming years.
