The past year was an eventful one for the telecom sector, with data uptake, especially wireless broadband services, registering a phenomenal increase. This was facilitated by telecom operators’ migration to data networks, which, in turn, created vast opportunities for infrastructure providers. Besides providing plain tower services, these companies are now exploring opportunities in the areas of in-building solutions, fiberisation of sites, microcells and Wi-Fi hotspots. The industry is also increasingly using automation and real-time monitoring solutions, while also adopting green and energy efficient solutions. Batteries and storage solutions have become a key part of a tower company’s energy management strategy. In terms of future opportunities, programmes such as Digital India and the Smart Cities Mission will call for new infrastructure development to enable pan-Indian connectivity. The unprecedented growth in the adoption of digital services like payments, e-governance and entertainment will facilitate further investment in the telecom infrastructure space.
tele.net recently organised a conference, “Telecom Infrastructure in India”, to discuss the key emerging trends in the telecom infrastructure space, the latest innovations and promising technologies in this space, and study the impact of recent policy and regulatory developments. Experts from leading tower companies shared their views on the opportunities and challenges faced by infrastructure providers and the future outlook. Excerpts…
These are interesting times for the Indian telecom industry, which is witnessing several emerging trends. The industry is going through deep consolidation at present. The sector has at one point in time seen the presence of as many as 12 players. It clearly needs to have fewer players, healthy players that can yield bigger and better dividends for the industry as well as for the end-user. We have finally entered that phase now. Operator consolidation may lead to some de growth in tower installations over the next 12-18 months but beyond that, we are optimistic of seeing a hockey stick kind of growth.
Second, there is a better alignment between what the government wants and what the industry can deliver. There is a significant push from the government through the Digital India and Internet for All programmes. It is a well-accepted fact that higher internet penetration will transform into higher GDP.
Third, sharing of infrastructure has become the norm. The Indian telecom tower industry, through its successful sharing model, has resulted in savings worth $4 billion, while significantly improving the time-to-market. Sharing has become a way of life and eventually, several other stakeholders in the value chain will also embrace this model. For instance, sharing of fibre, in-building solutions (IBS) and even the manpower deployed on ground are gaining traction.
Fourth, the industry is taking ownership to ensure that there is a timely roll-out of new technologies in order to be in sync with global trends. There is currently a race globally to deploy 5G as quickly as possible. Aggressive timelines have been set and regulators are competing with one another to get the 5G ecosystem in place. That said, the Indian telecom sector is experiencing intense competition. The situation that we are witnessing today, where the incumbent players are being challenged in their own game, has been unheard of in the past. It is a war for acquiring market share. This is benefiting customers though, and has heralded an era of hyperconsumption. During the past year, data consumption per user has gone up almost 40 times, choking the networks. However, the flip side to this has been growing industry debt. It is ironical that we are in a situation where some companies would have rather shut shop had it not been for the huge debt they carry on their books. There is a need for the realignment of industry business models. The industry is being characterised by asymmetric value creation, which means that despite pumping in investments worth billions of dollars on capex, company valuations remain flat.
Given the mounting price pressure on operators and its resultant effect on us, a new baseline of cost needs to be established in the next one or two years. The tower industry is also seeing a new type of infrastructure roll-out. Often called street infrastructure, it involves the lighter set of sites. Installing as well as maintaining such sites is very different from what has been done in the past. Further, the industry is set to embrace automation and internet of things in a big way. Automating the basic repeat systems ensures that the deployed manpower is upskilled to do higher-order work.
The sector is going through massive change on several counts and Indus Towers is in the middle of all this change. We have a portfolio of close to 125,000 towers and have crossed 280,000 tenancies. We are actively participating in smart city projects and have also forayed into the fibre space. As a tower company, we are poised to play a larger role in connecting towers and deploying IBS. Indus has created one of the world’s largest delivery machineries. With almost 30,000 deployed field force working round the clock, we managed to deliver almost one project every two minutes in 2016.
“Infrastructure sharing has become a way of life and eventually several other stakeholders in the value chain will also embrace this model.” Bimal Dayal
We are currently at a crossroads, which is somewhat unprecedented in the telecom industry. The data demand being witnessed today could not be expected, let alone anticipated, till about three years ago. One gigabit a day will soon become the new industry norm.
In the past few months, consumers have exhibited a strong demand for data but very little willingness to pay for it. So, the turmoil in the market today primarily revolves around the challenge of making unlimited data available to consumers at virtually no price. The demand price elasticity has not been tested yet. We may get a market test of this done in the next three to six months. Regardless of where the price wars stop, it is imperative to recognise that there exists a huge data demand, which will only grow over time as buying power improves and service delivery becomes more efficient.
Further, the government’s ongoing focus on digital empowerment and transition to a cashless or digital economy is commendable. There is probably no other instance around the world wherein a government has taken on such ambitious targets of digitising the economy. Unfortunately, the same government is posing several challenges to the financial health of the sector by burdening it with high taxation. Treating the industry like a cash cow is proving fatal to its financial health.
Given the severe price competition, profitability has taken a hit. The kind of returns that the sector makes today are not sufficient to cover even the normal capex spend of a typical carrier anywhere in the world. And interestingly, we are not at a normal stage. Instead, we are leapfrogging from 2G to a full 4G scenario, and will ultimately move to 5G. As a result, the telecom industry needs to step up its network investments phenomenally over the next five years. But given their current financial state, arranging for so much money remains a big question mark. The industry is turning to cost cutting in a big way. Unfortunately, tower companies constitute a large part of the costs borne by operators. In a bid to squeeze these costs out of their own system, operators put pressure on tower companies in terms of pricing and discounting. In the next three to five years, if the industry has to install about 100,000 towers, excluding small cells and IBS deployment, a minimum investment of Rs 500 billion is required by the telecom infrastructure provider community.
Further, operator consolidation will, in the short term, lead to a reduction in tenancies as carriers will rationalise their networks. However, the resultant carrier is much stronger than the sum of the parts and it thus grows at a much faster rate, creating opportunities for tower companies in the medium to long run.
The sector’s current situation calls for collaborations between carriers, infrastructure providers and the government. To this end, tower companies and operators will have to redefine their relationship, from the typical vendor-customer, somewhat antagonistic relationship today to one of partnership. Further, the industry needs support from the government to address the issue of onerous fees, taxes, levies and penalties, which are hampering industry growth. Unless operators, towercos and the government come together, the transition to a digital India will be a distant dream.
“Unless operators, towercos and the government come together, the transition to a digital India will be a
distant dream.” Amit Sharma