By Sharat Chandra, Managing Director, TelEnergy Technologies
When wireless mobile cellular services started in the early 1990s, operators owned it all including the tower infrastructure and its related power infrastructure. The late 1990s to early 2000s was the phase of monetisation, when most of the telcos spun off their tower infrastructure to create towercos. This gave birth to towerco giant Indus Towers while stand-alone towercos GTL Infra, TowerVision, etc. continued and prospered.
The recent merger and acquisition (M&A) deals in the telco space have shifted the axis. The changing market dynamics and Reliance Jio’s strong 4G strong play have brought about a paradigm shift in the way towercos must run their business in order to survive and remain profitable. Rentals from tenancies are shrinking, and site mergers and vacation pan-India are the new norm. With data becoming the primary demand, higher speeds and unconditional availability are the basic expectations of subscribers.
Trends and focus areas
Firstly, there is a loss of tenancies due to the duplication of telecom infrastructure as two merging operators are present in the same geography. This also gets compounded with manpower redundancy and two teams performing similar work in the same region are not needed when one can well manage the combined infrastructure.
Secondly, traditional revenue streams from providing power and fuel to infrastructure have pared down with widespread efforts to reduce the carbon footprint of towers and make sites diesel-free if not green. All this means less revenue for towercos while costs have gone up.
Add to this the challenges of energy deficiency and erratic patterns of availability in different geographies. Moreover, the realisation that capex demands on energy infrastructure alone are a mind-boggling Rs 200 billion numbs the mind.
New revenue streams have to be found. Setting up optic fibre cable networks, managing intra-city Wi-Fi networks and supporting the IT infrastructure of emerging smart cities are avenues being actively explored by towercos.
It is evident that new business models will have to take root and old ways will have to be given up. Focus will have to shift towards energy efficiency, that is, planning sites with autonomy based on energy storage rather than diesel backup. Focus will also have to shift towards opex model outsourcing to service providers, who will provide energy opex across multiple towercos within a contiguous geography. This will result in one pool of resources rather than each towerco managing its own.
Challenges
Indus Towers, majority owned by rival telcos Vodafone and Airtel, is merging with Bharti Infratel, to create a $14 billion combine with 163,000 operational towers. Earlier, KKR had bought into Bharti Infratel to trigger a $5 billion share purchase in the eventual merger, but the deal has not progressed.
Recent news coverage indicates that Reliance Jio plans to take its tower and fibre infrastructure assets out of the balance sheet as part of a deleveraging exercise. It is exploring a deal with Brookfield to spin off these assets. Jio’s move to hive off the tower and fibre businesses is in sync with the ongoing trends in the telecom industry. Any deleveraging deal would only intensify Jio’s marketplace battles with rivals in a haemorrhaging Indian telecom sector. It is notable that Vodafone Idea and Bharti Airtel have reported record losses and are in the midst of multiple fundraising activities to face fresh heat from Jio. While competition augurs well for the industry, it also leaves businesses badly bruised and often scarred enough not to invest wisely in long-term sustainability but instead scurry across just for survival.
The way forward
First things first, network performance must be improved, else the sheen of telecom that once held centre stage in India will be lost. Call drops, coverage issues and unacceptable network availability have to be arrested. Network uptime has to be brought back to 99.99 per cent.
Business models in terms of how towercos serve telcos and servicecos serve the towercos have to be rewritten. By the time the dust from recent M&As in the telco space settles, towercos would have seen a huge impact on their business with site closures and shifting, and tenancy pare down. Redrafting of the rulebook with commercial clauses, risk-reward conditions and penalties will have to be carried out in earnest.
Last but not the least, we must be prepared for change. It is the only constant in the telecom infrastructure space.
