Common Cause – Infrastructure sharing emerges as an effective tool to reduce operator costs

Archana Sassan: There may be potential issues in infrastructure sharing, such as cost/revenue distribution amongst the cellular operators, lack of consensus among the operators vis-? -vis points of interconnection and other contractual obligations, determination of a suitable ownership structure for the shared facilities, finances, maintenance costs, etc. Given the fact that infrastructure is typically shared by competitors, protection of commercially sensitive data while sharing the same network will have to be taken into account. Another key issue is that unless it is made mandatory, an existing dominant player would not be keen on sharing its infrastructure with a competitor as this could hamper its market growth. Big players in vital areas may also increase the cost of sharing for the competitor, which may not be commercially viable for smaller players. Further, there may be a possibility that competitive operators would try to cover the more lucrative areas. This may lead to duplication of expensive infrastructure, resulting in scarcity of basic telecom service coverage in other areas, especially those located in the rural belt.

Prashant Singhal: Passive infrastructure sharing amongst telecom operators has been prevalent in India for over two years. Such transactions are generally in a barter form, based on formal site-sharing agreements between operators. Site sharing has benefited operators in the form of additional contribution to their operating profits and bottomline, while reducing network management issues.

Considering the maturity level of the Indian telecom market, tower management companies that build, own and operate the telecom network passive infrastructure for various operators have started establishing their presence in India. With complete outsourcing of passive and active infrastructure, and provisioning of such services on a lease basis, Indian telcos can avoid investment in them. Instead they can focus on increasing the marketing and selling of their services to subscribers.

Hence, infrastructure sharing between two competing players would be driven by a third party, that is, a passive infrastructure service provider. Such an arrangement will have its own benefits and problems, some of which are given below:

The success of mutual site-sharing arrangements amongst operators, the increasing ratio of shared sites in the new built-ups and the emergence of passive infrastructure service providers will help the industry meet its teledensity targets within the specified timelines and with a lower investment layout.

Mahesh Uppal: Sharing, though always desirable, requires that the existing towers etc. of one operator are able to bear the weight of the antennae and other equipment of the player that desires sharing.

Frequently, only a limited additional weight can be borne by a tower, especially if it is itself installed on another civil structure like a private building not designed for such heavy loads. Secondly, sharing infrastructure with an operator who has a different network plan will make sense only if the location, height and other specifications of the tower are optimal.

What is the funding process for infrastructure sharing in rural areas?
Arpita Pal Agrawal According to the October 2005 TRAI recommendations on growth of telecom services in rural areas, infrastructure sharing was envisaged between three competing operators. It was recommended that access providers be given a onetime support of Rs 1.2 million each from the Universal Service Obligation Fund (USOF) for every cell site built in a rural area. Since early this year, DoT has been planning to extend financial support from the USOF to mobile operators in rural areas for both passive (land, tower and power back-up) and active (BTS, antennae and a portion of the backhaul) infrastructure. On implementation, this initiative is expected to facilitate rapid rollout of rural telecom services as only about Rs 18 billion of the USOF had been disbursed till financial year 2004-05 against the total collected non-lapsable sum of over Rs 80 billion.

Archana Sassan: It is proposed that the USOF would assist in infrastructure sharing. The interested agencies will be selected through a bidding process by the USOF, after which the agencies would carry out the work at the field level.

Prashant Singhal: A passive infrastructure service provider can be a major contributor to planned expansion/network rollout for the next 12 months and onwards. This segment will attract investment from foreign players, FIIs and Indian business groups looking for an opportunity to enter the telecom market. Under the USOF, the government is getting into the next round of bidding for expansion in rural areas, which would also contribute to the Indian telcos’ passive infrastructure expansion plans. Of the total funds of Rs 107.8 billion collected as USOF levy till March 31, 2006, Rs 35.8 billion has been disbursed. Over the next five years, the USOF expects to collect about Rs 340,080 million and disburse Rs 161,700 million towards increasing the teledensity in the country. As of now, it is not clear if the passive infrastructure service provider will be a direct beneficiary under the USOF. Going forward, there are good chances that the service provider would get benefits as subsidy or funds from the USOF for establishing telecom infrastructure in rural and remote areas. Also, with the increase in FDI in Indian telecom companies to 74 per cent, the equity infusion from foreign partners can be used for network expansion.

Mahesh Uppal: While there are currently no final proposals for funding shared infrastructure, it is likely that the USOF will issue guidelines to this effect in the coming weeks. The existing infrastructure sharing is based on commercial arrangements involving sharing of incurred costs or rental for use of specific equipment and services provided by the owner. Operators do this quite often and there seem to be no major problems. Several independent companies are now creating infrastructure such as towers with a view to rent them to multiple operators. This represents a new level of maturity in the industry.

What is the international practice in infrastructure sharing?

Arpita Pal Agrawal: There are widespread international precedents in infrastructure sharing for achieving faster and cheaper rollout of cellular services. In Europe, the regulatory authorities of some countries have made sharing mandatory in specific instances. In countries such as the US, the existence of standalone tower companies is widespread, wherein antennae space is leased out to wireless, radio and television broadcast companies, paging companies, etc. on multi-tenant communication towers, owned and maintained by the tower companies. Some leading players with nationwide coverage are American Tower Corporation and Global Signal.

Archana Sassan: The level of infrastructure sharing varies in each country, depending on the regulatory and competitive climate. The most common and basic level of sharing by cellular operators is the same cell site being shared by two or more operators (site sharing), with each installing its own equipment on the tower. Apart from site sharing, the other levels include sharing of base station equipment and a common core network (network sharing). In European countries, competing operators can share infrastructure provided they maintain full operational control of their network. For example, cellular operators are allowed to share the radio access network but are restricted from sharing frequencies and the core network. Likewise, in China, cellular operators are sharing infrastructure without sharing frequencies. In Germany, infrastructure sharing is allowed only if the mobile systems can be independently operated. For example, if the mobile systems can be maintained by software where no data with respect to customers is shared by the other operators, sharing is possible.

Prashant Singhal: During the mid-1990s, tower management companies/passive infrastructure service providers started emerging in America. These started with the anchor tenant concept ?? an arrangement under which one or more operators commit to leasing a tower/infrastructure from the service provider at agreed terms and conditions. Through acquisition of cell sites and towers from other tower management companies and wireless service providers, these companies penetrated the North American market successfully. Gradually, they expanded to South American countries including Mexico and Brazil, as well as Europe. Now they are trying to establish a footprint in India.

Tower management companies have a specified collocation process, which ensures a quick turnaround time, high quality, flexibility and responsiveness to the operators’ requirements. The collocation process typically involves the following steps:

Mahesh Uppal: The costs of 3G rollouts led many operators to pursue infrastructure sharing, as in the US and Australia. In the UK too, this is widely prevalent unlike in the rest of Europe. In the US, sharing of infrastructure has been widespread even for 2G networks. Independent companies have been serving competing operators for several years. This also makes sense from an environmental perspective, as wireless infrastructure is often an eyesore.

Considering the government is keen on adequate telecom infrastructure investment, would sharing adversely impact the infrastructural rollout obligations of telecom operators?

Arpita Pal Agrawal: On the contrary, sharing will facilitate rapid rollout of telecom infrastructure. Even though subscriber usage is increasing, the average revenue per user (ARPU) has been falling due to decreasing tariffs.In the urban areas, especially the metros, sharing would help operators reduce problems of site acquisition and delays in installation of cell sites. In the rural areas, which remain largely untouched, it will encourage effective and competitive provisioning of mobile services. Infrastructure sharing will allow the limited resources of telecom operators to be channellised efficiently towards more widespread rollout as the costs would be shared and essential infrastructure would not be duplicated.

Archana Sassan: It does not appear that sharing of infrastructure would adversely impact the infrastructural rollout obligations of telecom companies. The idea of placing these obligations on service providers was primarily to increase teledensity. If the same can be facilitated by service providers sharing their infrastructure, the government should have no objection. Further, the November 2005 press note issued by DoT states that the government has decided to do away with most rollout obligations, that is, national long distance licence holders will no longer be required to have a point of presence (PoP) in each long distance charging area. Removal of the PoP mandate in effect means that an operator is not bound to maintain infrastructure in areas that do not provide adequate returns in terms of revenues, such as rural India. For international long distance (ILD) services, the rollout obligations have been waived except that now the government wants ILD licence holders to establish at least one PoP anywhere in India. Such a waiver is indicative of the government’s views and should be reflected in the forthcoming new telecom policy.

Prashant Singhal: The telecom operator’s network rollout or coverage obligation is driven by the availability of telecom services at an affordable price, irrespective of the ownership of the passive infrastructure used. With sharing of passive infrastructure, operators have been able to decrease their initial capital expenditure and recurring operating expenditure on such infrastructure. These benefits are passed on to subscribers in the form of lower tariffs. Also, by leasing of passive infrastructure from third parties, telcos have been able to save the time required for erection of towers and other passive infrastructure, thus ensuring faster availability and accessibility. For some time now, the government and regulatory bodies have started encouraging infrastructure sharing amongst operators and have also welcomed tower management companies, which can provide passive infrastructure on a build-lease-operate model. Project MOST (mobile operators shared towers) is a landmark initiative to encourage infrastructure sharing. Industry players, including the PSUs, are adding approximately two towers/cell sites every hour, implying that 18,000 cell sites will be added over the next 12 months. Such an expansion will require an investment of about Rs 45,000 million (assuming an average cost of Rs 2.5 million per site). Foreign and Indian investors entering the passive infrastructure services industry, who will primarily be funding the expansion plans, will find passive infrastructure sharing as exciting as the Indian telecom services industry.

Mahesh Uppal: No. On the contrary, this should help in the rollout of telecom services when resources are moved from avoidable infrastructure duplication to productive expenditure on service expansion, especially in the rural areas.