The recent surge in data demand is driving the need for additional data sites backed by high-bandwidth fibre backhaul. This requires operators and towercos to undertake higher investments and adopt new business models and technologies to adapt to the next wave of growth. Tower companies today are moving beyond their traditional role of tower infrastructure providers towards new segments such as in-building solutions (IBS), small cells and Wi-Fi, and site fiberisation. Also, robust information and communication technology connectivity has become central to the success of the Digital India and Smart Cities Mission and towercos can play a vital role in this area. tele.net recently organised a conference, “Telecom Infrastructure in India”, on the evolving sector dynamics, emerging paradigms, key challenges and new opportunities for Indian telecom infrastructure companies. This section presents the key highlights of the conference…
Over the past two years, there has been a significant increase in data demand and in the average time spent by a user on a mobile device. This can be largely attributed to declining data and voice tariffs, with voice becoming virtually free. Further, the growing affordability of smartphones and evolving content ecosystem are contributing to the high data demand. Operators have stopped investing in 3G and are ramping up investments in 4G. In fact, 4G data usage has surpassed 2G and 3G usage.
Indian operators are witnessing a continuous decline in revenues. Their earnings before interest, taxes, depreciation, and amortisation margins are also shrinking. Increasing competition in the industry has led to a redistribution of market share. In addition, there has been an increase in the data consumption per user, which calls for higher network investments and capex. The payouts for spectrum and a significant amount of capex are exerting a downward pressure on operators’ profitability.
Impact on tenancies
With the exit of some telcos from the sector, tenancies are expected to decrease. Mergers and acquisitions will also lead to a reduction in sites, as almost 40 per cent of the synergy (in the case of big deals such as Vodafone and Idea Cellular) comes from the removal of redundant sites. Currently, operators have adequate spectrum, which reduces the need for setting up new sites. They are also considering the deployment of single radio access network, which may negatively impact infrastructure providers’ revenues.
Opportunities for towercos
- Site fiberisation: Given that data consumption is growing at an exponential rate, telcos will need higher backhaul capacities and site fiberisation will become crucial. Towercos are in a better position to undertake site fiberisation as they can easily extend synergies of the tower sharing model to fibre infrastructure at site locations. At present, less than 20 per cent of the sites in India are fiberised and this can be taken up to 50-60 per cent by towercos.
- Smart cities and internet of things: Smart cities would require large-scale deployment of sensors and connectivity equipment to enable smart services. Providing installation and maintenance for the same is an opportunity for towercos, that can partner with the government under the public-private-partnership model.
- Enabling HetNet deployment: Going forward, operators will carry traffic across multiple access networks such as macro, 4G, 3G, IBS, Wi-Fi and fixed line. Big opportunity exists in Wi-Fi roll-out for towercos. They can either roll out and manage Wi-Fi networks for telcos, or acquire the licence to become internet service providers.
- Active operations and maintenance (O&M): Typically, O&M services are undertaken either by operators or by an active vendor. This is slowly changing as towercos are willing to provide O&M services along with site services. A towerco can provide O&M services for active equipment at its sites, which will improve manpower utilisation and reduce site visits, thereby resulting in cost savings.
- New business models: Towercos can look to become neutral hosts for providing fibre-to-the-home services. As fixedline services take off in the future, towercos can engage in local loop unbundling and play the role of a neutral host for operators.
Towercos can also play the role of NetCos (network companies) in a NetCo-OpCo (operator companies) model. While OpCos compete in the retail market and provide voice and data services to end users, NetCos are responsible for maintaining and deploying passive and active infrastructure essential for OpCos. NetCos charge OpCos for leasing network capacity on a mutually agreed model.
The dynamics in the telecom industry are changing fast . The industry offers a range of opportunities with promising returns, especially for tower companies.
Based on a presentation by Bharat Bhargava, Partner, TCE, Business Advisory Services, EY