Amidst the ongoing digital revolution, it has become essential to set up robust infrastructure capable of handling the surging amount of data traffic. This presents a plethora of opportunities for the telecom tower industry, which plays a vital role in establishing seamless connectivity. Further, the government’s thrust on Digital India and Smart Cities Mission has opened up new business avenues for the tower industry. Going forward, the industry is hopeful that the National Telecom Policy (NTP), 2018 will usher in a liberal policy environment for setting up infrastructure. In an interview with tele.net, T.R. Dua, director general, Tower and Infrastructure Providers Association (TAIPA), shares his views on the growth drivers for the industry, Union Budget 2018, the impact of consolidation and the way forward. Excerpts…
What is the current state of the telecom infrastructure industry? What are the key advantages that infrastructure providers have over telecom service providers (TSPs) in rolling out infrastructure?
The telecom sector has undergone a revolutionary transition from basic calling services to data-driven services in the past two decades. The sector currently connects more than 1.2 billion subscribers through 460,000 towers mounted with around 1,700,000 base transceiver stations. As per a government report, the mobile sector’s contribution to GDP will increase to 8.2 per cent by 2020 from 6.5 per cent at present.
The tower industry has installed and owns more than 90 per cent of the mobile towers in the country. The core advantage of tower companies is their business model that is based on the objective of “sharing”. The sharing model was first started by Indian tower companies and has now been adopted by various countries including Canada, Sweden, Malaysia, Indonesia, Nepal and China. Under this concept, towers are shared on a non-discriminatory and transparent basis. The sharing concept has advantages such as the efficient use of capex, improved aesthetics, faster roll-outs, energy savings and better coverage quality. The advantage of infrastructure providers (IP-1s) over TSPs rolling out infrastructure is that infrastructure provisioning is the core business of IP-1s and enables TSPs to concentrate on providing mobile telephony services, which is their main focus area.
What is the status of the implementation of the Right-of-Way [RoW] Rules at the state level?
The government’s RoW rules, November 2016 is a benchmark policy with salient features such as no restriction on the location of telecom towers, a single-window clearance mechanism, a defined time period for approvals, appointment of nodal officers, nominal administrative fees and deemed approval. However, the policy excludes IP-1s, which lie at the heart of telecom infrastructure roll-outs. The Telecom Regulatory Authority of India has recommended that the Department of Telecommunications (DoT) include IP-1s under the purview of the RoW Rules, 2016, via a letter dated March 2017. The same issue has also been highlighted in the industry recommendation paper on ease of doing business and the draft NTP, 2018 document. Therefore, ambiguity still prevails and has adversely affected business, ultimately affecting the momentum of the Digital India initiative and connecting the unconnected.
The implementation of the RoW policy, 2016 at the state level has hindered the overall roll-out of telecom infrastructure. However, states such as Andhra Pradesh, Telangana, Kerala, Rajasthan, Odisha, Assam, Haryana and Jharkhand notified policies that are aligned with the RoW policy or DoT advisory guidelines. However, the remaining states have not aligned their respective policies with the said rules or advisory notified by the authorities.
What are your views on Union Budget 2018?
Union Budget 2018 has offered no substantial benefits for the overall telecom sector, although it envisages speeding up the implementation of Digital India and the Smart Cities Mission, as well as 5G, artificial intelligence and internet of things (IoT). Telecom infrastructure, which is key for all e-governance projects, has once again been overlooked by the government. Major announcements such as the deployment of 500,000 hotspots with the allocation of Rs 100 billion; 5G tests at the Indian Institute of Technology, Madras; 15-20 per cent hike in customs duty to boost the Make in India initiative; allocation of Rs 2.04 trillion for 99 smart cities; and Wi-Fi and CCTVs on trains are long-term visions that will need time to surf up. The proposal to provide Wi-Fi connectivity in over 500,000 villages needs internet connectivity either through mobile towers or optical fibre cable. However, RoW-related issues are yet to be settled with the state governments/local authorities. Therefore, the industry feels like a lone walker with long-pending demands such as carry forward/set-off losses associated with the merger of telecom infrastructure service providers under Section 72A, non-availability of input tax credit on telecom towers, cascading effect of the goods and services tax (GST) on the interstate movement of telecommunication towers and extension of investment-linked incentives under Section 35AD.
What will be the impact of consolidation on the tower industry?
There is a general feeling that the sector will consolidate around three operators – Airtel, the Vodafone-Idea combine and Reliance Jio Infocomm Limited (RJIL) – and the PSUs, will also shrink the number of tower companies to three – the Bharti Infratel-Indus combined entity, the ATC-Viom (including most recent operator-owned towers) combine and the RJIL-led entity – besides the PSUs in the next two years. With the consolidation of leading telecom companies, tenancies are expected to reduce in the short term. Further, revenue losses and a potential slowdown in new tower roll-outs are expected in the medium term, that is, 12-18 months. The loss of tenancies will be offset to some extent by the exit penalties and provisions in the respective multiple service agreements. Further, duplication of sites will not occur on operators’ networks, resulting in a sudden loss of business for tower companies. However, in one or two years’ time, the IP industry will look up again. These IP-1 consolidations will lead to the emergence of an independent tower company, free from operator control/influence. This will provide TSPs with more options to choose IPs and focus on their core business areas and service delivery.
“The industry is hopeful that the new telecom policy will focus on ease of doing business and the deployment of telecom infrastructure for extending seamless connectivity across the nation.”
What are the other key challenges that the infrastructure industry is facing?
In order to maintain continued growth for the telecom sector, which is a critical driver of economic growth and inclusion, a robust telecom infrastructure is required. Thus, it is of crucial importance that the process to install/roll out telecom infrastructure is streamlined for providing quality services and seamless connectivity to consumers. However, the sector faces several challenges in establishing telecom infrastructure. These include:
- The denial of benefits such as accelerated depreciation, higher external commercial borrowing limits, eligibility for viability gap funding and softer lending rates.
- Inclusion of IP-1s under the purview of the RoW Rules, 2016.
- Safety and security of telecom infrastructure.
- Restriction on the location of cell towers.
- Difficulty in new site acquisitions.
- Problems in RoW clearance.
- Absence of a single-window clearance system.
- Poor availability of grid electricity.
- Multiplicity of policies.
These challenges lead to coverage gaps, call drops, and poor quality of service.
What will be the key growth drivers for the industry going forward?
Going forward, the industry will witness mergers, developments, discussions, investments and on-the-ground deployments. The year will present a bouquet of business opportunities for the tower industry because of policies like Digital India, Make in India and the Smart Cities Mission. The industry will pursue its commitment to make the Digital India initiative a reality by connecting the unconnected and empowering every citizen with the power of the internet. Further, the industry is hopeful that the new telecom policy will focus on ease of doing business and the deployment of telecom infrastructure for extending seamless connectivity across the nation. With a supportive policy/regulatory environment, the industry is optimistic that the year 2018 will see the resolution of regulatory and policy roadblocks such as the exclusion of IP-1s from the RoW policy, the absence of a uniform RoW policies in the states, restrictions on the scope of IP-1s, lack of infrastructure status benefits pending since 2012, non-availability of the input tax credit mechanism under the GST regime, prioritisation of electricity board connections for mobile towers on preferential tariffs, and the security of mobile towers. Furthermore, in view of emerging technologies such as IoT, 5G, machine-to-machine communications and Skynet, the policy should focus on facilitating these technologies, besides taking into account the cybersecurity framework and protection of consumer interests.