Bharti Airtel’s decision to invite Vodafone Idea to create a fibre joint venture is a welcome move. If formalised, the fiberco will be modelled on their tower JV, Indus Towers, which was founded in 2007 and was a key component of India’s telecom growth story. As in the case of Indus, the firms would demerge their fibre assets and house them in a third, independent company, which will then lease them out.
The move will help both the companies cut costs and reduce the duplication of infrastructure while expanding networks. India’s Number 1 and 3 players, Vodafone Idea and Airtel, have over 400,000 km of fibre assets.
Fibre will form the backbone of next-generation technologies like 5G, which will require 100 per cent site fiberisation. This is a tall target given the current level of site fiberisation in India, at merely 30 per cent. Thus, telcos need to undertake massive fibre roll-outs. However, setting up these networks will involve huge money and time commitment.
Having independent fibrecos makes sense in the Indian context. Price competitiveness is extremely high in this market, which puts immense pressure on telco revenues. In such a scenario, the duplication of capex spending on fibre roll-outs must be avoided. Spinning off fibre assets can make telcos’ balance sheets lighter and also allow operational efficiencies to kick in. Private equity funds are keen to enter the fibre space and are looking at annuity streams from such an investment.
Of course, a scenario in which private telco majors (including Jio) come together to form an “Indus for fibre” will be ideal, but it is too long a shot. For now, it will be interesting to see how Vodafone Idea responds to Airtel’s invitation to coexist and compete.