Taking advantage of the growing demand for international bandwidth and the potential offered by the new infrastructure-sharing scheme of the government, Reliance Communications Limited (RCL) is breaking fresh ground.
One of the first telecom operators to set up a separate telecom infrastructure company, RCL is in the process of hiving off its 15,000 GSM and CDMA towers into a company called Reliance Towers.
American Tower Corporation (ATC), a telecom tower management company, is likely to take 5-15 per cent equity stake in the company and is in the process of negotiating with RCL for the stake.
The formation of a separate company is part of a restructuring initiative aimed at enhancing the functional and operational flexibility of the company. The basic premise behind this scheme is to separate a crucial asset, normally a recurring cost on a telecom firm’s balance sheet, and convert it into a source of revenue. It is also a part of RCL’s strategy to reduce capital expenditure and hasten its GSM rollout.
The company’s decision comes at a time when mobile operators in the country have decided to share new as well as existing cell site infrastructure to save costs, generate a new revenue stream through rentals, achieve faster rollouts, and overcome the space crunch. Nearly 30 per cent of India’s 67,000 towers are currently shared by operators.
Mobile tower management is a growing business globally, with towers and base stations for wireless telephony being owned and operated by independent third parties and leased to multiple operators.
Reliance’s new company will offer existing as well as new cell sites to other operators on a lease-rental basis. Currently, RCL has a cell site sharing deal with HutchisonEssar and Idea Cellular. With the creation of the new company, the rents from Hutch and Idea will accrue to Reliance Towers.
Meanwhile, capitalising on the impetus given to broadband by most Gulf countries, the company has sold over 50 per cent of the capacity on the Falcon cable system launched by it in September 2006. Most of this sale is accounted for by West Asian countries such as Saudi Arabia and Kuwait.
The cable was built at a cost of $400 million and is the largest in the world spanning 65,000 route km. Carrying traffic up to 2.56 gigabits, it provides a cost-effective source of international bandwidth. With 14 landing stations, Falcon connects four continents and 11 countries including Oman, Kuwait and Quatar on its entire length of 11,859 km undersea cable.
Although the present submarine cable scenario is not very encouraging with only four Indian bandwidth providers ?? Bharti, BSNL, Flag Telecom and VSNL ?? compared to 33 in London and 32 in New York, Reliance Communications and VSNL together account for a significant chunk of the world’s undersea cable today. Along with the growing demand for international bandwidth, this makes great business sense for Reliance to sell its bandwidth capacity.
Moreover, bandwidth requirement in India is expected to grow at 70 per cent in the next five years. Bandwidth demand in West Asia is also growing at 70-80 per cent and there is a spurt in demand from North Africa on the back of substantial growth in mobile telephony. According to Reliance officials, “The Falcon cable system will ensure that we are ready with new capacity when the additional demand comes in.
Industry specialists say despite adequate capacity available in India, new bandwidth is necessary as enterprise customers like telecom and internet-based businesses buy more than one link to build redundancies in their system. Globally, bandwidth capacities 2-3 times the actual demand exist because of multiple back-up requirements.
Clearly, there is immense potential in the bandwidth market and with Reliance and other operators building their own cables, healthy competition will be created, which will further reduce tariffs.
