The large-scale expansion of 3G and 4G services by telecom operators has provided a key opportunity to infrastructure providers to increase their revenues. However, the expansion comes with its own set of challenges. These relate to higher power demand, right of way, spectrum crunch, etc. Further, the industry has been showing signs of consolidation, which has been necessitated by the increasing energy expenses and the high debt burden of small independent players. Telecom infrastructure providers share their views on the key trends, emerging opportunities, energy management strategies and consolidation in the industry…
What have been the key trends in the telecom infrastructure space over the past few years?
Growth in the telecom industry has so far been driven by waves of technical transformation and information but this will soon reach saturation point. Internet of things is the next major trend that will result in an explosion of connected devices by 2020, adding billions of new connected data sources globally. This will lead to astronomical growth in data volumes. For telecom infrastructure, this means a 24×7 demand for uptime, reduced opex, a sharp decrease in the energy footprint and the ability to manage and maintain the infrastructure remotely with minimal field visits.
The growth of mobile connectivity is far outpacing fixed line connectivity as the maximum growth is taking place in the rural segment, for which mobile is a cheaper, convenient and more useful option. The fast saturating urban voice markets and the government’s plan to significantly improve teledensity in villages to over 70 per cent by 2017 have led telecom companies to comprehensively focus on rural areas. The challenge lies in providing services to sites facing an acute shortage of grid power, 17,000 of which are completely off-grid, running extensively on diesel genset (DG) backups.
The telecom infrastructure industry has played a pivotal role in increasing the country’s teledensity from single digits in the pre-2005 period to 85 per cent at present. The majority of the country’s telecom towers are owned and managed by tower companies. Today, telecom operators are looking to expand 3G and 4G data services, having made a collective investment of over $40 billion in recent years on spectrum acquisition and retention. Tower companies, in turn, have geared up to accommodate the increased 3G and 4G tenancies. Since telecom operators are rolling out networks in various frequency bands, ranging from 800 MHz to 2300 MHz, their network footprint is not identical. Hence, operators need to deploy stand-alone 3G or 4G base transceiver stations (BTSs) which are not always collocated with their 2G BTSs. This has led to a recent surge in 3G and 4G tenancy opportunities for tower companies.
However, there are key challenges facing telecom infrastructure providers. These include the difficulty in securing local approvals for sites, the absence of a uniform tower policy and the lack of quality power. In spite of these, power availability has improved in many states.
A robust telecommunication infrastructure is a prerequisite to a country’s sustained socio-economic growth, with benefits permeating across sectors and geographies. There has been a remarkable growth in telecom infrastructure in the recent past. To begin with, there has been a change in the profile of consumers. Today, we have a large young population with high spending capability and greater adaptability to technology. Therefore, one is witnessing the mass uptake of data and affordable 3G and 4G long term evolution-enabled devices. Also, in order to increase 4G adoption, these services are being priced at par with 3G services.
What opportunities have been created for infrastructure providers with the increased roll-out of 3G and 4G services?
In the coming years, the increased and widespread roll-out of 3G and 4G services and the resultant increase in penetration augur well for telecom infrastructure providers as 3G- and 4G-enabled base transceiver stations (BTSs) have lower power requirements than 2G-enabled ones. The current 4G nodes have an energy footprint of 800 W or lower. The next generations of BTSs like smart cells, picocells and femtocells will have power requirements of less than 500 W and will be mostly in-building deployments. Such deployments in large numbers and with smaller structural designs will demand a backup solution with high energy density. Lithium-ion (Li-ion) batteries will be at an advantage over technologies like flow batteries, as they are much bigger in size and offer superior depth of discharge, being less sensitive to temperature than valve-regulated lead-acid (VRLA) batteries.
Telecom operators are expanding data networks in their respective telecom circles. For tower companies, this presents an incremental revenue opportunity from tenants at existing towers. Further, the government’s Smart Cities Mission has opened up new avenues for tower companies to partner with telecom operators for citywide Wi-Fi network roll-outs. This will lead to the evolution of new entities with innovative business models.
Most telecom operators are preparing to compete in the 4G space and are focusing on engineering new strategies and roll-out campaigns and offering attractive data plans. Further, spectrum liberalisation has enabled operators to provide 4G and 3G on lower bands across multiple regions. The emergence of new spectrum and broadband data has created several opportunities across the value chain of equipment vendors, solution providers, as well as content and value-added service application developers and tower companies. In addition, initiatives like Make in India and Digital India have created greater opportunities for telecom operators and manufacturers.
How has the telecom industry’s energy cost changed in the past two years? What energy management strategies are being adopted by telecom tower companies in India?
After the Department of Telecommunications’ mandate to power 50 per cent of rural towers and 20 per cent of urban towers from hybrid sources (renewable energy technology and grid power) by 2015, several steps were taken to introduce and expand the use of solar photovoltaic (PV) in hybrid systems with DGs and batteries. By 2014, approximately 10,000 towers were powered by solar PV-based hybrid systems and more than 70,000 sites were operated without the use of diesel on a regular basis. The technical feasibility of solar PV deployment remains limited to 10-12 per cent of rural ground-based tower sites in sun radiance-rich geographies of India. The deployment of advanced energy storage technologies has therefore become necessary. The current installations of VRLA batteries are not good enough for replacing diesel as they are temperature-sensitive, require a long period to charge and have a shorter life, if regularly discharged to the depth. With the price reduction of Li-ion to less than $400 per kWh, the levellised cost of energy for Li-ion and AC/DC generator installation is less than that for lead acid and AC/DC generator installation.
Remote management is another critical component of the overall energy management strategy adopted by tower companies. Tower companies either choose to manage themselves or assign contracts to energy service companies (escos) or large operations and maintenance (O&M) players on a complete outsourcing mode.
“The challenge of limited resource availability calls for consolidation as a natural choice.” Sharat Chandra
The telecom industry’s energy costs pertain primarily to three components – core networks, BTSs and subscriber handsets. Tower companies are hosting telecom operator’s BTSs and allied backhaul equipment. The key factors leading to the demand for energy-efficient telecom infrastructure in recent years are as follows:
- Telecom operators have strategically opted to replace their old BTSs with new-generation BTSs or remote radio heads, which reduce direct power consumption and also have wide operating temperatures.
- Software-controlled radio or software defined radio-enabled BTSs are able to function as dual- or multi-technology (2G/3G/4G) equipment, which consume less energy as compared to a separate BTS for each technology.
On the supply side, tower companies have focused on:
- Grid power connections for the maximum number of sites.
- Lesser use of diesel gensets and reduced diesel consumption through improved battery technologies.
- Conversion of telecom towers with reliable grid power for over 18 hours into diesel-free sites.
- Conversion of indoor tenancies into outdoor for reducing air-conditioning costs.
“The key challenges facing telecom infrastructure providers include difficulty in securing local approvals for sites, the absence of a uniform tower policy and the lack of quality power.”
The energy requirement of the telecom industry is growing at a rapid pace as operators implement the latest technologies like 3G and 4G, and install a large number of BTS sites, expanding network coverage even in rural areas. Energy is a major component of costs for telecom operators and accounts for one-third of the expenses for operating the network. Amidst this, there has been a shift from a pass-through cost model of fuel and power to a fixed-cost model, which forces the service provider to be more accountable for improving the efficiency of overall operations, including energy management. The increasing operational, environmental and logistics costs of using diesel, along with rising grid power tariffs, mean that the industry has to look for alternative and efficient solutions to meet the growing energy demand. Individual telecom companies have started devising their own consumption strategies and are undertaking energy cost management.
Indus Towers maintains over 47,000 green sites in India with over 40,000 non-AC sites. In order to reduce the carbon footprint, these sites have deployed innovative solutions like free cooling units and fast-charging battery banks to reduce energy consumption and have deployed advanced energy solutions like Li-ion batteries. As a result, Indus Towers has been able to successfully reduce 68 per cent of its diesel consumption. Further, through its “Shut AC” initiative, the company has converted over 40,000 sites from indoor-to-outdoor (non-AC) by shutting down ACs across the country, resulting in a significant reduction in carbon emissions and pollution.
The government has also been encouraging the use of energy-efficient equipment in communication networks, besides promoting the development of renewable energy systems for telecom operations. With the recent push by the government for renewable energy, more specifically solar power, the ecosystem is likely to get a stronger impetus. With renewable energy becoming more viable, the deployment of these sources at tower sites is expected to increase further.
“Spectrum trading and sharing will aid consolidation in the sector and allow the monetisation of underutilised assets.”
What are the measures being taken by infrastructure providers to improve telecom infrastructure in rural areas?
Tower operators have taken many initiatives to improve telecom infrastructure in rural areas. The key among these are:
- Indoor to outdoor transformation – This reduces the heat footprint of the site and the need to cool the equipment.
- Improved overall site uptime – This is being achieved through better preventive and curative maintenance, field staff training, tools availability, remote management and automated trouble ticket and fault management.
- Proactive repair and replacement.
- Enhanced focus on grid power availability and reduction in DG-run hours.
In rural areas, the operator’s profitability from a BTS depends on the fixed costs (energy opex, rent and infrastructure provisioning fees) and population coverage.
Tower companies with a strong presence in rural geographies have focused on:
- Outdoor non-air-conditioned sites.
- Encouraging tenants to deploy remote radio units instead of BTSs.
- Identifying poor signal coverage areas for particular telecom operators and proactively promoting such sites.
The Indian telecom industry has experienced exponential growth, especially in the wireless segment, in the past few years and this has been an important contributor to economic growth. Today, rural markets are becoming as important as urban ones. Therefore, one can witness telecom operators taking strategic and progressive steps to extend services in every corner of the country. In order to continuously improve the telecom infrastructure in rural areas, there should be an increased focus on technological developments and low-cost financing for network modernisation. Shared low-cost sites with no ACs and lean equipment with low power consumption are being deployed to make the rural business viable for the industry.
What are your views on consolidation in the telecom infrastructure industry?
Consolidation in the telecom industry started with telecom operators and has now found acceptance in the Network roll-outs increase revenue potential for infrastructure providersinfrastructure space as well. The challenge of limited resource availability calls for consolidation as a natural choice. US-based American Tower Corporation is set to acquire a 51 per cent stake in telecom tower firm Viom Networks, which owns and operates about 42,200 towers, in an all-cash deal of Rs 76.35 billion. In October 2015, GTL Infrastructure agreed to sell its O&M and energy management business of 27,000 towers to E2 Energy Services for Rs 8.5 billion.
More foreign technology players with energy-efficient technologies and the financial wherewithal are keen to take up key positions as escos in the Indian telecom space. This will be a turning point in the growth trajectory of the infrastructure industry as it will free tower companies from capex spend on DGs, batteries, power systems, etc. This will enable them to focus on the primary needs of telecom operators and enhance tenancy, which will help them improve their top line as well as their bottom line.
Spectrum trading and sharing will aid consolidation in the telecom sector and allow the monetisation of underutilised assets. With the go-ahead on merger and acquisition guidelines, India is likely to experience a wave of consolidation in the future. Over the past few years, operators have entered into several mutually beneficial arrangements and, going forward, this will help operators plan their growth strategies and encourage the emergence of fewer and stronger players.