The telecom infrastructure space has been playing a vital role in transforming India’s digital landscape. Towercos, together with telcos, have helped lay a strong foundation for launching 5G networks. However, various policy and regulatory issues remain to be addressed. At a recent tele.net conference, Amit Sharma, executive vice-president, special adviser and chairman, Asia Pacific, ATC, spoke about the changing towerco industry structure, the key challenges, emerging opportunities and the industry outlook. Edited excerpts…
What are the good things that have happened to the telecom tower industry over the past year?
The Covid-19 pandemic led to widespread recognition of the importance of telecom, connectivity and high speed broadband in general, and mobile broadband in particular. Data rates have jumped from 12-13 GB per person to about 16-17 GB today. Within two years, we are going to see them jump to 25-30 GB, representing, more or less, a doubling of the data rates. Further, the ground has been set for 5G deployment in India.
What are the not-so-good things that have happened to the industry during this time?
The single biggest event, which was almost cataclysmic, was the Supreme Court judgment that imposed a Rs 20 billion additional burden on an already struggling industry.
We saw a massive consolidation in this industry post the entry of Reliance Jio, which launched a world-class greenfield 4G network, which inevitably led to price wars and exits. From 14 players in the industry at one time, the number dropped to nine, and today, we have only four telcos. This affects telecom infrastructure players more than others.
What is the net impact of these developments on the financial health of the telecom sector in general? Is there any impact on the tower industry’s financial health?
Let me start with customer health because inevitably, our health depends on theirs. It is fair to say that the telecom industry does not meet its cost of capital. This is because the Indian telecom industry has the lowest ARPU and the highest rate of taxation and levies in the world. Now, if customers are not meeting their cost to capital, they are not going to be putting in enough capex into growing their networks.
Because of the sharp reduction of capex spend, towercos have been affected, because the growth cycle that we see in tenancies has not happened for the past two years. However, I hope that there is light at the end of the tunnel, and that this situation will turn around.
What is your expectation in terms of growth of towers, tenancies and revenue for the telecom tower industry as a whole over the next few years?
In the next three to five years, we are likely to see a 50 per cent growth in the number of towers and a 100 per cent growth in the number of tenancies. The tenancies will lead to a significant growth in revenue. However, since this is a capital-intensive business, typically the returns come in five to ten years.
The more we get into 4.5G, the more we will need a ubiquitous deployment of small cells and greater fiberisation of towers. I estimate that five years from now, we will need 1 million small cells across the country. Further, the level of tower fiberisation will have to increase from one-third at present to two-thirds in the same time frame.
So, there is a significant need for growth and investment in infrastructure, by both operators and towercos. I would estimate that the industry needs between Rs 500 billion and Rs 700 billion in investment in the next five years.
What are the new services that towercos will be asked to provide by operators in the new 4.5G and 5G environment?
Till now, towercos in India have been classified as passive infrastructure providers. The next wave, of 4.5G and 5G, requires a massive deployment of connected small cells and macro and micro edge data centres, etc. In my view, towercos should evolve into being complete, end-to-end digital infrastructure providers that follow a neutral host model, leading to the most efficient use of investment for capex deployment.
What are your thoughts on the likely timeline for the deployment of 5G in India?
Deployment will start only after the spectrum auctions for 5G. The reality is that the pricing of spectrum in India is the highest in the world. There is no way that telcos are going to be able to put more money into 5G spectrum after the recently concluded 4G auction.
To my mind, 5G deployment will happen in a more limited way in the cities starting next year. It is only when either the regulator and/or the Digital Communications Commission (formerly the Telecom Commission) reduces the cost of spectrum, or ARPUs have risen to such a level that operators can afford to deploy much more spectrum, that you can start seeing serious growth of 5G – maybe in the three to five years.
What does this mean for towercos in terms of challenges and opportunities?
It gives us breathing space to cope with the infrastructure gap that exists today for 4G and 4.5G. Like I said, we would need an investment of Rs 500 billion-Rs 700 billion to build a good world-class 4G network. Towercos can use a significant part of that investment to build the required infrastructure in the next two or three years, following which the incremental investments for cloud, edge data, etc. will be much lower.
What are your thoughts on the changes that have taken place in the towerco industry structure in terms of mergers, etc.? What will be the impact of these changes?
Today, the telecom industry has four operators in the mobile space, three large towercos, and a couple of smaller ones. The move from operator-owned towers to independently owned towers is a positive one for the industry as a whole. With Jio’s towers in Brookfield’s hands, and the Indus-Infratel merger, we will have three large players that are driven to provide neutral host services on an arm’s-length basis, as opposed to being driven by the needs of a particular owner-operator. This is a healthy development for the country in the long run.
What, in your view, are the most critical unresolved policy and regulatory issues?
The biggest unresolved policy issue impeding towercos from becoming digital infrastructure providers is the change needed in IP-1 registration. Currently, it limits us to being purely passive infrastructure providers. A broadening of the IP-1 permit would make it more or less agnostic to towercos providing any kind of service to a licensed operator. Our customers also face serious issues such as the high level of taxation. These need to be addressed for the overall health of the industry.
Has the right-of-way situation improved?
We have received tremendous help from the Department of Telecommunications (DoT) in working with states and circles to implement the right-of-way policy. A significant number of states (about two-thirds) have implemented the central guidelines laid down by DoT. But the issue is actually in implementing those policies at the municipal level. We have an endless number of instances where a municipality, regardless of the state guidelines and the state policy, follows its own norms on what it charges, where and how it permits, and the time frame it takes. This continues to significantly add to the time taken in the deployment of infrastructure and leads to completely erratic cost structures.
Are you more optimistic about the sector today versus a year ago, or less? And why?
I am definitely much more optimistic about the sector today than I was a year ago. I think we have good times ahead of us over a three- to five-year time frame. Just the fact that mobile data on a handheld device is being seen practically as a right of every citizen is encouraging because, once it is seen as a right, all political forces will need to align to make it available. In the process, various impediments that the industry faces will be addressed.