The year 2017 was a mixed bag for the telecom infrastructure segment, with many factors driving its growth and an almost equal number of issues remaining unresolved. On the positive side, data consumption grew, the government’s digital initiatives gained momentum and the trend of consolidation continued among infrastructure providers. The accelerated network investments in 4G spurred tenancy growth and the government’s Digital India vision led to the augmentation of telecom infrastructure, the backbone for connectivity. In addition, the government’s Smart Cities Mission is expected to provide tower companies an opportunity to serve as end-to-end infrastructure providers, catering to all the infrastructure connectivity needs of such cities.
The key challenges included the slow implementation of the Right of Way [RoW] Rules as only a few states announced a clear policy, radiation concerns that continued to be a deterrent to the setting up of new towers, and high dependence on grid power. The poor financial health of telecom operators and aggressive competition amongst them led to several cost-cutting measures, indirectly impacting infrastructure companies.
A look at the key highlights in the telecom infrastructure space in 2017…
Data continued to drive growth
To meet the growing data demand and tap emerging opportunities, operators constantly upgraded their networks during the year. Most of them launched 4G services to provide a better customer experience. Moreover, the proliferation of affordable smartphones, the availability of low-priced 3G and 4G services, and the growing popularity of m-commerce, social media, instant messaging, video entertainment, etc. increased the burden on existing tower sites. Therefore, operators added capacity to their existing networks and tenancies, apart from rolling out new tower sites in uncovered areas. Moreover, demand for infill sites increased in Metros and Category A circles. The tenancy ratio is expected to increase from 1.77 in 2014-15 to 2.48 in 2020.
The growing adoption of internet of things and machine-to-machine communications, and the rise in indoor data consumption increased small cell deployment in the sector. About 25 per cent of the cellular network traffic was offloaded through small cell and Wi-Fi networks last year, according to a Deloitte report. Tower companies such as the American Tower Corporation (ATC) and Bharti Infratel started exploring avenues in this space. The widespread deployment of small cells will, however, entail an investment of about $10 billion between 2017 and 2022.
Government’s digital push
In the past couple of years, the government’s focus on the digitalisation of the economy has provided a new impetus to the telecom industry. The Digital India initiative and the Smart Cities Mission have also opened up new growth avenues. To roll out the various services envisaged under these initiatives, a robust telecom infrastructure is needed.
To this end, Indus Towers signed concession agreements with the Vadodara Municipal Corporation and the New Delhi Municipal Corporation for their smart city projects.
Infrastructure sharing
While operators and tower companies have been sharing their passive infrastructure for many years now, active infrastructure sharing in India has picked up only recently. Successful active network sharing requires operators to surrender network autonomy. Operators in India explored various sharing models during the year such as basic radio access network (RAN) sharing (sites, masts, antennas, feeders and backhaul), multi-operator RAN sharing (only network equipment) and multi-operator core network sharing (spectrum and equipment).
Given the capital-intensive nature of the telecom business and the increasing cost of telecom network deployment, infrastructure sharing emerged as a viable solution for reducing the cost of network roll-outs, ensuring speedy deployments and decreasing the risk of network redundancy. In addition, sharing provides a source of revenue for telecom operators as they monetise their existing assets by leasing them to other operators.
Consolidation among tower companies
The past year saw the beginning of consolidation among telecom infrastructure companies. This could result in fewer but better positioned players. According to ICRA, the number of players is expected to decline from 10 at present to four or five in the next two years. At present, there are independent tower companies such as Indus Towers, Bharti Infratel, GTL and ATC as well as telecom operators that own telecom towers such as Reliance Communications (RCOM), Reliance Jio Infocomm Limited (RJIL), Bharat Sanchar Nigam Limited (BSNL), Bharti Airtel, Vodafone and Idea. About 74 per cent of towers in India are controlled either by telecom operators directly or by tower companies owned by these operators. However, these are likely to change hands from telecom operators to independent players as operators look to divest their tower assets to lower their debt burden.
In November 2017, Vodafone India and Idea, which are undergoing a merger, agreed to sell 20,000 stand-alone towers to ATC for Rs 78.5 billion.
The complex shareholding among Bharti Airtel, Bharti Infratel and Indus Towers was further complicated when Bharti Infratel’s board issued a statement that it will “explore and evaluate the acquisition of stake in one or more tranches in Indus Towers with the aim of making it a subsidiary or wholly owned subsidiary of Bharti Infratel”. Currently, Bharti Infratel, which is majority owned by Bharti Airtel, has a 42 per cent stake in Indus Towers. Vodafone and Idea hold 42 per cent and 11.15 per cent equity respectively in Indus Towers, and US private equity firm Providence owns the balance 4.85 per cent. Meanwhile, BSNL, which owns 65,000 towers in the country, has announced its decision to hive off its tower business while GTL is likely to sell its tower assets.
The parallel consolidation among telecom operators led to a short-term negative impact on tower companies. This was on two counts. First, the merging operators undertook cost-cutting measures, putting a price pressure on tower companies. Second, the number of co-location sites reduced. Bharti Infratel’s co-locations reduced by 2,327 during October-December 2017. The three leading telecom operators by revenue are in the midst of consolidation. Vodafone India and Idea Cellular are in the process of merging their operations while Bharti Airtel is merging the consumer businesses of Telenor and Tata Teleservices with itself. New entrant RJIL signed a definitive agreement to buy the assets of RCOM including about 43,000 towers, wireless spectrum and fibre.
Implementation of RoW Rules
Although the new Indian Telegraph RoW Rules were announced in late 2016, states have been slow in announcing their RoW policies. Only two states – Odisha and Haryana – announced detailed policies while Rajasthan and Kerala are expected to announce them soon. These rules lay down a clear framework for the grant of approvals in a time-bound, transparent and uniform manner for the deployment of over-the-ground and underground infrastructure. The Odisha and Haryana governments have introduced comprehensive policy frameworks prescribing time-bound approvals, minimum charges for installation, appointment of nodal officers and establishment of grievance redressal committees. Both the states recognised telecom installations as critical infrastructure in mobile communication. The Haryana government treats telecommunications as an essential service, while Odisha has removed all restrictions on location unless ordered otherwise by the courts or relevant authorities.
Energy management
With the growing demand for telecom services, energy consumption in the industry has also increased significantly. However, unreliable grid supply poses a significant challenge. Only about 40 per cent of the power demand in 2017 was met by grid power. The remaining was met by diesel generators (DGs), thus widening the sector’s carbon footprint, which is second only to Indian Railways in carbon emissions. Taking cognisance of the environmental threat, the Telecom Regulatory Authority of India (TRAI) recommended a target of 30 per cent reduction in carbon emissions by 2019-20 and 40 per cent by 2022-23, taking 2011-12 as the base year. The targets would be reviewed in 2022-23.
For telecom tower companies, the use of DGs resulted in increased energy costs, accounting for 30-34 per cent of their total operational expenditure. In a bid to optimise their energy costs and reduce diesel usage while maintaining network uptime, tower companies have shifted to energy efficient technologies and alternative sources of energy. The strategies adopted by them include converting indoor sites to outdoor sites, and deploying energy efficient storage solutions, solar cooling units, free cooling units, lithium-ion batteries, automation and real-time monitoring solutions. Bharti Airtel has deployed advanced battery backup solutions such as VRLA and lithium-ion at its tower sites. It has also installed the Auto TRX shutdown feature at nearly 80 per cent of its sites to ensure that the equipment remains switched off during non-peak hours. According to the company, 70 per cent of its installed network base is without air conditioning, thus reducing dependency on diesel. In its sustainability report for 2016-17, Airtel stated that it has achieved 75 per cent reduction in CO2 emissions per terabyte in its network infrastructure over the past four years. Further, it has saved 1.3 million litres of diesel in its infrastructure operations. It has converted about 50,000 tower sites from indoor to outdoor sites to avoid running air conditioners during favourable ambient temperatures and reduce the grid power consumption. In addition, it has deployed 48,973 free cooling units (FCUs) to replace air conditioners and completed trials at 381 sites for solar natural cooling units.
Meanwhile, Idea Cellular operates over 19 per cent of telecom towers with hybrid solutions. It has converted 10,500 sites from indoor to outdoor. Over 40 per cent of Idea’s base transceiver stations (BTSs) are outdoor, which has helped the operator reduce energy consumption by 25 per cent. Idea, in association with the United States Trade Development Agency, has also conducted trials of solar hybrid methanol-based fuel cell systems to power telecom towers. Five such sites have been commissioned. Moreover, according to Idea, 90 per cent of its data centre servers have been virtualised. This has helped reduce the daily power utilisation at a data centre from 9 kVA to 3 kVA.
Indus Towers has reduced the use of air conditioners by converting 50 per cent of its total tower portfolio to outdoors. As a result, energy consumption of mobile towers decreased by 25-30 per cent. The company has also deployed solar solutions at over 1,000 sites, which has helped in reducing its carbon footprint. As of June 2017, the towerco had over 36,000 green towers, of which 3,000 are solar powered. Meanwhile, Bharti Infratel operates about 3,000 solar powered sites under its ongoing Green Towers P7 programme.
During the past year, the industry has achieved a 44 per cent reduction in energy consumption per BTS, as far as active load is concerned. On the passive side, infrastructure sharing has led to almost 45 per cent reduction in energy consumption at a BTS site. Further, conversion to outdoor BTSs, deployment of FCUs and the use of new tower configurations such as distributed antenna systems have led to substantial savings of 2.5-4 tonnes per site.
Other challenges
A key challenge pertains to the poor implementation of various government initiatives. For instance, the central government’s RoW Rules released in November 2016 do not include companies having an infrastructure provider licence, or IP-1 licence. Only telecom service provider licensees are covered under the policy. Most of the stand-alone tower companies like Bharti Infratel, Indus Towers and ATC hold an IP-1 licence. TRAI has approached the Department of Telecommunications (DoT) to revise the RoW Rules to include IP-1 licensees. Moreover, although these rules lay down a clear framework for the grant of approvals and settlement of disputes in a time-bound manner, with regard to the installation of mobile towers and laying of optical fibre cable and copper cable, their on-the-ground implementation has been slow. This is because of considerable differences in execution across states and local bodies within these states. The sealing of telecom towers by local municipalities without any show-cause notice wreaked havoc for operators and tower companies. The government needs to ensure that no sites are shut down without DoT’s permission.
Other major issues being faced by the industry include the public apprehension regarding electromagnetic field radiations emitted by telecom towers; external interference in border circles caused by illegal jammers/boosters/repeaters that affect network quality; the poor availability of power at tower sites, which affects network uptime and quality of service; restriction on single-window clearances; and multiple fees and levies imposed on the sector.
Going forward
In order to improve overall sector performance, telecom operators, infrastructure providers and the government need to work in close collaboration. Single-window and time-bound clearances for the installation of tower sites must be encouraged. The government should grant quick approvals for the installation of mobile towers and in-building solutions on government buildings, defence land, airports, railway stations and residential complexes. Further, the government’s announcement of providing 24×7 power supply by 2018 is a positive development for operators as they need continuous power availability at industrial rates to ensure seamless connectivity on their networks. The government can offer a host of other financial and non-financial incentives to encourage operators and tower companies to reduce their carbon footprint. Fuel subsidies can be made available to operators either through the Universal Service Obligation Fund or any other alternative mechanism, particularly in remote areas, which have a significant power deficit.
The National Telecom Policy, 2018, which is likely to be announced in March, is expected to address the majority of these issues and usher in the next phase of growth in the telecom industry.
Nina Mehta
