Key policy and technological developments in the Indian telecom space have brought about a transformation in the way operators conduct business. The focus has shifted towards data and strategies have become more cost oriented. The impact of the changing telecom business environment is also being felt across the Indian telecom tower industry, which was constituted as an adjunct to operators? core business in 2005-06. Less than a decade old, the industry now faces the challenge of realigning its business objectives. According to B.S. Shantharaju, chief executive officer, Indus Towers, the telecom tower industry has reached a stage where redefining existing business models will be imperative to drive future growth and long-term sustainability. Excerpts from his address at a tele.net conference?
Over the years, the operators? business model has undergone a transformation. The introduction of 3G/4G services has changed the sector?s growth drivers and operators are now redefining their businesses to participate in the ongoing data revolution. By extension, the tower infrastructure industry needs to redefine its business strategies to gain from the changing business scenario. There is a need to conduct business in a different manner while maintaining the industry?s focus on core fundamentals such as operating excellence, delivering uptime to the consumer, and preventive and predictive maintenance.
Currently, the industry faces a huge challenge in terms of energy management at tower sites. While companies are increasingly taking steps to reduce diesel consumption at their sites, there is still significant room for improvement as well as innovation. Modernisation in tower designs and models is also required, to prevent further damage to the country?s skyline. This, in fact, will become one of the key issues for the telecom tower industry in the coming years.
Managing energy costs
In the past few years, our key customers ? telecom operators ? have witnessed significant challenges on the financial front. Their profit and loss statements have been adversely impacted on account of extremely low and unsustainable tariffs. Achieving profitability and sustainability in such a scenario puts excessive pressure on costs and the operators often turn to other stakeholders in the sector to help them achieve cost efficiencies. In such a scenario, it is imperative that all business partners come together to reduce system costs. At the infrastructure end, there is immense scope for bringing down the energy cost at sites and sharing the resulting benefits with our customers.
In 2010, Indus Towers had set a target to bring down energy costs by 50 per cent over the next five years (by 2015). We have reduced it by 31 per cent so far and hope to achieve at least 40 per cent reduction by 2015. Such results have primarily been realised on account of a host of technological solutions and energy management measures. In the past few years, we have been able to convert over 30 per cent of our sites into diesel-free sites. The initial 10,000 sites were difficult to transform; however, once we achieved that mark, scaling up was easy and today, we operate 36,000 sites (of a portfolio of 113,000 sites) as diesel-free sites. We intend to take this number to 50,000 in the coming years.
Further, the growing use of analytics for site management is proving to be extremely beneficial for tower companies. Several analytical tools are increasingly being deployed at tower sites. These generate huge volumes of data pertaining to almost every tower, which enables better management of the sites from a centralised location.
Addressing landlord issues
In the telecom infrastructure industry, the tower company?s relationship with landlords is very crucial, as it continues for 20-30 years. Thus, after operators, landlords are probably the most important partners in the industry?s business value chain. They have to tolerate a significant amount of intrusion and inconvenience when they provide space for putting up towers.
A typical rooftop tower installed on a landlord?s property witnesses visits from 20 different technicians in a month, which can disrupt a landlord?s privacy, and may prove to be a key point of dissonance between a tower company and the landlord. As a result, the landlord may opt out of the agreement or not renew the tower contract. Further, other factors such as diesel generator set noise and radiation emitted by towers may discourage landlords from renewing contracts.
Therefore, addressing these issues at the earliest is essential for the growth of the tower infrastructure business. Nearly 12,000 of our company?s agreements with landlords will be due for renewal in the next two years. Even if 20 or 30 per cent of these upcoming contracts are not renewed, it will impact our network significantly. To address this problem, we are ensuring that the number of visits to a landlord?s premises is reduced by taking several preventive maintenance measures.
Restoring the skyline
In the bid to provide widespread telecom access, the industry has ended up damaging the country?s skyline. Issues at the policy level, especially the scarcity of spectrum, have also been responsible for this outcome. However, as we move towards new technologies and realign our business goals, the onus of restoring the skyline falls on the industry. Fortunately, the industry has a 15-year window to achieve and implement its plans as it is during this time that most of the towers are likely to be replaced. Also, contribution from tower designers and engineers in the form of innovative and cost-effective designs will play a crucial role in changing the skyline.
Growth over the next few years
The growth in towers may not be substantial in the coming years as the tower base currently covers about 90 per cent of the country?s telecom footprint. Thus, additional towers will be required to cover the remaining 10 per cent. We can also expect limited new tower installations, which would mainly be driven by the uptake of 3G/4G services and serve as infill sites.
Tower tenancies, on the other hand, are expected to witness steady growth over the next few years, facilitated by the increasing uptake of data services. Indus Towers currently has a tenancy ratio of 2.09x and we expect this to reach 2.5x over the next six years.
Expectations from industry stakeholders
The industry?s expectations from the government are manifold and the most crucial amongst them is the green telecom mandate. The tower infrastructure industry supports the government?s endeavour to promote green telecom and reduce the industry?s carbon footprint. However, the industry believes that the government should be technology neutral. It should introduce a carbon footprint reduction programme but must not mandate the type of technology solutions that must be adopted by the industry. The choice of technology deployment for meeting these targets should lie with tower infrastructure providers as they are better placed to decide the technology type on the basis of capex and site requirements.
As for expectations from the telecom industry, there is a need to redefine our business model by broadening our scope beyond master service agreements and the legal clauses therein. Continuous innovation by technology vendors as well as tower designers will also be crucial in transforming the telecom infrastructure space in the future.
