Passive Infra Leveraging Build-outs

The tower companies turned their attention to improving the tenancy ratios, helped by infrastructure sharing deals

Telecom towers in India account for a bulk of the passive infrastructure in telecom, but only a small part of that is directly owned by the telcos themselves. This is unlike many other markets, where telcos still own a substantial part of the tower infrastructure. Indus Towers, which came into being as a joint venture of Bharti Airtel, Vodafone India and Idea Cellular, continues to be the largest telecom towers company globally.

Then, there are still other infrastructure companies that came into being as spin-offs, with the likes of Bharti Infratel and Reliance Infratel being the prominent ones.

Indian telcos’ strategy of separating the tower infrastructure as separate entities has primarily been driven by the low-ARPU environment and a resulting need to leverage tower assets through infrastructure sharing. The model, which was first lauded as a business innovation, has not necessarily lived up to its true potential though. The average tenancy continues to hover at just about 1.8.

Key Developments in 2013

The industry slowed down somewhat on the new build-outs front and was busy inking infrastructure sharing deals. Reliance Jio Infocomm emerged as a key driver of multiple tower sharing pacts.

In June 2013, Reliance Jio and Reliance Communications signed an agreement for sharing of RCom’s pan-India telecom tower infrastructure. The deal enabled access to around 45,000 towers of RCom to Reliance Jio. The former said it would generate revenues of around Rs 12,000 crore over the lifetime of the deal. For Reliance Jio, it marked a major step towards a number of tower sharing sign-ups, big and small. RCom went on to sign similar deals later with Bharti Airtel, Viom, ATC and Tower Vision.

Another significant highlight of the year 2013 was a small but concrete step towards green towers. In April 2013, Indus Towers announced that it had completed 20,000 green sites across 15 telecom circles and had plans to complete another 10,000 green sites in 2013-14. As part of their national campaign called Indus Towers Green Sites Project, the company said it had declared six major cities namely Mumbai, Kolkata, Ahmedabad, Chandigarh, Palanpur and Gandhinagar as ‘Green’ where sites in the limits of municipal corporations would not be using diesel and relying just on grid power and other non-polluting backup sources. Indus had earlier bagged a Voice&Data Green Company of the Year Award too.

This company said around 2,500 sites had been identified for solar power, of which 728 sites have already been installed. The company was also testing wind power and gas solutions, be it piped natural gas, LPG solutions or CNG-based solutions, and said it was even developing biomass solutions for telecom towers.

Other companies have also been taking steps to strengthen their green portfolios, as directed by the government, base on TRAI recommendations, but the progress has been slow.

The government had earlier mandated that at least 50 percent of all rural towers and 20 percent of all urban towers were to be on hybrid power, i.e., a combination of grid power and renewable energy technology, by 2015. Further, it stated a goal of 75 percent of the rural towers and 33 percent of the urban towers to have hybrid power by 2020.

Given that the grid-power supply is not dependable and even unavailable sometimes, the telecom towers and sites have to be dependent on diesel gen-sets, not as an exception but almost as a rule. Industry estimates peg the spend on diesel to the tune of Rs 8,500 crore per annum.

This makes the role of alternative power and backup technologies, including UPS and renewable-energy technologies, all the more important. Some of the companies focused on telecom power and backup systems include Emerson, Socomo, Amar Raja, Eaton, Delta and Eltek, among others.

A Tenancy Challenge

An interesting piece of statistics could be quite telling. India is estimated to have around 450,000 towers today, which could be comparable to what even China has—between 420,000 and 465,000, according to an investment bank report—across a mix of 2G, 3G and 4G mobile technologies.

However, the number of Telecom Base Stations (BTSs) in India was estimated at around 810,000 while in China it is 2,538,000. This is clearly indicative that while India may not necessarily be short on the number of towers, it certainly is falling short from a utilization and tenancy point of view.

While a recent Indus Towers release had said it has achieved a tenancy ratio of over two, some other players are at 1.8 or even lower. Also, Indus was at a ratio of 1.28 in 2008 and has taken around five years to reach the current levels. This segment of the carrier equipment recorded diminished investments by operators besides adoption of network optimization strategies like shared infrastructure. However, as the operators continued to focus mainly on network augmentation in the FY 2013-14, the tower capacities were added by several operators as well as the independent tower companies. However, as the phenomena of shared infrastructure is on the rise in the country resulting in ‘Managed Tower Services’, the growth is expected to be higher for independent tower companies as compared to operators increasing tower footprints.

For the FY 2013-14, the telecom tower business in the country was estimated at Rs 47,591 crore as compared to Rs 45,211 crore in the previous financial year. Thus the segment saw a growth of 5.3% by virtue of revenues. It is expected that several operators might divest from the tower business thus giving rise to a strong base of independent tower companies that will manage the towers for operators and allow shared infrastructure. At the same time as operators also start focusing on improving the indoor coverage of networks through micro-cellular architecture of Pico and Femto cells, the tower density might not proportionately increase with the expansion of networks in the country.

Within the existing business there was normal pace of growth with not much expansion happening and the business mainly grew through the addition of new sites as well as implementation of greener technology and solutions in FY 2013-14.

The major reason for phenomenal increase in the business was RJio, which for the first time in India decided to use Lithium Ion batteries shooting up the growth by over 34%. Lithium Ion batteries are costlier compared to other alternatives, and this year RJio procured for the massive expansion of network.

SMPS/IPMS (SMCS) and batteries continue to form the major chunk of business apart from DG Sets, etc., that are used to power operator networks.

Development of suites to manage power and build heavy analytics solutions as well as centralized centers (NOC) figures in highlight of the year.

Power Solutions generated revenue of Rs 3,450 crore in FY 201314 as compared to revenues of Rs 2,568 crore in the previous year.

What Next?

Going forward, the tower industry is expected to keep working on improving the tenancy ratio. The deals that Reliance Jio has entered into with the tower companies as well as telcos would go a long way in making this happen. As of date, an estimated 180,000 towers have been covered through various RJio deals. These include 82,000 towers through Bharti Airtel, which also has a 42 percent stake in Indus Towers and 45,000 towers of Reliance Communications. Others include 42,000 towers of Viom, 11,000 towers of ATC, and 8,400 towers of Tower Vision.

Another goal for the stakeholders would be to further raise the number of towers on hybrid power. This, however, would be easier said than done, given that the cost of deploying renewable energy systems, like solar, is still relatively higher than grid-based power. Tower companies alone won’t be able to drive the economy of scale to bring prices down and would need government support to achieve the goals that have been outlined by TRAI.

A third goal, and certainly not of a lesser importance, would be to bring down costs of deployments and operations. While the legacy towers may not be so amenable to delivering this goal, the greenfield deployments can be leveraged in a strategic manner. Use of low-cost and high-durability carbon fiber structures could make a differentiating impact in this regard.

For example, the deployment of a traditional cell site would earlier cost anywhere between Rs 25 lakh and 45 lakh. However, the use of a carbon fiber tower could bring the costs down by multiple factors. Even though some low-cost towers are understood to have brought the range down to Rs 15 to Rs 20 lakh, it is still considered high in a low-tenancy environment.

For example, GlobeLink Telecom, a US-based company says along with American Consulting Technology & Research, they have engineered and are co-developing the first heavy load structure made from carbon fiber. The environmentally responsible, noncorrosive, low conductive carbon material would offer a multitude of benefits. GlobeLink claims the ultra-light carbon fiber material is less than 10 percent the weight and twice the strength of steel. The lightweight structure reduces tower erection to hours versus days or weeks without the need of a heavy lift crane and has a lower wind load which permits a 50 percent reduction in the foundation requirement, a major cost item, it says.

Tower companies could benefit by taking a two-pronged approach to lowering the overall cost of their greenfield deployments—while they could potentially bring down the costs of towers significantly, they could reinvest those savings on deployment of renewable energy technologies. This would not only help them to keep the overall capex low, but also reduce on the opex by way of significant savings on diesel in the long run. And it goes without saying that along the way, they would be meeting the TRAI-mandated goals for going green!