Contribution of Tower Industry to Indian Economy

Operators worldwide have realized the importance of network outsourcing and Infrastructure sharing, and are learning from the Indian experience. From the inception three-to-four years back, the Indian Tower industry has gone through some exciting changes and telecom companies from India and around the globe have taken a keen interest in participating in the growing opportunity. The industry has seen lot of action with many players setting up tower companies. In fact the pace of change and growth has been so fast that the industry is witnessing a wave of consolidation.

Regulation wise, the laws are more inclusive now, though much needs to be done. With carriers in an intense capex mode and with 3G auctions, carriers are likely to step up sharing to better prioritize capital allocation. Carriers are likely to resort to an intra-circle roaming in rural areas to tap the markets effectively and active sharing especially in 3G in urban areas.

There are many reasons behind the success of this industry. First and foremost, there is a tremendous value proposition to operators, in terms of capex and opex costs. This has lead to judicious use of precious financial resources. Availability of ready infrastructure also enables the operators to reduce their time to market. By outsourcing their infrastructure requirements, operators are able to focus on their core activities of providing quality service, brand building and customer relationship. To put things into perspective, the savings in capex is approximately 30% and considering the average tenancy of around 1.5 industry wise (on approximately 2,00,000 towers) a saving of min 15-20% of opex reduction over year 2006 levels, and as the tenancy moves upto 2 to 2.5 in next 3-5 years minimum saving would be 35-50% on opex besides direct saving on fuel electricity and diesel costs.

The impending auction of third-generation (3G) licenses, which is expected to take place in India in the later half of 2009, followed by WiMAX licenses shortly thereafter should further give an impetus to the industry.

The tower industry has also played a role in enhancing the rural connectivity. Telecom operators after facing saturated markets in the urban areas started paying greater attention to rural and semi-urban areas. Typically termed as “low margin” regions, these regions have substantially low ARPU subscribers while cost per customer is considerably high. Along with erratic power supply, the bottlenecks include difficult terrain and lack of backhaul infrastructure. Additionally in the rural areas operating and maintaining the passive infrastructure in the cell sites is a cumbersome task where among other things power supply is also intermittent. Tower companies serve as a one-stop-shop provider of infrastructure and services to telecom operators by undertaking the full range of responsibilities in building and maintaining the sites.

Telecom infrastructure sharing also has a positive impact on costs and tariffs, the extent and how soon the benefits can be realized depends on the underlying environment and business dynamics. With the ARPUs heading south, the wider aspects of such savings will be critical for the existing as well as the newer operators.

An increase in the rural teledensity is having an impact on improving access to family, education, health and financial services and by enabling the development of non-agricultural economic activity.

The tower companies through their efforts are also helping in the ancillary development. The tower companies have a huge vendor base consisting of material suppliers and sub contractors for sourcing services. Technology providers like manufacturers of diesel generators, battery backup, power and SMPS, cables, shelters etc are directly impacted by tower business.

Telecom Infrastructure in the rural areas require large amount of customization, providing avenues to several associated industries like material movement required in construction of the tower sites impact a lot of transportation and distribution companies. All this economic activity also results in significant employment generation potential. About 3.6 mn jobs could be generated directly or indirectly. Ovum Research has estimated that employment dependent on the industry is expected to rise by at least 30% over the next 12 months.

Shared networks also provide environmental benefits, as the sites are most effectively shared involving reduced number of towers. Environment and energy friendly-shared infrastructure, used by many operators lead to judicious use of precious natural resources. This prevents extra pressure on environment and energy resources as the electricity requirement reduces and when the site is run by diesel, the emission reduces as a common diesel generator set takes multiple (3 to 5) operator infrastructures live. Telecom infrastructure sharing helps in better skylines by preventing cluttered structures.

Encouraged by the success of passive infrastructure sharing, last year the Government of India allowed sharing of active network infrastructure by operators. This measure is expected to expedite network rollout, especially in rural areas. The operators are expected to migrate towards an operating model inherent with both passive and active sharing arrangements in the future, to derive the maximum benefit from sharing. Hence, tower companies will have to collaborate with technology providers, to enhance their shared infrastructure offerings.

(Contributed by Prakash Ranjalkar, director & COO, GTL) Infrastructure