Exciting times ahead for Telecom Towers

While the tower business was one sector that was unaffected by recession,
however, the entry of new players has caused a minor dent in the fortunes of
established players, who are seen to be increasingly struggling in a
price-volatile Indian market with falling ARPUs, rising capex and opex costs
only adding to the muddle.

While the excitement in the tower business began early in the new year with
the GTL-Aircel merger, making GTL the first independent tower company to cross
the 10,000 towers mark, the success story only continued to grow with Aircel
emerging as the biggest winner in the 3G auctions, no doubt helped by GTL's
impressive financial backing. With other operators who possess a growing tower
business, it has made way for a huge spurt in the tower business. This year,
with 3G spectrum, operators will be more focused on active infrastructure
sharing in urban areas for the first time, apart from passive infrastructure
sharing continuing in rural areas. This is only helped by the popularity of
solar powered and green towers as well as green technology to combat the
expected increase in the tower footprint. So, overall an exciting time for the
telecom tower business in India has just begun.

India has a subscriber base of 621 mn subscribers as on March 31, 2010, aided
by the successful launches by new operators such as TTSL and Uninor; and these
numbers are expected to reach 1,019 mn by 2013, as per the COAI estimates. The
CLSA research states that the country could require around 4,63,000 towers to
meet the network coverage requirements of the operators. This translates into an
additional demand for approximately 1,30,000 towers over the next three years.

Share and Spread Out

Five new operators received pan-India licenses in CY 08. Telecom Regulatory
Authority of India (Trai) has set period specific rollout targets for the new
licensees. Failure to achieve these targets will result in penalties for the new
operators. The new entrants also face an already crowded telecom market with up
to seven competitors per circle, thus intensifying the competition. Thus, they
require tower infrastructure in place over a short period of time to garner
subscribers and meet rollout obligations.

This only pushes the case further for infrastructure and asset sharing. Now
given the case of only a chosen few winning 3G, they will have to bear the
winner's curse of setting up the towers, besides having to bear the Rs 50,000
crore burden. With the tower business contributing majorly to the global
footprint, it only makes business sense for M&As, outsourcing or infrastructure
sharing to proliferate in the current scenario. This can not only reduce
incremental costs, but ensure a robust, speed to market and cost effective
rollout of services with seamless connectivity for the new and existing
networks.

The size of sharing opportunity across India is enormous. It is estimated
that there are roughly 2,00,000 towers currently in operation in the country and
the number is expected to increase to 4,63,000 in the next five years. This
expected growth is linked to a significant remaining network expansion. This
tower forecast could be reduced significantly if we factor in the potential for
widespread tower sharing which would involve billion dollars of investment.

V&D estimates                       CyberMedia Research

In its recommendations, Trai noted that service providers were already
sharing infrastructure selectively, with approximately 25% tower sites being
shared for passive infrastructure.

Historically, passive infrastructure sharing in India has been in the form of
sharing among wireless service providers, along with the provision of passive
infrastructure services by small tower operators. However, wireless service
providers such as RCOM, Bharti, Airtel and Tata Teleservices have recently
transferred passive infrastructure to independent subsidiaries, which will
operate as independent third party passive infrastructure providers. This
indicates a trend towards the growth of passive infrastructure industry in
India.

Key Developments

While GTL Infrastructure is set to have 50,000 towers across India by
2013-post a three year rollout plan with Aircel to acquire 20,000 more towers
from the company-which will make it the second largest tower company in the
world. Currently as on March 31, 2010, GTL has 12,456 towers in various stages
of completion. The number of towers including those under implementation
increased from 9,411 in FY 2009 to 12,456 in FY 2010, with the company posting a
growth of 32%. The combined entity of GTL and Aircel is expected to be 32,000
towers. Besides, WTTIL-Quippo's also acquired TTML's 2500 towers in Maharashtra
and Mumbai circles for a value of Rs 52 lakh per tower. After the acquisition,
the company is expected to have a total of 35,000 towers. In addition, ATC's
acquisition of Essar Telecom Infrastructure's (ETIPL) 4,450 towers and 325
towers of Transcend Infrastructure last year has increased its footprint to
7,000 towers in India. Thus, as tower ranking stands today, Indus (a joint
venture between Bharti, Vodafone and Idea) is the leader with 95,000 towers,
followed by Reliance Infratel with 47,000 towers, BSNL with 45,000 towers,
Bharti Infratel with 27,500 towers, WTTIL-Quippo with 21,000 towers, GTL Infra
with 7,500 towers, Idea Cellular with 7,500 towers, Optus (Vodafone) with 6,500
towers and Essar Telecom with 4,500 towers.

According to VOICE&DATA research, erecting one cell site involves an
investment of about Rs 30 lakh. Therefore, for setting up 2.2 lakh more towers
in the next three years, Rs 66,000 crore will be required. Besides, India is set
to touch 600 mn subscribers by 2011. This means that there are close to 1,50,000
more towers needed from the present base of roughly 2,58,000 in the next two to
three years, which would amount to a requirement of 5,54,000 towers by 2015. The
industry is expected to have grown to 3,30,000 towers as on March 2010 from
2,80,000 towers in FY 2009.

The 3G Push

With the onset of 3G, there is set to be a huge transition from voice to
data applications and increased NGN services. With the government's aim to
quickly spread the new technology across the length and breadth of the country,
the setting up of telecom tower dilemma in rural areas is set to intensify with
inaccessibility and expensive infrastructure costs coupled with slow RoI. This
calls for even more passive infrastructure sharing.

In addition, using 3G technology, operators are likely to step up the peak
data transfer offered to consumers. The higher transmission frequency (2,100
MHz) and the greater data rate that operators would like to offer will
necessitate more cell sites for the 3G coverage. According to an industry
estimate, with the effective coverage in all major cities, operators will need
one 3G BTS for every 2G BTS. The high 3G license fees expected to be paid by the
operators will make sharing an unavoidable option for the operators to start
their rollouts. International carriers are also banking on 3G auctions as the
entry point into India. As guidelines for sharing of all active elements is
allowed, it will further help the dynamics of 3G rollout.

Operators are expected to rollout 50—60,000 3G sites within two years of
getting the spectrum. The rollout is expected to primarily cover the key cities
and towns where the uptake is estimated to be higher.

Most operators will co-locate their 3G base stations on the existing 2G tower
and avail significant (60—70%) discount on the IP fees. This will improve the
tenancy ratio of the existing towers, but would have a much lower impact on
improving the EBITDA margins of tower companies, vis-à-vis what a 2G tenancy has
done.

Green and Efficient

As per studies, the total carbon emission from telecom towers is 5.3 mn
tonne on an annual scale in India. The annual cost of diesel required to fuel
telecom towers is estimated to be Rs 6,400 crore. Sharing of telecom towers
along with innovative energy management products and solutions can bring down
this consumption by almost 20%. This calls for an immediate strategizing
regarding the green towers, which most operators today are actively deploying.

To ensure uptime even in the most challenging conditions, GTL Infrastructure
has emerged with various technical solutions that are being tested for energy
management on the demand side which include identification of energy efficient
air-conditioning systems with high energy efficiency ratio (EER), free
cooling/emergency free cooling concept of air-conditioning systems to utilize
the cool ambient temperatures for reducing compressor running, wide input
voltage range SMPS for better efficiency even at low input voltages, fuel
optimizer method of operating DG interleaved with battery backup. Besides, GTL
Infrastructure has created a dedicated national network operations center (NOC)
for the online monitoring of site parameters, which will bring in operational
efficiencies.

Forward Looking Strategy

According to Lambda Eastern Telecommunications, consolidation, optimizing
resources, and process and systems strengthening is the way forward for the
tower industry. Diversifying the customer base and reducing revenue
concentration on only a niche urban market will also help. The current scenario
also calls for maximizing the utilization of existing tower capacity by
switching of certain sectors during non-peak times and distributing the saved
energy equally among all sectors to ensure fewer call drops and network
interruptions. With urban teledensity nearly approaching the 100% mark, it has
become inevitable for the operators to approach the rural market for further
growth. As the ARPU is low in rural markets, operators are opting for the
sharing of passive infrastructure to bring down both the capex and opex. Thus,
rural expansion by incumbent operators, introduction of services by new
operators and 3G license winners are expected to drive the tenancy growth.

Beryl M

berlym@cybermedia.co.in