Infrastructure Sharing: Hand in Hand

Everybody wants something these days. Service providers
want to create new revenue streams and simplify existing infrastructure, while
contact centre organizations need world-class ready-made infrastructure to
provide highest level of standards to their agents to deal with customers and
reduce costs. How can all these parties get what they want? Outsource
infrastructure requirements. And to fulfill these requirements, vendors such as
GTL have already taken the first mover advantage.

The company recently went through the restructuring process
and as a result formed a separate subsidiary GTL Infrastructure (GIL), which
will provide infrastructure services in telecom and BPO. Creation of Telecom and
BPO infrastructure are logical extension of the existing business within the
group in GTL.

Tryst with Telecom

Debt-laden mobile operators need every financial embellishment going to make
investors look more kindly on them. Infrastructure sharing will provide savings
or will even have a long-term impact on an operator's cost model. And as these
operators have aggressive roll out plans, it has given the opportunity for
vendors such as GIL to get into telecom infrastructure business.

GIL is planning to enter into the business of passive
infratsructure provisioning and management. The company will own, operate, and
provide passive infrastructure comprising towers, shelter with ACs, diesel
generating sets, battery back-up etc, and related site structures in ground
based as well as roof top sites for co-locating active elements owned by
different operators. It will also provide the operations and maintenance
services relating to the passive infrastructure. The company will not get into
sharing of electronic elements such as the radio access network or antennae. At
present, the ratio between the infrastructure components and electronic elements
is 70:30.

Since India boast of both CDMA and GSM networks, GIL has
huge opportunity lying ahead. GIL is planning to have around 12,000 cell sites
over the period of three years. This includes acquisition of the existing cell
sites also. At present it has around 1,300 cell sites in north, east, and south
circles. This would help operators' reducing initial debt exposure and
that's some thing the financial market is definitely in favor of. In rural
areas, private operators don't have the resources, money, and staff to build
networks in the beginning. Therefore, infrastructure sharing is of real interest
to those operators that need to improve their balance sheets in the short term,
rather than those who are looking to make savings over the long term.

To reach out the roll out targets, the approximate capex
required in telecom infrastructure alone is to the tune of $20 bn over the next
three years. Average reveneue per user (ARPU), which is currently Rs 374 would
come down to less than Rs 200, once the rural India is covered. Therefore, to
balance this, capex per subscriber should come down by 40% if operators have to
be profitable in semi-urban and rural areas. “Network sharing would clearly
benefit both incumbent and greenfield operators-newcomers can take advantage
of existing infrastructure, while established operators have a route to reduce
their investment costs,” said Prakash Ranjalkar, COO, GIL.

GIL would provide shared infrastructure services to telecom
and BPO players on a business operate owned (BOO) model. The annuity driven
business model will have long-term contracts with primary anchor operator
co-locating other telecom operators. The duration of these contracts would range
from 5-20 years. It would ensure fixed income growth for GIL over the period of
years.

"Network sharing would clearly benefit both incumbent and greenfield operators-newcomers can take advantage of existing infrastructure, while established operators have a route to reduce their investment costs" -Prakash Ranjalkar, COO, GIL

GIL would build both ground based and roof-top cell sites.
A full scale ground based cell site of 60 m length costs around Rs 30-35 lakh,
while roof-top cell sites comes in different denominations ranging from 24 m to
9 m. A 15 m roof-to cites would cost around Rs 7 lakh. At present there are
around 54,000 cell sites, operated by different CDMA and GSM operators. This
number would further go up to 80,000 in the next couple of years. At present,
sharing is happening only in 22% of these 10,000 cell sites. The idea is to
increase sharing up to 80%.“The
third party infrastructure sharing would be more effective as telecom
operator'scompetition will not
hamper co-operation and high leverage of assets would ensure early revenue
streams and consequently the ability to finance rapid roll-out,” added
Ranjalkar.

An operator would have to pay approximate Rs 45,000 per
month as rent for the tower and would be allowed to fix his own antennae and
radio network depending on the Radio frequency requirement in that particular
area. The first tenant on the shared site would get 35% discount and the second
tenant would get around 65%. Maximum five operators would be able to share a
single site. If five operators share a single site, it would almost become free
for them.

“Depending on number of operators sharing the same cell
site infrastructure for housing their electronics, effective cost of cell site
for each operator reduces by 30-40%,” Ranjalkar said.

Further, GIL is in serious discussion with various
operators for large deals on BOO as well as acquisition of existing sites. The
company recently had discussion with one CDMA operator and after initial
scrutiny, has submitted an offer for operation and maintenance of 4,500 existing
sites and development and maintenance of additional 2,000 sites that have to be
rolled out under the BOO model. The company has also got an offer from GSM
operator for BOO of 500 sites spread over a zone and is under active
consideration.

The company has also applied to the Department of Telecommunication for
registration as a Category 1 infrastructure provider.

Platform for Outsourcing

One of the fastest growing BPO industry is also on GIL's radars. The low
cost base and availability of quality manpower are the key drivers supporting
the growth rate of the Indian BPO industry. However, the industry is facing
challenges thrown by shrinking profit margins and scalability of operations. GIL
is aiming to provide solutions to the BPO players in the Indian industry by
offering a shared BPO facility with the strategy in mind.

The idea is to maximize its own revenues from the BPO
facility by accommodating various clients at the same facility so that maximum
seats can be utilized at the same time. The sharing of facility will also allow
it to accommodate clients involved in low-end as well as high-end services. This
will enable the company to earn higher margins from different clients based on
their end activity and the criticality of the infrastructure support required.
It is also planning to adopt a process framework and procedures, which will
allow the client to start the operations in the least possible time leading to
early revenues for both the parties.

GIL would provide complete infrastructure required by
customers for running BPO operations for their clients. This can be custom built
to suit the clients requirement or can be modified based on their required
setup. It will also manage the entire facility for its customers by taking care
of the maintenance, housekeeping, and security functions allowing the client to
focus on their core business.

The company currently providing shared seat facility in its
Pune center, which has the capacity of 600 seats. It is coming-up with another
350 seats in Mumbai and 2,500 seats in Pune. Apart from this an international
bank has short listed GIL's bid for creation of back office infrastructure on
operating lease basis, resulting in creation of approximately 500 seats spread
over four major cities in India.

As per the international standards, a BPO company
prerequisite is 50-60 sq ft per seat. The rent per seat would be around $550 per
month.

Since GTL is already there in telecom services segment, GIL
is planning to reap the benefits of it, as there is synergy in both the
company's businesses. “The businesses of both the companies have completely
different focus, but has synergies and we definitely see value in it,”
Ranjalkar added.

Restructuring Phenomenon

A major restructuring exercise has been done within the organization to
chalk out focus areas for both the companies.

In the process, the entire infrastructure related business
and assets of GTL would be transferred to GIL through de-merger and sale
process. After obtaining statutory approvals, the boards of the respective
companies has approved that infrastructure assets aggregating approximately Rs
214 crore comprising data centers, international gateways, VPN, operating
systems for billing, HR, and CRM would be transferred to GIL by GTL for a cash
consideration. The cash will be utilized by GTL for re-paying outstanding debts.

GTL currently comprises the network engineering and IT
services division. A part of the IT services division, comprising an
infrastructure undertaking would be de-merged from GTL and merged into GIL
pursuant to a court approval. The net asset value of this division is
approximately Rs 101 crore. In lieu of the de-merger, the shareholders of GTL
will receive one share of GIL for every one shares of GTL.

Also GTL Technology Investment, a wholly owned subsidiary
of GTL would be merged with GTL. This has been done to consolidate GTL's
investments in international businesses, e-security, infrastructure, and others
on a single platform under GTL.

Business model of GIL has been built on the basic premise
that the company would first enter into long-term contract with primary anchor
tenant and acquire the telecom infrastructure and BPO infrastructure in such a
way that the cash inflow capture is ensured prior to the capital expenditure.

The current capital of GIL is Rs 27 crore (100% subscribed
by GTL). GTL has made a further investment of Rs 106 crore in the equity share
capital of GIL at a share price of Rs 10 per share. The Board of GIL has also
approved the issue of equity shares at share price of Rs10 per share to foreign
investors under the FDI scheme of approximately 26% of the post-restructuring
shareholding. Post re-structuring, the shareholding composition of GIL is
expected to be 41% of GTL, 26% with FDI investors, and balance 33% with GTL
stakeholders. GIL is planning to invest around Rs 322 crore in various
infrastructure projects it has planned.

Both BPO and telecom are growing industries, and operators
and BPO players are finding innovative ways to cut down on cost. GTL and other
players in infrastructure provisioning have the chance to unleash the
opportunity that this new segment offers.

Rahul Gupta

rahulg@cybermedia.co.in