Tower sharing: Power to stand tall

After the recent reports of municipal bodies and the central government getting into a tussle with telecom operators over new norms for building towers and taxes to be imposed on the same, it is becoming increasingly urgent that TRAI comes out with its regulations regarding new tower norms, which it has been delaying for months now. With 13 operators — the largest number in a single country in the world — jostling for space for their own towers, trying to get one up on each other in the race to provide the best network - issues of carbon emissions, radiation (due to setting up towers in residential areas), and land loss, besides unsavoury regulatory procedures, are also issues that have cropped up in the recent past in India, and are yet unresolved.

The solution? From outsourcing as in the case abroad, to portable,
green base stations, and tower sharing by different operators — the suggestions are endless. At the same time, rural areas, which suffer the brunt of network challenges, though fast catching up in mobile
teledensity, are being totally ignored in the race to cater to the urban bourgeoisie. Blaming geographical discrepancies, backhaul hurdles and slow ROI in these areas, operators keep taking two steps backward and one step forward, not realising the gross potential and purchasing power that lies in the hands of the upwardly mobile villager today. In this scenario, following a stringent policy of active sharing in urban areas, and passive sharing for rural areas, may be the only way for operators to put their best foot forward.

According to a white paper published by Cap Gemini on mobile sharing and outsourcing, tower sharing prevents the proliferation of masts, thereby reducing the environmental and visual impact of operator networks, especially in urban and ecologically-sensitive areas. Tower sharing also helps in spurring competition due to a reduction of entry barrier for new operators. More importantly, from a regulatory perspective, like in the case of India, the pooling of tower infrastructure helps operators expand into rural markets achieving the objectives of universal coverage, while ensuring that operators do not incur significant capex in doing so. Besides, tower sharing and outsourcing agreements between mobile operators and tower companies also offer both
OPEX and
CAPEX benefits for incumbents and new entrants, depending on the sharing model. Time-to-market is also drastically reduced.

Independent networks

While talking about
FMC — the new buzzword in the telecom world, Cable&Wireless representatives, at a recent conference in India spoke about the benefits of installing individual wireless base stations on the top of buildings, that are not only space savers, but provide clear reception; being connected to a select private network, while simultaneously providing connectivity to the public network by means of revenue sharing agreements with individual operators, that also does away with third party interference.

While this has been successful abroad, in India, there has been some talk of operators sharing towers, instead of building their own — however, this may lead to further network congestion, and would not solve the problem of space either, as larger towers would be required to be built to accommodate more operators.

Environmental and health effects

Telefonica Spain recently announced that it would be using Nokia Siemens Networks'
LTE-ready Flexi Base Stations, a flexible and modular platform, known to bring greater energy efficiency and reduce the environmental impact of the network. In the Indian context, while the mobile teledensity is the highest, and fastest — growth-wise in the world, the challenges with respect to towers are endless — environmental risks, being the root of contention, and the cause for many a tower in residential areas to be de-sealed, due to the radiation hazard myth, and the structural safety of mobile towers. However, after much deliberation, and many towers being constructed and then pulled down, the conclusion drawn was there was no choice, but to build towers in residential areas — and quoting foreign research and experts, that found that at ground level, the intensity of radio frequency radiation from a tower is about one hundredth to a thousandth of that from a mobile phone, which in turn, is much less than that from a local television station, operators got an approval from the legal bodies to de-seal incumbent towers.

After this came the issue of big towers not only being eye sores, but occupying a lot of good construction land, adding to space congestion in urban areas. While the solution to this was said to be green towers that were compact and could be camouflaged, or fitted atop buildings, like what is fast catching up abroad, the issue of regulations and expensive manufacturing equipment, came into the picture.

The consoldidation key

With 3G and NGN technology coming in, the necessity of towers cannot be underestimated. In a study conducted recently, it was estimated that in metros today, mobile operators need a tower every 200-400 metres to service their customer base, and will require an additional 100,000-150,000 towers by 2013 to meet the growing needs of the population. Regulatory terms and conditions by TRAI and other legal authorities pertaining to location, construction, taxation of towers is another hurdle.

Consolidation is thus being seriously looked at as a means of solving increasing tower challenges, especially by smaller players with a few thousand towers, even while companies like TowerVision, India's second-largest standalone telecom tower company, try to raise up equity and debt funding to stay independent. These smaller players are increasingly selling out their non-profitable assets to giants like Vodafone Essar, Bharti Airtel, Reliance Communication and Idea Cellular.

According to Dr Venkateshwaram, VP &Head (Telecom BU), Persistent Systems, “In any scenario, competition helps innovation, and the number of operators have to be calculated accordingly. Initially the first seven operators were given licenses, but now there are six new foreign operators, with good investment perspective, but no space to survive. Thus, consolidation is the only solution, and more so with 3G — tower-sharing and infrastructure sharing have to ensue, as in coming years, there will be only two to three strong players.”

While last year, Xcel Telecom sold out to Nasdaq-listed ATC for Rs 700 crore. in January this year, GTL Infrastructure, the country's largest standalone tower firm, acquired Aircel Cellular's tower business in a Rs 8,400-crore all-cash deal, which was the largest M&A transaction in India in the past 14 months. ATC is also in the final stages of taking a controlling stake in ETIPL in a $350-400 mn deal.

Even QTIL, which was vying with GTL Infra to be the country's largest independent tower company, merged with the tower arm of TTSL in December 2008 to take on larger players. According to experts, south India-based firms such as Aster Teleservices & TVS Interconnect Systems are also reportedly on the block. GTL, which closed a deal with Aircel, now has 32,500 towers, while Bharti Infratel, which holds Airtel's towers in those circles where Indus is not present, has over 33,000 towers. Reliance Communications has consolidated its 50,000 plus towers into an entity called Reliance Telecom Infrastructure, while the recently established Quippo-Tata combine has close to 30,000 towers.

Tower sharing? Not that smooth a process

According to Reji Cherian, VP-TME, Cap Gemini India, “While tower sharing and outsourcing offer significant advantages to operators, the initiative is not without its disadvantages. Operators face a host of challenges,some strategic and some operational, in driving the full benefits of tower sharing. Key strategic challenges include likely loss of competitive differentiation, long lock-in tenures, risk of information sharing and erosion of control, while operational challenges revolve around day-to-day co-ordination and planning.”

Yet another challenge with mobile towers is increasing capex and low opex. While QTIL recently announced that it has a capex requirement of up to $4 bn over the next two years to double its tower base to 60,000, for which it is looking at PE funding and acquisitions,
GTL announced an investment of Rs 1,400 cr in energy solutions that would not only help in energy management, but would also help to bring capex down by reducing power consumption, and diesel required to run the towers. Thus, it is in the process of developing equipment such as ambient cooling devices and solutions that use alternative sources of energy to reduce the overall power consumption at these towers.

Says Ajit Shankar, VP & COO, ATC India Tower Corporation, “Increasing teledensity has district positive growth on GDP. Ascending rural GDP, is thus a product of increasing teledensity, and there is a need to increase the threshold, so that business is sustainable, else no amount of regulation will help. Bringing down CAPEX of operators and increasing OPEX is the only solution, to help resolve falling ARPUs, as well. Thus, active infrastructure should be promoted — this is possible only among urban operators, while passive sharing should be implemented in rural areas.”

The urban-rural divide

One of the biggest challenges with respect to mobile towers in India is catering to the growing rural teledensity, which has the purchasing power, but is limited by infrastructure. According to Shankar, some of the constraints in setting up towers in rural areas are local body approvals, legal due diligence (verification of land ownership documents), lack of basic infrastructure (electricity and transport), radiation hazard myth, and the biggest bottleneck is backhaul availability — 80 per cent of rural BTS on microwave system, which at present the
USO fund doesn't provide any support to.

However, the government recently announced that it had a vision to connect the rural masses, and keeping with this goal, it is set to construct 10,000 towers connecting the remote parts of the country within this fiscal, using finances from the USO fund, which was specifically set up in 2002 to provide affordable telephone services in rural areas.

According to Anurag Vasistha, sr VP, Energy Management, GTL, “Over 170, 000 towers are expected to be rolled out in rural India in the next 2-5 years. This will serve as an additional source of revenue for SPs and consumers. The percentage of savings can be predicted, as well as energy costs.”

GTL was the first to set up an independent tower company and special rural innovative model — and it participated in the USO fund tender, having the highest number of towers rolled out under USO fund. “We recently set up a new company, called Global Rural Netco, to actively participate in sharing — on the lines of a combination of passive infrastructure sharing in rural areas, and active sharing in urban areas. For a technology agnostic, low-cost sharing solution, there is no better model,” Vasistha continues.

Remarks Ajay Bhattacharya, IAS, Administrator, USO Fund, DoT, “Rural teledensity is growing faster than urban, to the extent that it has now reached a ratio of 70: 90. Purchasing power is now in rural hands, and infrastructural bottlenecks, due to difficulties in the geographical structuring of the country, and backhaul issues, as well as low ROI, should not hold operators back.”

Thus, cost-effective infrastructure is needed — passive infrastructure-sharing (utility, towers, etc), provides an opportunity for tower companies to lease towers to operators, and the next step is active sharing (back haul, antennas, etc). It is only critical innovation that can enable connectivity at the rural level, and close to 50-60 per cent sharing can be achieved from CAPEX and OPEX.

As per a TRAI recommendation in ITU, energy-saving in radio network, and utilisation of renewable energy to base stations, as well as implementing an all-IP network to get 60 per cent reduction in bandwidth, sharing common infrastructure by co-operators, should be employed with respect to mobile towers. However, operators require regulator support in terms of subsidies on fuel, duty and taxation levy, subsidy on VAT, and private-funding from private operators.

According to Cap Gemini's white paper, regulatory authorities in developing markets have a significant role to play in determining the success of any infrastructure sharing agreements among industry players.
Capgemini believes that the key areas with respect to tower sharing/outsourcing for regulators to focus on revolve around pricing, universal coverage, fair industry practices and enablement of a dispute resolving mechanism

Remarks KSubramaniam, Sr VP, Acceptance Testing, Reliance Technology Innovation Centre, “Software radio technology used in base stations with all technology — WiMax, etc can be used extensively in rural areas, creating say, a single counter for 100m customers. Backhaul capacity has to increase. The government has provided USO funding for hybrid power of Rs 50 lakh, which Reliance is availing of, and has witnessed reduced OPEX cost since.”

Tower sharing and outsourcing have a significant role to play in developing markets in order to promote universal telecommunication access and especially so, given the background of the global economic turmoil which has affected investment pipelines. For incumbents, new entrants and regulators in developing markets, tower sharing and outsourcing models offer growth paths to service expansion and enhanced subscriber penetration. The way forward is backhaul provisioning support, single point of contact for regulatory approval, streamlining land record and verification, alternating energy resources, and improving basic infrastructure like roads and provision of electricity. Operators and independent tower companies also need to clearly identify the path most suitable to their needs to avoid the pitfalls and realise the potential benefits of tower sharing.