Towers fail to rise

The unexpected failure of 3G hit each and every stakeholder of the Indian telecommunications industry, and the telecom tower segment was no exception. Slower than expected offtake of 3G rollouts, and the delay in rolling out the BWA networks, even after a year of paying out the license fees, has forced the tower segment to display a reluctant performance.

3G rollout being limited to the top 40 cities in India and the primary focus being on upgrading and utilizing the existing infrastructure, has pulled the segment down. According to VOICE&DATA estimates, the telecom tower industry added a mere 7,213 towers in fiscal 2011-12 flat growth. The key players in the telecom tower business are Indus Towers, Bharti Infratel, Viom Networks, GTL, American Towers, BSNL, and MTNL.

Players

Maintaining its place at the #1 position is Indus. The company that has three anchor clients Bharti airtel, Vodafone, and Idea Cellular to its credit boasts of 109,114 towers. Indus Towers has coverage in 16 circles and healthy tenancy ratio of 1.94 has a high speed-to-market. With new operators rolling out services, the tower company is on a high-growth trajectory.

The company is also betting big on its green endeavor and testing wind power and gas solutions-be it piped natural gas, LPG solutions, and CNG based solutions. The company is developing biomass solutions for telecom towers. It seems that the company is planning to deploy all these solutions in large numbers in the near future and plans to be the largest green energy deployment in the world for the telecom vertical. To make this plan a reality, Indus has decided to invite proposals for setting up independent renewable energy companies, which will generate and supply green power to run towers.

Second on the chart is BSNL. This public firm having 61,340 towers in the country added another 1,179 towers in the last fiscal. It leased out 566 towers to other TSPs in 2011-12 and earned a revenue of `42.67 crore through the leasing. The company that has pan-India 3G licences however it did not majorly invest in terms of revenue, manpower and R&D and failed to make any strategic acquisitions as well.

Sharing of BSNL towers by other TSPs like Reliance, Idea, TTSL, airtel, and Vodafone etc, was not as per expectations. Moreover major TSPs hired towers from their own infra companies such as Indus, Bharti Infratel, Reliance Infratel, etc, and demand from these operators was hardly as expected.

The company is today re-looking at outsourcing the O&M activities of passive infra of towers on fixed charge basis (including EB and fuel charges) to the O&M agencies available in the industry with a mandate that the O&M agency will bear the capex for maintaining the passive infra for a period of 7-10 years after taking over the site.

From an operational perspective GTL is undertaking initiatives like energy management, network operations center, etc, through which the company aims to bring down the operational expenditure. Additionally it is also trying to address some of the supply chain challenges and generate further efficiency. The current investment is focussed on improving operating efficiency and taking care of its organic growth requirements. The firm also completed the acquisition of Aircel's telecom towers.

Viom, formerly QuippoWTTIL, boasts of 42,000 towers. During the last financial year the company registered a significant increase in tenancy ratio from 1.7x to 2.35x over the last 3 years.

The company has also achieved the 2nd largest share in the incremental Tenancy Market Share (TMS) accounting for 33% of the incremental TMS. Viom Networks has paused further capital expenditure on building new towers till further clarity emerges. The company has plans to set up another 20,000-25,000 in the next couple of years.

Reliance Infratel, for instance, is seeking to recover `1,200 crore from Etisalat DB Telecom India for the use of its telecom infrastructure in the past.

The growth in the sector will be primarily driven by increasing rural penetration and deployement of 3G services. The current market trends are also forcing the tower cores to shift their focus from building new assets to tenancy. This, in turn, is likely to truncate the costs and make every player build a strategic decision based on demand from tenants.

In the infrastructure space, the industry is undergoing sharing of passive telecom infrastructure for in-building coverage. Sharing of passive infrastructure also brings with itself a compelling business case for independent infra-owning companies and in turn for the services companies since this considerably reduces the cost.

Moreover the Rapid Deployment Towers (RDT) to cut down the lead time and thus resulting in faster deployments of telecom infrastructure, also happens to be a trend that the industry is undergoing presently.

Areas of Concern

The telecom tower industry that happens to be the infrastructure backbone for the telecom industry and the growth plan, however is today facing some serious concerns that needs to be addressed with utmost importance.

There are a few regulatory challenges that have emerged lately with the recent licence cancellation by the Supreme Court of India as well as guidelines of Trai like the universal service regulation, cenvat issues, levy of taxes etc.

There are also challenges on the execution side, given the state of availability of electricity and other infrastructure. The costs are high and logistics/storage/pilferage add to the problem. Also there is multiplicity of regulations, but the a need is to have a uniform policy governing the sector. The other factors that are pulling down the growth string include imposition of license fee by many state governments, opposition of public, NGO, gram panchayats in many areas of the country for installation and maintenance of telecom towers on account of health hazards, no big role out by new TSPs, rapid increase in diesel prices, new guidelines of Trai as well as issues related to RoW (Right of Way).

The tower industry also awaits the finalisation of getting the 'key infrastructure' status, such that the services rendered by them are recognised as critical and these tower companies are provided with improved grid power connectivity. The industry players have also been awaiting the support of the universal service obligation fund to erect towers in rural and low penetrated areas.

While the government has recently announced, as part of its charter for the Draft of the New Telecom Policy, a recommendation towards granting infrastructure industry status to the telecom tower industry, there still remain stiff challenges to this critical sector. It is constantly seeking government support to incur research and development expenditure to transition towards greener technologies.

The issues that need to be addressed urgently to bring back the segment on a growth trajectory are the need for a single window clearance, permission to be granted in a transparent and time-bound manner, uniformity in tariff/fee and procedures across all states, development and adoption of standards for all types of new towers in telecom, policy for setting up of IBS in government buildings, airports, hospitals, shopping malls, etc, and provisioning of land and power connection on priority in rural areas by the state government.

The Future

Looking at the uncertainty in the whole tower business, it would be correct to say that it is now a wait-and-watch game as the period of excitement over new entrants gets over, pressing on the need of infrastructure expansion through sharing. The tower companies will have to develop new business models and move to active infrastructure sharing. Technological changes like the movement towards higher share of outdoor BTS, high-gain antennas, etc could significantly impact the market dynamics. Also, the 3G and WiMax rollout is expected to increase tenancy.

For voice, operators would also be looking with major impetus on rural expansion. The telecom industry is also tipped to being at a cusp of a second revolution, which is primarily being driven by data. 3G and BWA deployment is poised to push this growth impetus for telecom in the next 2-3 years, and the major players would be focus towards building a state-of-the-art data network. This in effect would lead to a projected high demand of towers and increased mobile data consumption will be the driver for the same.

The newer operators are likely to wait for the bidding process and then initate rollout activity which would happen only in the later part of the year.

The industry would also continue to experience consolidation as it becomed increasingly tough for smaller players to operate on unviable margins and becomes the expected service uptime.