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Impetus to infrastructure: Tower industry benefits from 3G/4G network roll-outs

May 30, 2014
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After a period of subdued growth, the telecom infrastructure segment is set for a revival. Greater clarity on sector policies and regulations as well as increasing data demand and enhanced operator emphasis on rural connectivity are driving this growth. At a recent tele.net conference, “Telecom Infrastructure in India”, industry experts expressed their views on the key trends and opportunities in the infrastructure segment and the challenges faced by it…

umangB-ramanandDevendra

Umang Das

The tower industry in the country has come of age. Earlier, it was more of an adjunct to mobile operators, barring a few independent players. Most of the tower companies were owned by operators and, therefore, were completely dependent on the operators’ business. Although mobile operators constitute 99.9 per cent of the tower business, the industry is also looking at other business opportunities. These include the IT and IT-enabled service segments, inclusive growth in the rural areas and specific services offered from the site. Further, new opportunities are likely to open up as telecom operators shift their focus from voice to data networks.

Collaborative approach

A collaborative approach is a key strategy to provide an impetus to the Indian tower industry. For instance, in the context of the National Optical Fibre Network (NOFN), a collaborative approach can help execute the massive orders that the project entails. The NOFN project is aimed at powering 250,000 gram panchayats with a 100 Mbps broadband connection. This level of rural penetration cannot be achieved unless there is strong collaboration between the government, service providers and infrastructure providers. Through this approach, the site can be provided as a co-location point for 100,000 community service centres in the country and several services (education, health, utilities, business services, local employment, etc.) can be offered to different types of content providers as well as service providers, which can lead to more opportunities in the rural areas.

Further, for providing fibre connectivity from the NOFN nodal point to the consumer premises, a link needs to be established between the towers and the optic fibre network in order to provide broadband connectivity to consumers.

The second aspect of collaboration is between the centre and the states. Despite the Department of Telecommunications (DoT) releasing uniform network roll-out guidelines, these have not been effectively implemented in all states. Each state has its own interpretation of the roll-out guidelines, which impacts operations. These guidelines need to be understood collaboratively and implemented at the state level. At this level, the Tower and Infrastructure Providers Association (TAIPA) could play a critical role in bridging the gap between DoT’s policy and state policies.

The third aspect of collaboration and cooperation is the growth of the renewable energy industry. The Indian tower industry has come up primarily because of the setting up of independent tower entities with the objective of cost optimisation or faster network roll-outs. Similarly, the adoption of off-grid models by tower companies can drive the uptake of renewable energy solutions. Thus, just as the tower industry emerged out of the operator industry, the resco (renewable energy service company) industry can emerge out of the telecom tower market.

Future goals

The key objectives for the telecom tower industry include reduction in its energy use and carbon footprint, and cost optimisation. Further, there is a need for harmonisation between the central and state governments in terms of service roll-outs and their requirements to ensure uniformity of understanding on the subject rather than taking the legal course. Also, it is essential to understand the benefits of the infrastructure status given to the tower industry. Moreover, there is tremendous potential for the tower industry to achieve cost optimisation through innovative tower designs.

B. Ramanand

Two years ago, the Indian telecom scenario appeared gloomy due to the 2G controversy. However, several regulatory issues have been addressed since. The clarity on several regulatory aspects has allowed companies to focus on their core business. They now need to look at improving their profitability and operational efficiency. Also, they should consider new methods to reduce capex and opex, and implement innovative technologies.

Data to be the next big growth driver

The next big wave of growth – which will come from the data segment – is on its way. While it would be early to say that the industry is witnessing a data revolution, there has been a recent surge in business demand for data. In fact, for the first time in the industry, a greenfield operator is setting up data networks. Moreover, the industry is witnessing a demand for in-building solutions.

However, ATC India is not a metro-centric company and therefore, it is not likely to witness significant demand for towers due to a growth in the data services segment in the near term. However, after a few years, the company expects its tower business to grow as the uptake of data services is likely to be driven by the non-metro circles.

Sector outlook

The outlook for the telecom sector is positive given the significant demand for data services. Initially, the data service segment will witness growth in the metro circles, as in the case of 2G services. This growth will later shift to Tier II and Tier III cities. However, there are several challenges in the sector that need to be addressed. These include the implementation of green energy regulations and imposition of the licence fee.

Devendra Singh Rawat

The telecom industry has reached an inflection point, wherein data is becoming the biggest growth driver. This is reflected in the operators’ financial results as well. The data revenue graph is increasing steadily, implying that this segment has a key role to play in operators’ profit and loss accounts. Across the world, two key trends can be observed – greater data traffic is being generated indoors and the appetite for data is only going to increase further.

However, operators are constrained in terms of spectrum and backhaul infrastructure. The inflection point for them is very important as it opens up both threats and opportunities for tower companies and their partners.

Increasing regulatory clarity, greater availability of spectrum, 100 per cent foreign direct investment and the finalisation of merger and acquisition guidelines will drive the demand for data going forward. Some early results are already visible. For instance, Vodafone is increasing its stake in its Indian venture to 100 per cent while Airtel is in the process of acquiring Loop Mobile. This means that serious players are going to ride on the next big wave of growth that is being led by data, which offers huge opportunities for the tower industry.

Along with this, we believe that there is a market for voice growth where the third and fourth largest operators are still trying to catch up with the coverage of the top two players. Once there are five to six players in the market, there will be at least comparable coverage and that will complete the first phase of growth of the Indian telecom sector. The second phase of growth, which is being led by data services, has already begun. According to Nokia’s recently released MBiT Index report, there was 136 per cent growth in data traffic in the country last year. With higher smartphone penetration and availability of applications relevant to the Indian market, a compound annual growth rate of 60-90 per cent has been forecasted in the data segment over the next five years. My own assessment is that most of these forecasts will be overachieved. This has happened the world over; in fact, the appetite for data in the Indian context is much higher. Moreover, the government has taken some positive initiatives to address the challenges faced by tower companies. It has declared telecom towers as critical infrastructure and has formulated a set of uniform guidelines for all the states. However, there will be implementation challenges and TAIPA is working with various states to ensure that these guidelines are adopted at the local level.

 

 
 
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