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Interview with Bharti Infratel’s D.S. Rawat

February 12, 2019
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Bharti Infratel’s prudent strategies in identifying new growth areas, coupled with surging data uptake have helped it hold its own in a challenging business environment. Its merger with Indus Towers, once complete, will create an infrastructure giant with financial and operational muscle to leverage the growth opportunities in the infrastructure space. In an interview with tele.net, D.S. Rawat, chief executive officer and managing director, Bharti Infratel, talks about the company’s key focus areas and growth strategies. Excerpts…

What are the key emerging trends that shaped the telecom tower industry in 2018?

The year 2018 will go down in history as the year of 4G growth in India. 4G BTS deployments by operators were at an all-time high, most of them in the form of loading on existing towers. Even as data grew more than five times in 12 months, operators saw continued competitive intensity. Pricing remained under pressure and, coupled with unlimited data bundles, led to stress on operator balance sheets and networks. The industry continued to consolidate into a three private player plus one government operator market from a peak of 14 players. There were several consolidation-led exits and over 200k tenancies are estimated to have been lost due to telcos shutting down or getting merged. The tower industry saw some consolidation of its own too, the notable ones being the acquisition of Vodafone- and Idea-owned towers by ATC and the announcement of the Bharti Infratel merger with Indus Towers.

During the year, the National Digital Communications Policy (NDCP), 2018 was notified and the policy is considered a forward-looking one, providing a roadmap for the next wave of growth in the sector.

What were the business highlights for Bharti Infratel during the year?

Our average closing sharing factor for the quarter ended December 2018 stood at a healthy 1.9x with a tower portfolio of over 92,300 on a consolidated basis. Despite losing tenancies, for the quarter, the company reported consolidated revenues of Rs 36.4 billion, a consolidated EBITDA of Rs 15.13 billion and a consolidated net profit of Rs 6.48 billion.

We also completed the first phase of implementation of the Bhopal Smart City project – 150 smart poles, 200 km of fibre, 1,000 Wi-Fi access points, etc. Similarly, Indus Towers secured the Vadodara and NDMC smart city projects and is in the process of executing them. Finally, we announced the merger of Bharti Infratel and Indus Towers, which will create the largest in-country tower company in the world after China.

How is the merger of Bharti Infratel with Indus Towers progressing? What are the potential synergies and opportunities that you are looking at?

The merger is progressing well with approvals from the Competition Commission of India and the stock exchanges already in place. The National Company Law Tribunal (NCLT) has accepted the first motion petition. Now approvals are pending from the shareholders, creditors, the NCLT and finally the Department of Telecommunications. We expect the merger to be completed by the first quarter of financial year 2020.

The merger will create a pan-Indian entity with over 160,000 towers. An improved shareholding and capital structure would lead to an enhancement in returns and a reduction in holding company discount, thereby creating greater value for shareholders in the long run. It will also enhance the entity’s competitive strength and future business potential. With synergy, we will realise cost efficiencies and productivity gains, resulting in a cost reduction in both capital and operating expenses. The merged entity, with one board of directors, leadership and senior management, will focus on nationwide growth and liaise with stakeholders in a unified manner to offer passive infrastructure services to all customers on a non-discriminatory basis and support the government’s Digital India vision.

What are some of the new businesses that Bharti Infratel is exploring?

Beyond the traditional macro sites, Bharti Infratel is deploying microsites and in-building solutions (IBS). There is a strong focus on identifying opportunities and rolling out fibre and Wi-Fi hotspots across the country. With the Smart City Mission, we are able to showcase our capabilities in deploying and managing a host of new revenue opportunities like fibre, Wi-Fi, small cells, street furniture, billboards, surveillance, street light management, and weather monitoring.

What are the opportunities presented by government initiatives such as the Smart Cities Mission and Digital India for the tower industry?

Under the public-private partnership-based build-own-operate model, we see a big opportunity for infrastructure providers like us to create a robust and scalable ICT (telecom connectivity) layer on a shared basis. We will be setting up telecom infrastructure like towers and microsites with fiberised backhaul, meeting other connectivity needs of the smart city, and enabling fibre connectivity for homes and offices through fibre-to-the-kerb.

What are the key challenges plaguing the telecom sector, and the tower industry in particular? How can these be addressed?

While the telecom sector can boast of huge voice and data growth, the same is not applicable to the financial performance of the sector. During 2018, for the first time, the sector’s revenues declined owing to high competition, which led to aggressive price cuts. The industry is barely making any returns on its capital investments, which include almost $50 billion on spectrum alone. Competition between operators has shifted from coverage to quality of service. Further, with 5G round the corner, there is a lot of capital needed for building telecom infrastructure.

Given the huge economic impact of enhanced mobile penetration, the government should look at extending benefits to operators to facilitate investments in the sector. The industry has already shown signs of recovery – operators are raising capital, focusing on new technology roll-outs or operational efficiencies. However, more can be done. The successful tower sharing model and the non-discriminatory pricing principle can be replicated in other infrastructure set-ups such as fibre, Wi-Fi, IBS, active equipment and data centres to ensure faster time-to-market and reduced costs for telcos.

What are your views on the NDCP, 2018?

It is a progressive policy with a vision to transform India into a digitally empowered economy. Its impact on tower companies regarding increased tower fiberisation, fibre on government premises, streamlining of approval processes, mandating in-building solutions, incentivising clean energy usage and allowing IP-1s to roll out and share active infrastructure with operators would pave the way for transforming IP-1s to network companies (NetCos).

Do you have a regulatory wish list?

While we applaud the recent NDCP, 2018, we hope the notified policy will soon get accepted by the concerned stakeholders and the relevant directives are issued. On the regulatory front, the telecom infrastructure industry is facing some challenges that are state specific and have been continuing for long now – approvals, procedures, electrification, radiation-related myths causing a disruption of existing towers or no support for new installations. While the government is trying to address these issues through the RoW Policy, 2016 and NDCP, 2018, I am sure more can be done to realise results on the ground.

Finally, while input tax credit in the GST regime has started to benefit many industries, telecom towers are specifically excluded from the definition of plant and machinery. Hence, the definition should be revised to allow GST credit claim for telecom towers.

What are your views on India’s readiness for 5G roll-outs? What will be the role of towercos in this regard?

We, as a country, are gearing up for 5G services. India saw mobility almost 15 years after it was launched worldwide. This dropped to three to four years for 3G and 4G. Now we are talking about 5G trials almost in parallel with the rest of the world. The vision for 5G is clear with the government paving the way for roll-outs. The NDCP, 2018 is progressive enough to address various 5G-pertinent topics like ensuring spectrum availability in different bands as per the use case, traffic prioritisation for 5G applications and the framework for M2M service deployment.

For towercos, it means ultra-densification of sites, resulting in opportunities for more microsites and small cells across the city. Furthermore, it will throw up opportunities for fibre sharing for backhaul to these high data sites. 5G will lay the foundation for towercos to evolve into NetCos as they would have to combine their portfolios to become B2B service providers to operators.

What are your focus areas and growth plans for 2019?

We will focus on two key growth areas for 2019 – first, maximising our sites and tenancies business and increasing our portfolio of small cells and IBS; second, leveraging new revenue streams such as fibre sharing, Wi-Fi and outdoor DAS. We expect smart cities to open the doors for all these new opportunities.

On the operational front, we will continue to focus on maintaining rigorous uptime and explore synergies in doing managed services for the complete site. We will also focus on diesel consumption reduction through projects such as Green Towers P7 and ZEN (zero emission network). Finally, we expect the merger of Bharti Infratel and Indus Towers to create an entity that would be best positioned to capitalise on opportunities.

What will be the key growth drivers for the telecom tower industry going forward?

We will see demand for macrosites for coverage across all areas. Further, microsites or small cells will be required for capacity addition in select dense areas. Another solution slowly gaining traction worldwide is outdoor DAS or BTS Hotel, wherein antennas are installed on slim poles, and the entire fronthaul traffic is sent to a central location, terminating at the BTS. Meanwhile, IBS will be used for boosting indoor coverage. Fibre as backhaul would be a key asset for carrying a large amount of bandwidth from all these sites.

Given the backdrop of stretched balance sheets, we expect operators to prefer sharing for all these solutions. We, as infrastructure providers, have the financial strength to make upfront capital investments and offer the infrastructure on a non-discriminatory sharing basis to telcos.

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