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Operators to hive off assets, share networks to bear costs of fiberisation, says CRISIL report

June 25, 2019
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According to a report released by CRISIL, telecom operators would be forced to hive off assets, share networks, or diversify to meet the financial needs for fiberisation and be ready for 5G. Further, the country is set to witness some tectonic shifts in the fiberisation landscape and the birth of new business models among telcos and tower companies around the launch of 5G, said CRISIL.

According to CRISIL, telcos have started hiving off their tower and fibre assets to bring in more investments via sales or InviTs. This imparts flexibility to the hived off entity for providing services to third parties in the industry, and thus enables them to pursue topline growth opportunities. Further, it reduces capex requirements, deleverages the balance sheet, and leads to higher valuation of entities as cash flows get predictable, the report said. While Bharti Artel and Jio have hived off their tower and fibre business, large incumbents are in talks to form a joint venture for sharing fibre in order to reduce capex, it said.

As per the rating agency, operators are burdened under a debt of Rs 4.3 trillion as of March 2019 and will need investments to the tune of upto Rs 1 trillion only for laying fibre networks over the next 2-3 years. This is especially true as the industry is at the cusp of the 5G evolution, which requires fiberisation levels of over 70 per cent, as opposed to 25-30 per cent levels at present, the report said.

Moreover, the report commented on how the upcoming spectrum auctions will add to the financial burden as the reserve price for 5G spectrum bands recommended by the Telecom Regulatory Authority of India (TRAI) is higher than in countries like the United Kingdom or South Korea.

As per CRISIL Research, one way that operators could absorb the impact was to restrict 5G launch in the initial years to metros and select areas in the A circle that show high data consumption appetite. Further, they could also evolve new business models for sharing fibre infrastructure.

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