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Changing Market Scenario in the Indian telecom infrastructure space: Sharat Chandra, Managing Director, TelEnergy Technologies

March 30, 2012
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Not so long ago, there was euphoria and a general feeling of well-being about the tower industry. In fact, many boardroom presentations and conferences would have captions like “400,000 towers and still growing”.

However, the current status of the industry presents a contrasting picture. The Supreme Court has cancelled 122 licences and the fallout has been almost immediate. Etisalat has decided to shut down its networks, Bahrain Telecom is leaving the Indian market and S Tel is prepared to return its infrastructure to the government. More resilient players have decided to fight it out and return to the auction table. Whether they bid for and win spectrum for some or all the circles they were present in before the court order remains to be seen.

Though going by speculation is not advisable in such situations, corporate business plans are based on the likely view of the future. A likely future trend is the drive towards opex reduction across the value chain, including telecom operators and tower companies. Another trend, which is almost as clear, is the consolidation or defragmentation of the tower industry.

Tenancy ratios will take the first hit as operators that shut down and/or do not bid to win licences in circles they operated in before the court order leave the market. This will reduce the top line of tower companies serving the affected licensees, thereby also impacting the service and equipment providers linked with tower operators. Incumbent operators that bid for additional spectrum would find quick remedies for network congestion. Due to spectrum shortage, these networks are currently overequipped. If active sharing takes off, as expected under the new National Telecom Policy, even the “unaffected” tower companies will be impacted with operators choosing to share active infrastructure instead of maintaining separate base transceiver station equipment at a shared tower site. While this would mean reduced opex for telecom service providers, it would result in losses for tower companies.

Base lining needs to be undertaken with a clear charter for independent and neutral audits of infrastructure across locations. Tower companies will have to determine the capacity, equipage, state of health of equipment, performance characteristics, deterioration over time and the expected life of equipment. In particular, the final step has largely been ignored from the inception of the industry when strong growth overwhelmed the need for diligence. The industry will witness a huge backflow of penalties and defaults if it continues in its plug-and-play mode where equipment is replaced just before its operational death, or faces premature death due to disuse or misuse.

Another aspect of technology that must take deep root now rather than later is the ability to remotely manage and control site infrastructure. In the absence of remote management, there will be small pockets of infrastructure managed by technology and interface-variant platforms that do not aggregate the totality of the ownership footprint of a tower company. If undertaken with foresight and technical prowess, this can link up site inventory management systems and billing systems, and automate them to deliver a service level agreement compliance report on a monthly basis. But remote management will require modularising site infrastructure to enable inclusion and ensure technical feasibility. This effectively means converting a large number of indoor tower shelters to outdoor, thereby saving on power-guzzling air conditioning.

Given the high cost of diesel, DG-based backup power will soon become unsustainable. If the government withdraws the subsidy on diesel or enforces stricter guidelines for using it, tower operators will be significantly impacted. Therefore, hybridisation of power generation and storage is a must. The industry should take steps to use green energy, especially solar, which has witnessed a steep cost decline.

The business models under which the industry has managed this scale of infrastructure deserve a mention here – from outright purchase and self-managing everything to the evolving theme of the renewable energy service company (resco) model. We must take cognisance of the fact that the transfer of risks and inordinate penalties for performance compliance are hardly a sustainable business model. Fair and infrequent penalties, and accurately measurable defaults can produce the desired results. Otherwise, such costs will end up being “built into the business plan”. In the latter case, nobody gains as deterioration is used as a means of cost recovery.

Tower companies will have to minimise control on product fixation and allow the outsourcing entity to address the issue. If there are stakeholders in the industry who are prepared to invest in new business models, there has to be a framework of contracts that support transparency and sharing of risks, build confidence on profitability through a long tenor, are scalable for adequate business volumes, and do not allow major price alterations.

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