Sharing telecom infrastructure
Telcos have to share infrastructure to cope with the aftermath
of the cellular revolution. By Varun Aggarwal
The immense growth of the telecom industry brings its own pitfalls with it.
Growing call traffic, limited bandwidth and a limited number of cell towers
have all combined to lead to a sorry state of affairs wherein poor network coverage
by most operators is a matter of fact. One way to solve to this problem, the
brute force method, would be to set up more towers. At present about 90,000
towers cater to 136 million wireless subscribers. The government of India has
targeted 250 million subscribers by December 2007 and 500 million by 2010. In
order to achieve this target, approximately 1,35,000 towers would be required
by 2007 and 3,30,000 by 2010. This brings up the related problem of identifying
such a large number of sites.
For a telco, infrastructuretowers and backhaul connectivityaccount
for about 60 percent of the cost of doing business. Thus, apart from the high
costs that are incurred, it also results in delaying the roll out of services.
The Department of telecommunication (DOT) has given a high priority to the issue
of passive infrastructure sharing. It has also expressed its concern that while
encouraging infrastructure sharing it should be ensured that the same should
not come in the way of the growth of mobile services in the country.
Sharing Passive Infrastructure
infrastructure sharing will allow operators to defer their tower-related
capex investments into opex lease rental payments over an extended period
- Pinakin Gandhi
Vice President - Strategic Planning and Investor Relations
The infrastructure at a cell site typically consists of active
(electronic) components such as BTS, microwave radio equipment, switches, antennas,
trans-receivers used for telecom signal processing and transmission as well
as passive (non-electronic) components including the tower, shelter, air-conditioning
equipment, diesel electric generator, battery, electrical supply, technical
premises and easements and pylons. In India typically the passive component
constitutes around 40 percent and the active component constitutes around 60
percent of the total capital cost. However, given the recent rise in property,
steel and cement prices, the capital cost of passive infrastructure is going
up while that of the active infrastructure is coming down thanks to declining
prices of electronic components.
According to Pinakin Gandhi, Vice President - Strategic Planning and Investor
Relations, GTL LTD, Telecom infrastructure requires huge investment outlays.
Often, such investments turn out to be risky propositions given the rapid introduction
of successive generations of new technology. Operators are occasionally faced
with a situation where even before recovering their investments in existing
infrastructure they embark on further investments in new generation networks.
This phenomenon is common in the mobile sector, particularly in the context
of 3G services, where the high cost of licensing and equipment have left operators
vulnerable at the early stage of network deployment.
In response to this phenomenon, policy-makers, regulators and operators are
increasingly placing greater emphasis on alternatives to the traditional high-cost
infrastructure development model by considering such measures as infrastructure
sharing, domestic roaming and Mobile Virtual Network Operator (MVNO) agreements.
These measures can help reduce the financial burden on operators, accelerate
the introduction of new services and facilitate the deployment of new networks
while lowering barriers to market entry.
|Burgeoning subscriber base
||The exponential growth of the subscriber
base leading to increasing wireless traffic.
||High investment requirements in technologies
like EDGE and 3G.
|Sharply rising site rentals
||Along with real-estate prices, site rentals
have also seen a sharp increase. Site owners are aware of relatively large
number of players desiring to rollout in urban or semi urban areas. Hence
the demand for tower sites and rentals are expected to increase sharply.
|Need for denser coverage due to spectrum
||According to the spectrum allocation
criteria operators get only 10 MHz spectrum for as many as 2mn Subscribers.
Hence operators need to have much denser tower locations to ensure minimum
|Regulatory and planning authorities
||Installation of cell sites has become
a cumbersome process as there are a number of clearances required and involves
labour-intensive micro management. Passive infrastructures will speed up
the process and trim time to market.
|New Tower Restrictions
||Both the urban planning ministries and
municipal corporations are now starting to place restrictions on new tower
construction on the grounds that they pose a health hazard and congest the
Benefits for all
With passive infrastructure sharing, operators are expected
to save close to 30 percent on capex and opex when it comes to passive infrastructure
management (mainly towers). Right now, sharing among operators is limited to
two in most cases, whereby tower companies are aiming at an average of 2.5 to
2.7 carriers per tower. Furthermore, only 30 percent of sites are being sharedtower
companies expect it to take this number higher with a focused approach.
Gandhi insists, The sharing of passive infrastructure will allow service
providers to focus on their own core sales/marketing areas. This will also free
up management time at the carriers. Passive infrastructure sharing will allow
operators to defer their tower-related capex investments into opex lease rental
payments over an extended period of time. Existing towers can also be sold and
leased back, thereby creating new sources of cash, which can be invested in
radio network expansion and distribution. He feels that operators outsourcing
passive infrastructure will benefit from a quicker network rollout.
With multiple operators and dense coverage needs, acquisition of sites, with
all necessary governmental approvals, is getting tougher. Furthermore, ascertaining
legal ownership of sites in towns is a stumbling block to faster rollouts. In
India, one of the additional incentives to owning passive telecom infrastructure
is the subsidy being provided under the Universal Service Obligation (USO) fund
for developing telecom infrastructure in rural areas. The USO fund has around
Rs.7,500 crores and companies building network infrastructure in rural areas
are subsidised through this fund.
As operators expand their networks into semi-urban and rural areas, there will
be an increase in capex. This is due to higher costs of land development, security
and insurance costs, power shortages and increased use of diesel generator backups,
unclear land ownership and expensive backhaul connectivity costs. Hence passive
infrastructure sharing will significantly lower the capex
Where it falls short
Some limitations of passive infrastructure sharing are:
- The concept is a nascent one. That said, many operators
are experimenting with service providers like GTL Infrastructure Ltd and Quipo
Telecom Infrastructure Ltd. Also there has been some amount of passive infrastructure
sharing among operators in the form of barter. Business models are getting
established gradually as regulatory issues are eased all of which should see
the acceleration of passive infrastructure sharing.
- Another limitation seen here could be termed as
the first mover advantage. Operators with a first mover advantage in rural/semi-urban
areas might not want the third-party owner to offer the same towers to subsequent
entrants like Idea, Aircel. However the timing gap between first and second-tier
operators is closing, with easy funding available for smaller operators. The
industry however doesnt regard timing or conditional access to new lessees
as a solution.
- EV/EBITDA (Earnings before Interest, Taxes, Depreciation,
and Amortization) is a commonly used measure for operator valuation benchmarking
in high-growth markets. Tower leasing basically transfers capex to opex leading
to lower EBITDA, though capex, depreciation and interest expenses are also
reduced. According to the operators, the industry is now working on business
models which minimise EBITDA dilution.
- Two large operators may enter into sharing arrangements
with one another to keep out a third-party vendor thus keeping out
new operators from quick access. However, the presence of at least four large
operators and two or three small operators are likely to limit such instances.
- The larger operators currently have robust balance
sheets with substantial debt capacity. Hence, in the immediate future, we
do not expect them to get into sale-and-lease transactions for their existing
Existing TRAI regulations allow only passive infrastructure
sharing. Telecom companies are not allowed to share active infrastructure such
as optic and feeder fibre cables, radio links, network elements, backhaul, antennae
and transmission equipment. Service providers feel that infrastructure sharing
can achieve its desired goals only once sharing of active infrastructure is
Currently, telecom infrastructure sharing takes place on an ad-hoc basis as
it takes place only voluntarily. Thus TRAI released its consultation papers
in November 2006 inviting comments from stakeholders on infrastructure sharing.
Though most stakeholders encouraged infrastructure sharing, making the same
mandatory was strongly opposed except for in sensitive areas like Lutyens Bungalow
Zone (LBZ), Cantonment areas, Central Government and State Government office
buildings, Designated Forest or Green Belt areas and Government Residential
colonies, etc., where installation of cell sites by individual operators is
either difficult or is not permissible due to lack of policy, security or aesthetic
Despite strong opposition TRAI has made passive infrastructure sharing mandatory.
The move will be initiated in Delhi and Mumbai on a trial basis. Based on the
success of these trials, it will be made mandatory across the country. This
will have a deep impact on the growth of the Indian telecom industry. Following
the roll out, consumers can expect better services in terms of network coverage
and, possibly, falling tariffs.