Telecom infrastructure has evolved into an independent industry with passive infrastructure management as the most popular and industry accepted. Kasturi Bhattacharjee analyses.
The telecom towers business in India is lucrative with long-term growth prospects. Due to increasing penetration of advanced technologies in the market, and as telecom operators are seeking to tap into further opportunities that 3G and BwA rollouts have initiated, infrastructure sharing is fast becoming an essential part of the market. This is because more players are looking at reducing their capital and operational expenditure by moving out their passive infra to telecom tower companies, thereby reducing both the risk of operations and the non-core part of their business.
NEED OF THE TOWER
The requirement for setting up telecom towers has been increasing, and it is estimated that about 554,000 towers will be needed to set up in the ensuing 3-4 years. According to a report by independent brokerage and investment group CLSA, there are a total of 337,000 towers in India. The industry is anticipating a requirement of 150,000 towers within the next three years. India had a subscriber base of 75.2 crore customers in December 2010, and this number is expected to expand to 102 crore by 2013 as per Cellular Operators Association of India (COAI) estimates. JM Financial Research says that the country could require around 463,000 towers to meet the network coverage reqÂuirements of the operators. This translates into an additional demand for approximately 130,000 towers over the next three years.
Indus Towers (a joint venture of Bharti, Vodafone and Idea) has the highest number of towers with 108,000 towers. The rest of the pie is shared between BSNL and MTNL, Reliance, GTL Infra, Bharti, Viom, ATC, and other players. A pan-India rollout plan by regional opeÂrators like Aircel, Idea, Reliance GSM, and rollout of 3G and WiMAX network has added momentum to the industry.
GROWTH DRIVERS
Apart from the growth in subscribers, the drivers for this sector are the emergence of some new, major initiatives taken by the government on account of boosting the sector, including a defined role and regulation of the government in terms of infrastructure sharing. A major cause of concern here is setting up telecom towers calls for a huge investment and proves to be quite expensive for providers of telecom tower business in India, to not only build the towers but also operate and maintain them. Also, in order to ensure that the service is lucrative, the need to install these towers in more populous regions with high mobile density arises.
A single installed telecom tower unit can be shared by multiple telecom providers to distribute signals to its customer bases. Infrastructure sharing is seen as the most potential step for the development of telecommunication tower business in India and there has been an exponential growth in this field over the past few years. There are companies in India now that install and manage telecom towers under sharing.
THE TRAI RECOMMENDATIONS
The Telecommunications Regulatory Authority of India (TRAI) also announced in April 2011 its recommendations on encouraging domestic manuÂfacÂturing of telecommunications equipment to DoT. The goal is to increase the market share of domestic manufactured products (with added preference for Indian products, ie, where the IP is held in India) in the domestic telecommunications market in order for India to reap greater benefits of the growing telecommunications market in India.
The recommendations offer the Indian government a blueprint to promote domestic telecommunications manufacturing through a series of incentive-based and trade-restrictive regulatory recommendations that would institutionalise preferences for domestic manufactured products. TRAI recommends a mechanism for achieving greater domestic supply of telecommunications equipÂment that is tied to a target that entails 80 per cent of India's demand for telecommunications equipment to be met by domestically manufactured products by 2020 (50 per cent for Indian products). Primary objectives of the policy is to meet 45 per cent of the domestic Indian demand for telecom equipment through domestically manufactured products by the year 2015 and 80 per cent by 2020.
FUELLING TELECOM
Out of the entire basket of issues, one of the key areas that continues to plague operators and tower infraÂstructure providers is the management of energy costs. With metros already registering a saturated tele-density, the telecom subscriber growth is expected to come from the rural areas, some of which don't have regular power supply. Diesel generator sets and batteries are the main source of power in such areas. Coupled with the regular increase in diesel prices and the conÂtinuing lack of power supply from the grid, this infraÂstrÂuctural shortcoming has resulted in high energy costs.
A fourth of the operator's revenue goes in to the energy bills every year. As operators try to reach out to rural subscribers in remote areas, the energy bills are going to increase to exorbitant levels. This figure could be as high as 40 per cent for a passive infrastructure sharing companies. The telecommunications industry in India uses about two billion litres of diesel fuel each year which results in five million tonnes of CO2. This consumption would only increase as more new operators roll out their services existing operators expand their network further and launch 3G and BWA services.
Cost and quality management: Energy management (EM) is primarily aimed at decreasing the energy cost while service uptime is not compromised on. The use of energy management devices can give Tower management companies an estimated savings of 25-35 per cent on the opex without compromising on the quality of service (QoS). EM techniques, including Business Process Re-Engineering (BPR) of the most energy intensive processes, better monitoring techniques to manage pilferage, and use of Intelligent Energy Management devices, are currently available and being studied. At the same time, for the supply side, EM can be achieved by reducing the dependence on fossil fuels and introducing the sites on Alternative sources of energy including solar, wind and bio-mass. However, the finaÂncial viability of deploying on solutions based on Renewable sources of energy needs to be thoroughly examined.
Energy costs can primarily be segregated into diesel cost and power costs.
Diesel consumption: Operators are considerÂing how to reduce the diesel consumption of electricity generators at mobile base station sites and cut their opex. Fuel costs can represent 20-40 per cent of a typical mobile operator's radio network opex. Continuing rapid growth in mobile broadband traffic will cause a dramatic increase in operators' power requirements and costs.
Diesel prices: Diesel prices are highly volatile and are expected to continue to rise overall. Moreover, diesel must be provisioned, transported, stored and secÂured, and it produces large amounts of carbon dioxide when burnt. But when electricity grid access is not available or the quality of electricity supply is poor, diesel may be the only practical solution. Government is already thinking to de-regulate the diesel prices. This move can further push the Energy expenses upwards.
Power shortages ensure that prices will never come down. India has 12 per cent power shortage. While 80 percent of Indian villages have at least an electricity line, less than 52.5 per cent of rural households have access to electricity. In urban areas, the access to elecÂtricity was 93.1 per cent in 2008. Due to the precarious power situation, about 40 per cent of the telecom towers have grid or Electricity Board power availability of less than 12 hours.
There are about 25 per cent towers in the country which have access to power supply for less than 12 hrs. These towers have about 60 per cent of the total diesel consumption by telecom towers in India.
Intelligent Energy Management: Energy management products are available in the market and can reduce consumption by reducing the consumption on the demÂand side. Major tower management companies in India have started to invest in these Energy Management Solutions.
Alternative energy options including solar and wind energy can address the challenge of unavailability of reliable power supply in semi-urban, rural and remote areas, thus enabling telecom connectivity for the remote parts of the country. Renewable energy (RE) has the potential to reduce the opex by 25-60 percent if a viable business model is devised. An estimate for 120,000 teleÂcom towers in rural areas that run on diesel gensets (DGs) for almost 12 hours a day consuming 24 litres of diesel indicates the cost of running these towers to Rs 300 crore per month. It has become imperative for the telecom operators to look for alternative sources of fuel to run these stations, such as solar power, wind power, biodiesel and biogas, which may provide feasible solutions to the problem and also contribute towards a greener environment with zero emissions. Most tower sharing companies have started to evaluate the business cases for alternative source of energies.
Pilots with all the alternate sources of energy are underway, but solar is the most matured of the technologies. Around 40 per cent of the telecom towers in the country have power availability for less than 10 hours. All these towers are potential sites to be powered through renewable sources of energy. But the capex required setting up the Solar-EB-battery hybrid still remains high for a viable business model.
Based on the assumption as detailed in the TRAI Consultation Paper No 3/2011, one diesel generator consumes approximately two litres of diesel per hour. Considering running generator for 12 hours a day at existing cost of diesel fuel (Rs 42 per litre), the total expense per tower per day would be approximately Rs 1,008. Therefore if renewable energy sources are conÂsidered, the minimum saving would be about Rs 1,008 per day. Apart from this, regular maintenance expenses can also be saved substantially. Using renewable energy power means, saving of 8,760 litres of diesel fuel per tower per year, which in other words, reduction of emission of 23,652 kgs of CO2 (as per TRAI, 1 Kg diesel equals 2.7 kgs CO2) from a single tower.
Recommendations
The cost of setting up solutions based on alternate source of energy: The cost of setting up a site on RE is still very high. As per the estimates, converting the existing site to Solar-DG-battery hybrid site can cost as much as Rs 28 lakh which impacts commercial viability.
- Government subsidy/incentives for deployment of renewable sources of energy will promote projects on renewable sources of energy.
- The capex involved in setting up of RE infrastrucÂture should be fully subsidised by the appropriate authorities. The government should aggressively encÂourage the use of RE by extending support in various forms like capital expenditure subsidy, concessional rates for various government levies/taxes etc.
- All renewable sources of energy should be free of customs and excise tariffs to maximise uptake of these technologies.
- Each solar panel costs about Rs 28 lakh. If the govÂernment gives the subsidies sooner, companies would be able to roll out towers based on alternative energy faster.
- Long-term global binding: Establishing binding gloÂbal long-term targets for the reduction of GHG emissions is the most urgent need. Greenhouse gas cap and trade schemes should deliver a stable and effective long-term price for carbon credit. A good Carbon Credit Policy will help the Industry invest in cleaner technology such as solar, wind, biogas, etc.
- To support new green technology technologies development through (R&D and commercialisation) pilots, governments should use grants, soft loans and other incentives to encourage the increased deployÂment of green technologies.
The author is Associate Director-InfoComm Consulting, PwC India.
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