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Expertspeak: Share resources, cut costs

Expertspeak: Share resources, cut costs

By sharing telecom towers, mobile phone companies are able to cut costs and pass the benefit to consumers, a practice that could be adopted by other sectors with similar results, says Sunil Kanoria.

In 2005 when Spice was interested in telecom towers, we discovered that towers can be shared and that this was very prevalent in the US, together we put up the first 50 towers in the country on sharing basis and app­roached other operators such as Bharti, Vodafone etc. We started telecom tower sharing with Punjab and structured it to get a full rental in such a way that each additional tenant got a discount so that we share the growth and cut costs. Initial returns were about 18-19 per cent. Soon Bharti and Vodafone came in but were still not convinced about giving us the anchor site: commissioning a tower rather than joining one that is already built. That would mitigate our risk considerably. In those early days of mobile telephony, fears were related to sharing a tower with com­petition. So everyone began putting up their own towers. Realisation of the benefits of sharing came much later.

Simple economics says that if infrastructure was not shared, pricing in the telecom sector would not be as low as one paisa per second, because physical infra­structure cost almost 65 per cent of the capex of an operator. Today, a tower which cost Rs 35 lakh to build earlier costs Rs 20 lakh, and the growth model now focuses on more on tenants. Therefore, our tenancy is the highest in the country, at 2.45 average tenancies per tower.

Operator dynamics

Indus, formed by Bharti, Vodafone, Idea and Reliance Infratel, are the big, virtually stand-alone pla­yers in the market while GTL, American Tower, Tatas and Spice (which we bought) follow the sharing formula. We have towers with eight to 12 operators in one tower. A tower built for three or four operators would be 40 m height, but for six to eight operators the height would be 50 or 60 m depending on the location and signal strength. These towers are modular; it is easy to enhance their cap­a­city and add a higher power generator on the ground.

Powered by solar

Power is the biggest challenge in the tower industry because 40,000 towers need an equal number of gen­erators, which require oil, diesel etc. The spend on diesel is almost about Rs 1,100 crore. A generator costs Rs 2-4 lakh (depending upon its capacity) on a Rs 50 lakh investment on one tower on a ground base, while a rooftop tower costs about Rs 14-15 lakh. Alternatively, about 200 solar powered towers were set up in the last two years, but these too are expensive in the short-term due to the cost of panels, fitting, battery, backup assistance etc. These are definitely a long-term solution but what we are still testing and experimenting. In West Bengal, solar towers on 200 sites have reduced diesel consumption to a third.

Data needs growth

Last year in a developed market like the US, data on mobiles experienced 150 per cent growth, and an annual growth of 50 per cent is projected for the next five years. But despite so much growth and dev­elopment, in India data through mobility is just 7-8 per cent penetration. There is a need for more towers and inbuilt solutions because spectrum is scarce. The result is more density, poor call quality and blank spots in places. In 2008-09 we built about 1,800 towers per month because 19,000 fresh new towers were added in the year. We did business of over Rs 5,000 crore in just one year because there was a huge demand, but things have slowed down last year, and some of the focus have shifted to enhancing. Once things settle down, there should be very good growth since 3G is just starting to roll out and 4G is yet to come. So, more towers and antennas will be needed in the near future.

Sharing to succeed

There are several sectors where infrastructure can be shared. Power is seeing a lot of challenges regarding the supply of coal and power plants are going to feel the impact. The authorities must develop programmes for pro­vi­ding power through solar, bio-mass or other alter­native fuels; it must be set up for community sharing in whether it is industrial or residential. Sharing of resources such as equipment is already in vogue in ports.

The author is Director, Viom Networks.

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