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Telecom: Infrastructure sharing

Apr 13, 2007

Currently the number of mobile subscribers in India is approximately 175 m. This massive subscriber base is supported by an equally massive infrastructure. There are currently about 1,00,000 telecom towers in the country and in order to support the targeted figure of 500 m subscribers by 2012, we would need about 3,30,000 towers. The largest telecom player in terms of number of subscribers Bharti Airtel presently has approximately 40,000 towers to support a customer base of a little over 37 m (as on March 2007). Thus the telecom companies currently spend huge sums for putting in place the requisite infrastructure. Consider this, in order to support its targeted subscriber base of 125 m by 2010, Bharti Airtel would require to have in place about 1,00,000 towers. This will mean huge capex plans, which in turn will also translate into large maintenance capex in the years to come (assuming the tower company is still on its consolidated balance sheet) Besides this, setting up such an infrastructure would also entail execution risks.

In the light of these factors, it makes great sense for the company to turn asset light and a similar corollary can be drawn for the remaining telecom companies as well. Looking at the opportunity that awaits the telecom companies in India and also considering the targets set by the government, the Telephone Regulatory Authority of India (TRAI) has proposed the sharing of passive infrastructure (telecom towers and power backup) and active infrastructure (antennas, feeder cables and transmission systems) by the telecom companies.

Advantages of infrastructure sharing:

  • Asset light model: The most simplistic fallout of the move is that it will lead the companies to embrace an asset light model, as they will now be able to provide their services by leasing out the requisite infrastructure. The move will lead to lower capex for all players as also lower operating expenditures. To put things in perspective, the biggest single cash flow expenditure for the operators is capex and about two thirds of it comprises of infrastructure costs.

  • Allow for faster roll outs: The sharing of infrastructure will not only reduce duplication but it will also allow faster roll out of services as companies can utilize the existing infrastructure of another player to roll out its services. This will reduce the time to market for the companies.

  • Additional coverage: The telecom companies can now bring under coverage areas that it earlier thought were unviable owing the involvement of high capex. This will allow an increased coverage of India's vast geography.

  • Lower ARPUs, not a problem: As the CMSPs (cellular mobile service providers) go deeper into the Indian territories with their offerings, they are sure to face the problem of lower ARPUs (average revenue per user) and low MOUs (minutes of usage). The only way for them to insulate against the downward pressures on their overall ARPUs would be by way of lower costs that can be assured only by reduction in government tariffs or by infrastructure sharing.

Conclusion
The move will provide a shot in the arm to CMSPs who are keen on sharing their infrastructure owing to the above-mentioned factors. It will also help to improve their performance ratios in the longer run as the benefits of an asset light model begin to trickle in. Also, the optimum utilisation of assets/resources will lead to increasing the cost effectiveness of the services offered and also expedite the roll out to rural areas affording more choice (in the hands of the consumers) and intensifying competition in these areas that are presently serviced by only a few operators.

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