Umang Das is a man who needs no introduction in the tower industry in India. Starting out in 1987, Umang has been involved with the mobile communications industry in India since its inception, and was also responsible for the creation of India’s first independent towerco. All these years, guiding the fledgling industry past early obstacles until a tipping point in 2005 when scale was achieved. Now Umang focusses his energy on defining the next steps for the tower industry, and identifying new opportunities for the development of telecom infrastructure and its benefits for the society.
TowerXchange: How did the Indian mobile market develop prior to the launch of tower companies, and what was your experience of that evolution?
Umang Das, Chief Mentor, Viom Networks:
I got into the industry in the year 1987, at the outset of the privatisation of Indian telecom. Prior to that year, everything had been controlled by the government’s Department of Telecommunications. We were taking baby steps towards introducing the first telephone instrument and data terminals. At that time, the policy had been introduced to allow Indian companies to form joint-ventures with foreign companies and there were licences given out for various product and service streams in telecom.
After pioneering the telecom business with Compton Greaves, we started initiating the GSM technology in 1994 and the cellular business started taking hold in the country. By this time, I switched over to the Modi Group, a leading venture group and investor in new technologies. The government issued the first ever eight GSM licenses in the four biggest cities in India. We partnered with Telstra to start Modi Telstra and secured one of the two licenses in Calcutta. At that time, we had limited knowledge about the industry, however, we were committed to introduce the mobile services in India.
Having secured the license at the end of November 1994, we enabled the first mobile phone call in India to be made just eight months later on 31 July 1995. This first mobile call was made between the then Minister of Communications of India and the then Chief Minister of West Bengal.
Our TEC certification came through on 7 August, hence enabling our full commercial launch on 23 August 1995. This was the first commercial mobile launch in India.
By 1995 tenders opened up mobile telecommunications for the rest of the country, so in addition to Calcutta we won two more prime circles – Punjab, the “granary of India”, and Karnataka, which includes Bangalore, India’s IT hub.
Once again, we were the first to roll out in both new circles launched under the brand name - Spice Telecom, a Modi Group joint venture with Motorola and Distacom. The company was led by Dr. B K Modi and partnered with Rick Siemens, ex-Hutchison. I was appointed as the Managing Director of Spice, the first consumer oriented mobile brand in India. We completed in 1996, the launch of mobile services in Punjab and Karnataka – which were again the ‘firsts’ for these circles. However, the biggest obstacles remained in the form of licensing costs.
The initial slow pace of rollout in India dramatically accelerated in 1999 when the government made a forward-looking shift from fixed license fees to a revenue share regime. With the fixed license fee frozen and thereafter a percentage of revenue shared with government, paying license fees out of what you earned made sense.
From 1999 onwards, Indian telecoms saw sharp growth. The initial two operators per circle were joined by the mandatory government operators BSNL and MTNL, and joined in many circles by fourth operators including Reliance and other companies. Whereas prior to 1999 the business had focused on educating consumers on why to use mobile when it was more expensive than fixed line telephony, after 1999 the new entrants and fierce competition pushed down tariffs.
TowerXchange: Was this about the time you started to realise there was an opportunity to share infrastructure?
Umang Das, Chief Mentor, Viom Networks:
All the operators needed a lot of infrastructure. India is a huge geographical area and to provide full coverage you needed around 45,000 towers. No operators were all-India at that time. We all had certain circles and in the case of Spice Telecom, we needed 3000-4000 towers per circle. So, we needed more than 10,000 towers. Each individual site by itself would then cost around US$200,000; hence towers represented 70% of network costs.
Around this time, my friend, TV Ramachandran and I catalysed the formation of the COAI (Cellular Operators Association of India) with all of the MNOs (Mobile Network Operators). Mr. Ramachandran became the fulltime Director General, and Dr. B.K. Modi became the Chairman. With a degree of natural comfort in dialogue among operators, we asked ourselves “why not share towers?” However, the early days of tower sharing in 1999-2000 were limited to barters; these were not as successful because people kept their cards close to their chests. They treated towers like the family jewels, and the operations guys still thought differently from the shareholders. Those initial barters were un-invoiced exchanges and if one party had 500 towers in an area, and another 1,500, then 500 would be the most that could be shared.
With a degree of natural comfort in dialogue among operators, we asked ourselves “why not share towers?"
TowerXchange: When did barters give way to commercial leases and the first independent towerco business models in India?
Umang Das, Chief Mentor, Viom Networks:
The first breakthrough was in 2005 when I was still Managing Director of Spice. I told Dr. Modi that because we were restricted to just three circles while other players such as Airtel, Reliance and Hutchison had made acquisitions to be present in more circles and were looking like all-India operators. To compete with them, we had to roll-out rapidly and be innovative. If 70% of capex goes into passive infrastructure, why not partner with one of the infrastructure companies that were not operator owned?
In the year 2005-06, we contracted with Quippo, the equipment leasing firm of SREI. SREI is driven by Hemant and Sunil Kanoria, two entrepreneurs renowned for infrastructure finance and leasing of equipment for construction, roads, ports, oil et cetera. Given the 15-20 year licenses the operators had signed, we proposed to the Kanorias to get into the long term contracts that the tower and telecom business represented. Sunil was very entrepreneurial and accepted the idea, and our first order for independent infrastructure led to the building of 50 towers in Punjab. Spice Telecom had converted the capex model to an opex model – instead of funding the towers with capex, we had to pay rental, but the rental was pretty high. Together with the Kanoria brothers, we encouraged other operators to share the infrastructure.
Our first target was Hutchison, whose CEO Asim Ghosh was a friend of mine. We asked Asim, why not share our 50 towers? His initial response was not positive as he preferred to build his own towers. However, we reasoned with Asim that time to market and revenue generation would negate the adverse effect on EBITDA of the rental costs, so he took a leap of faith and acquired tenancies on many of those first 50 towers. This suited Spice because we got a 10-15% discount on rental rates, and of course it suited Quippo SREI because they had two tenants instead of one. Hutchison soon found it was a good idea – they suddenly had 50 towers providing new revenue and new customers with a lower rental rate, and they achieved this much faster than building their own.
Hutchison soon found it was good idea – they suddenly had 50 towers providing new revenue and new customers with a lower rental rate, and they achieved this much faster than building their own
Those first 50 towers represented the birth of the shared infrastructure, independent towerco business model in India. We took the idea to Bharti Airtel and met Mr. Sunil Bharti Mittal, and before long had both Hutchison and Airtel agreeing to the principle of co-location.
Meanwhile some UK private equity investors – Ashmore Group – and some partners from Israel started Tower Vision. Tower Vision had sites in Karnataka, so both of the original independent towercos were partners of Spice. We also brought Quippo into Karnataka – Quippo were agile and had a strong balance sheet, so could invest without advances. With the help of our local contacts they were able to get to market quickly.
TowerXchange: How did the tower industry reach scale in India?
Umang Das, Chief Mentor, Viom Networks:
I distinctly remember TV Ramachandran and I meeting with the then Minister of Communications, whose enthusiasm for infrastructure sharing was critical to the creation of “Project MOST” (Multi Operator Shared Towers), a government supported programme created in late 2006 to early 2007.
This generated a lot of excitement about independently owned infrastructure companies backed by the government.
Around this time, Airtel, Hutchison and Idea started to set up their own towerco by pooling their existing tower assets. Indus Towers was conceived in 2006, and had an impact from 2007-08, starting with 70,000 towers from day one. As a 100% shareholder-owned entity, it was quite distinct from Quippo, which was 100% non-operator owned. While Indus was larger in volume, almost all their initial tenants were internal and there was limited external marketing of the towers for three or four years whilst they tackled problems with overlapping sites. Between 2006 and 2008, Quippo grew from those initial 50 to 5,000 towers through acquisitions. The independent status of Quippo Telecom Infrastructure Ltd. gave tenants more comfort, so our tenancy ratio rose to 2.5 and beyond.
After the partners in Indus Towers hived off their 70,000 towers, Reliance and Tata followed. Reliance hived off assets into their own 100% owned towerco, while Tata Teleservices hived off their assets into 100% owned WTTIL. However, WTTIL invited the participation of another towerco to manage and run the entity, and Quippo bid for and won the rights to merge their 13,000 towers. Now, the Tata-Quippo joint venture portfolio grew to 18,000 towers. In doing so, Quippo became a significant entity and as a company we decided being pioneers was not good enough unless we were growing!
Another seven or eight operators entered the Indian market in 2008, and several decided that the only way for faster rollout was to launch through independent towercos who would provide them with an existing platform and due focus as customer clients. In particular, Uninor, Telenor’s Indian opco, became the only company to proudly proclaim that they didn’t invest a dime in building their own towers. We were able to share the roll-out between Uninor and Tata Teleservices and provided them with a pan-India footprint. By sharing with each other, Tata Teleservices and Uninor were able to become all-India operators. Our work with Uninor gave Quippo the opportunity to rollout 16,000 towers in a single year - a world record in its own right for the sheer scale of deployment across a massive geography like India. This made our tower count jumped to over 36,000 in 2009-10, with a tenancy ratio of 2.3.
TowerXchange: How did you finance India’s first US$bn tower transaction with WTTIL? What were the main challenges in integrating and scaling the combined Tata-Quippo business, and how were those challenges overcome?
Umang Das, Chief Mentor, Viom Networks:
It was a big challenge to merge two distinct cultures in one merged entity. Tata were very process-oriented, whereas Quippo had a more entrepreneurial mind-set. So, we hired McKinsey to advise on strategy, whereas KPMG was hired to advise on operationalising the integration. From these learnings, came the ‘War room’ concept which is a 360 degree approach towards ‘no surprises’ strategy wherein all key stakeholders, including customers, operations personnel and field workforce, periodically sit together to ensure transparency and speedy resolution of issues. Conceptualized and initiated by us, the ‘war room’ soon became a popular and well-accepted concept across the industry.
Our second challenge was figuring out how to roll out 1,500-1,800 towers per month, three to four times the volume we had been historically doing. The operational aspects of the rollout were best understood by SREI Quippo, so the governance model ensured all operations were led by Sunil Kanoria as Vice Chairman. While we created accountability to timelines et cetera, our roll out capacity scale-up was driven by the Kanoria family, who leveraged their contacts with vendors to boost our output from 500 to 1,500-1,800 towers per month.
The third challenge was raising over US$1bn of acquisition capital. Raising even US$1bn is not difficult if you have a solid business model, and reliable shareholding partners. Tata had a tremendous brand, and SREI were very good at fund raising, financing and leasing. With all of that in their DNA, SREI could manage bank contacts to raise big capital.
TowerXchange: If the market entry and rollout for Uninor represented ‘the good times’ for Viom Networks, did the cancellation of 122 MNO licenses in 2012 represent ‘the bad times’?
Umang Das, Chief Mentor, Viom Networks:
While the cancellation of 122 licenses had put the telecom industry in India on a stand-still mode with lot of uncertainty, the tower industry also faced a huge brunt with companies like us facing a set-back of close to 15,000 tenancies. As a company, we decide to sit back and re-strategize the way business should be done and resultantly, we managed to record our maiden profit in one of the most difficult periods in the year 2012.
The loss of all those tenancies helped us focus on cash flow, on reducing opex, and on consolidating our relationships with the incumbent market leading operators. Our profit margins have increased year on year ever since. It became critical that we could still make healthy IRR. Our idea is to exceed 20% IRR even with a single tenant on a tower. We developed tower designs for structures that were not necessarily shared at the outset, but which had a modular design so they could be easily upgraded for additional tenants. As tower designs became lighter and lighter, we became highly cost optimised.
TowerXchange: Given your economies of scale and accumulated experience, how far have you been able to drive down costs, for example the capital cost of a new tower which you mentioned was once US$200,000 at the outset of the mobile telephony era in India at the turn of the millennium.
Umang Das, Chief Mentor, Viom Networks:
One of the key value adds of infrastructure sharing is bringing down costs. As a result of focusing on quality, innovation and cost reduction, towers which once cost US$200,000 to roll out each were brought to down to US$50,000, and today below US$25,000. India has the lowest cost tower rollouts in the world. In that context, I find it hard to understand US$200,000 per tower valuations in Africa. That high cost structure is going to prove difficult to sustain in the long term; the key to success will be the optimisation of costs.
We achieved this sizable reduction from US$200,000 to under US$25,000 per tower in India through five key strategies:
1. Using lighter, simpler tower structure designs, we went site to site evaluating the wind speed and wind load capacity. There is a big difference in the weight of steel one needs to deploy for 40kph compared to 200kph. Every new site was audited to determine whether an angular, tripod or four legged tower was needed. One of our key differentiators is strong R&D and design team in which we have invested US$25mn per year.
2. Optimising power management. We have managed to deliver a better outcome for every litre of diesel put into gensets by identifying and reducing over-consumption.
3. O&M is a big black box with lots of scope for cost optimisation, including site security.
4. Smarter negotiations with landlords, and equipment and service providers. Both of these relationships are based treating them as partners, not as suppliers.
5. We appointed hundreds of “Asset Managers” – business managers with total responsibility for 40 sites each. The Asset Managers use their local knowledge and resources to optimise each site under their responsibility.
Most important of all was to be more than just infrastructure suppliers to our customers; we had to understand them and develop deep relationships. This may sound ‘soft’ but it delivered real financial results!
TowerXchange: Do you anticipate there being consolidation among India’s towercos in the near future?
Umang Das, Chief Mentor, Viom Networks:
I don’t think small towercos with less than 5,000 towers will be able to survive and we see consolidation happening in the market. Increasingly, the threshold for scale is at 40,000-50,000 towers in India and smaller towercos are not able to secure customer confidence to grow so I don’t see many new players coming in.
India is largely driven by operator growth and in the latest auction, spectrum was acquired by India’s existing MNOs, strengthening their competitive position and getting them into the 800-900 MHz band.
TowerXchange: Should the towerco business model extend beyond passive infrastructure into active equipment?
Umang Das, Chief Mentor, Viom Networks:
Yes, we should extend beyond passive infrastructure sharing. Expanding the scope of our offering is critical in the context of data demand growth.
As long ago as 2008-09, government policy permitted active and passive infrastructure sharing. My vision is to create an end-to-end infrastructure outsourcing strategy, a win-win partnership between towercos and MNOs. This will enable MNOs to almost become MVNOs, focusing on VAS and customer care, while their towerco partners focus on infrastructure end to end. We might have been a bit soon for the market when we formed and took over Quippo Telecom Infrastructure Limited, and later became Viom Networks. This trend of ‘end-to-end infra solutions’ is now the way forward for all established mobile operators.
TowerXchange: What is the scale of the Indian tower industry and of Viom Networks today, and what does the future hold?
Umang Das, Chief Mentor, Viom Networks:
With mobile coverage almost achieved in India, and over 400,000 towers in the country, the remaining requirements are for rural sites and urban infill sites. Viom Networks are looking at widening our portfolio, and entering new markets, while continuing to optimise costs. However, our core business remains our existing towers and customers. Today Viom Networks owns 43,000 towers with over 100,000 tenancies with a tenancy ratio of 2.4, the highest in the Indian tower industry. Our independent, shared model is a proven win-win for all operators. We reduce opex, eliminate capex and eliminate the management headache of managing passive infrastructure. I feel that towers are not just for the telecom industry – a tower can be an ‘oasis in the desert’ for the provision of financial, education, government, and other valuable end-user services. India’s towercos have been granted infrastructure status in recognition that our towers represent an integral part of the country.
The data revolution also creates opportunities to expand our portfolio and profile into fibre, the active part of the solution. We believe that any items we can share on a site: the tower, power, fibre and antennae should all be shared.
My focus is now on creating new growth strategies and determining how Viom and the tower industry can add value through end to end service provision including passive infrastructure, power, fibre and other active infrastructure
Both in my capacity as Chief Mentor of Viom Networks and DG of TAIPA, we are interested in independent energy entities seeking to provide decentralised power solutions beyond the reach of electricity boards. Just like independent towercos helped MNOs focus on their core business, so the ESCOs can support towercos as their anchor tenants while also offering utility power, streetlights and other services to the local community.
My focus is now on creating new growth strategies and determining how Viom and the tower industry can add value through end to end service provision including passive infrastructure, power, fibre and other active infrastructure. From a multi-dimensional applications approach, one of the most recent and interesting examples in New Delhi is utilizing the 20 sq ft space of a street pole to offer services such as Wi-Fi, electronic surveillance, with fibre connectivity in addition to conventional street lighting.
In terms of international growth, as the only independent, non-operator-owned towerco of scale in India, Viom Networks is the only towerco who are developing markets overseas. We have looked at Africa, Myanmar amongst others with energy management as a unique entry strategy. We have already become a knowledge partner to several operators and are getting into the EPC and Managed Services model in Myanmar and Africa – a pioneering concept for emerging markets.
Umang Das recently joined the TowerXchange “Inner Circle” informal advisory board.
Don’t miss the upcoming TowerXchange Meetup Asia being held on 13-14 December at the Marina Bay Sands,Singapore. For more information visit https://meetup.towerxchange.com/event/779b884f-2156-4a99-81e0-747a2f905382
