How Bharti Infratel and Indus Towers are refining infrastructure sharing so everybody wins

Akhil Gupta’s annual strategic perspective on the Indian tower market, including recommended best practices to be adopted by the global tower industry

Read this article to learn:

  • The impact of recent MNO consolidation and 4G rollout on the Indian tower business
  • The changing competitive landscape among towercos in India
  • MSA refinements and the drive toward lease price parity between new and anchor tenants
  • How loading (aka “amendment revenue”) is managed by Indian towercos
  • The merits of operator-captive, joint venture towercos

Akhil Gupta is Bharti Infratel and Airtel’s “tower Tsar”. His unique perspective spans not only Infratel, Indus and Airtel but the entire tower industry in India as Chairman – TAIPA, and almost a decade of evolution of India’s unique tower industry. This year, Gupta reflects on the impact of MNO and towerco consolidation on the Indian tower market, quantifying the current state of 3G, 4G and small cell rollouts, and sharing his vision of the finer points of crafting a tower industry where towercos and MNOs share efficiencies equitably.

TowerXchange: What would you say have been the biggest developments in the Indian tower market over the past year?

Akhil Gupta, Chairman, Bharti Infratel:

There have been four major developments: One; 4G rollouts have started while 3G rollouts have picked up pace. Two, the acquisition of Viom Networks by American Tower Corporation with further consolidation to come in the Indian tower market. Three, in a more recent development there have been some tenders for Smart Cities and four, the ongoing consolidation of MNOs in India.

TowerXchange: What has changed within Bharti Infratel over the past year?

Akhil Gupta, Chairman, Bharti Infratel:

Internally within Bharti Infratel there haven’t been many changes. One of the defining characteristics of the tower industry and its business model is that it’s fairly stable and one shouldn’t expect dramatic change. Telecom network rollouts are the bread and butter of towercos. We also participated in a tender for Bhopal Smart City, and you can expect many more of these to take place.

TowerXchange: What has been the impact of recent MNO consolidation and 4G rollout? 

Akhil Gupta, Chairman, Bharti Infratel:

The merger between Reliance Communications, Aircel and MTS, as well as Videocon shutting down, have been healthy developments. It is not healthy for the industry to have say ten operators, including five or six sitting on spectrum without the wherewithal and means to rollout. Consolidation remains a work in progress, but it will leave spectrum in the hands of companies that have the resources for rollouts. So Indus Towers and Bharti Infratel and the entire tower industry in India will benefit from each of these developments.

There is still a long way to go to provide full coverage; in terms of tenancies 3G equipment is on about 50% of the towers. Over the next 18-24 months we anticipate that 3G will replicate 2G’s 90% coverage of India’s geography

With regards to 4G, Airtel has been a leader, and Vodafone and IDEA are catching up and are likely to bid for more spectrum in the next auctions. Reliance Jio was the only company to launch 4G only. Every other player will have to offer 3G and 4G, and demand should keep increasing.

There is still a long way to go to provide full coverage; in terms of tenancies 3G equipment is on less than 50% of the existing towers. Over the next 18-24 months we anticipate that 3G will replicate 2G’s 90% coverage of India’s geography. Over the next two to two and a half years virtually every tower should have 3G. Digital India can’t happen without Internet connectivity; this can only be achieved in this country through wireless connectivity, and 3G is currently the most cost effective. 4G has been rolled out in tier one cities and the rollouts have started in tier two cities with another wave to follow. We estimate that current 4G coverage is less than 20%.

TowerXchange: What can you tell us about the recent refinements of your MSA and the drive toward parity of lease rates between anchor and new tenants?

Akhil Gupta, Chairman, Bharti Infratel:

I believe that this is a transformational move for the tower industry worldwide.  While there has to be a provision for yearly escalation, but clearly the construct under existing MSA was structurally defective. When a new tenant comes on a tower the lower applicable rent becomes applicable uniformly to all tenants on that site, including the existing tenants. However, the customers which came earlier continued to pay escalation charges as applicable till that date. This gave rise to an anomaly whereby the customer who came first ended up paying higher charges vis-à-vis customers who came later on the same site. This was fundamentally wrong since this could result in a disincentive for a customer to be the anchor/first tenant on a tower and thus needed to be corrected.

The other uncertainty facing the industry was that the renewal price at the end of the term of contract was a big question mark. It was debated that since a new tenant is charged at the ‘base rate’ i.e. without escalation, the renewals would be at that base rate, which would have caused huge revenue dip for towercos. On the other hand, it was being suggested that after ten to fifteen years the tenants would be so dependent on towercos that towercos could charge anything. Either way the uncertainty was immense causing concern to customers as well as investors as several renewals will come up in the next few years. To ensure a smooth renewal process, we needed to reduce the scope of negotiation.

We have accordingly amended our MSA whereby instead of escalation @ 2.5% each year, the rate card itself would increase by 2.5% as on 1st April each year. As a result, the rate chargeable to existing and new tenants would become common over time, thereby removing the anomaly that existed.

In addition, the entire uncertainty regarding renewal price is removed since all renewals will be treated at par with any new tenancy with price as per prevailing rate card at time of renewal.

TowerXchange: How does lease pricing, particularly “loading” (known as amendment revenue in the West) work in India?

Akhil Gupta, Chairman, Bharti Infratel:

When an existing tenant adds equipment or takes more space on a tower or on the ground, we charge an additional amount, which we call ‘loading’. This is what is called ‘Amendment’ in some other markets. We believe it would be unfair to our customers if adding 3G equipment to an existing 2G tenancy required payment of another tenancy fee. Towercos are technology agnostic – our prices are defined by the space used on the ground and on the tower, the weight added (or “wind load”), the power load factor addition, etc.

For each of these areas the MSA specifies a rate for any increases, so there is a very fair balance between the interests of the towerco and those of the MNOs.

TowerXchange: Are clauses governing RAN-sharing typically included in Indian towerco MSAs?

Akhil Gupta, Chairman, Bharti Infratel:

Our MSAs do not contain restrictions on RAN-sharing. Since we are committed to a win-win situation between us and our customers, I feel that there should not be any such restriction. After all, if we can share our infrastructure with various operators, we must also grant them the same privilege to share their resources in a manner which suits them the most. In any event, I do not think that in India RAN-sharing is bad because it improves the capital efficiency and that would result in the rollouts happening faster and deeper into the country. In the long run, the tower companies will gain if the operators go deep into the Indian market as soon as possible.

TowerXchange: There has been some restructuring of the Indian tower market: What are your thoughts on the scaling of American Tower? And are there any updates on the development of BSNL’s proposed towerco?

Akhil Gupta, Chairman, Bharti Infratel:

American Tower’s acquisition of Viom Networks is a healthy development for the tower industry. It is good to have strong, not weak competitors as this improves overall quality, investments, and  innovations, while poor competitors can merely discount and damage the market. Competition makes the market players stable and responsible and encourages great service to the customers.

BSNL’s proposed towerco is a sensible step; they have been looking into this and have sent out RFPs seeking third party maintenance.  BSNL have a lot of towers at strategic locations which other towercos cannot get to. Having access to those would be good for the operators.

TowerXchange: Given the potential for further consolidation in the Indian tower market, will Bharti Infratel participate?

Akhil Gupta, Chairman, Bharti Infratel:

Our coverage is so well spread out that most  consolidation proposals could result in a lot of overlap. However, we would evaluate specific proposals, if any, and decide based on  their merits.

TowerXchange: Could you give us an update on Bharti Infratel’s Green Towers P7 programme, and the Indian government’s green energy targets for 2020?

Akhil Gupta, Chairman, Bharti Infratel:

The government has not set any official targets, but the tower industry is working on these initiatives on our own volition.  Our aim is to reduce diesel consumption, not just from an environmental perspective but from a business perspective. Refuelling sites with diesel is a painful exercise for towercos with possibilities of manipulation, fraud & security concerns. We are significantly investing in energy saving equipment such as Lithium-Ion and VRLA batteries and solar power. We’re also investing in connecting off-grid sites to the grid; currently there are approximately 8-10,000 off grid sites between Indus Towers and Bharti Infratel.

About 38% of our towers are now green, which means they consume less than a litre of diesel a day.  Total energy conservation capex invested at the end of the financial year 2014-15 was in excess of Rs. 3,200mn on a consolidated basis. This is a huge priority for us.

Once all sites are connected to the grid, our aim is to have a 90-95% diesel free portfolio. This will take some time, but we hope to achieve it by 2020.

TowerXchange: Could you update us on how ESCOs are progressing in India?

Akhil Gupta, Chairman, Bharti Infratel:

There hasn’t been much news recently. We have been doing some pilots with them but it hasn’t really taken off in a big way to date.

TowerXchange: What is holding back Indian towercos from forming deep partnerships with ESCOs?

Akhil Gupta, Chairman, Bharti Infratel:

The model doesn’t make good sense at this point. If we could, we would be happy to have someone else manage our power equipment so we could concentrate on our core business.

ESCOs propose to put up power plants and serve several towers in a specific area. But the need for ESCOs is greatest in rural areas where towers are very spread out; Indus and Infratel’s networks extend deepest into the rural areas, so we could certainly benefit. But it is difficult to find many locations suiting their business model, which requires four to five towers in close proximity – the network is seldom that dense in rural areas. Selling excess generation capacity to households is challenging because of the high cost of wiring up the houses. I do hope that over time they become economically viable.

TowerXchange: What have been the latest developments in small cells and IoT?

Akhil Gupta, Chairman, Bharti Infratel:

There haven’t been many developments in IoT as  yet; this falls more into the operators’ domain as it’s a function of putting SIM cards into machines.

We are, however, starting to see a need for small cells and new lighter towers and poles. We are following the requirements of MNOs and are introducing new products. However we  will endeavor that small cells are designed to be shared by at least two MNOs to make them cost effective.

TowerXchange: Would you bring small cells under the umbrella of your mission to disarm MNOs of their passive infrastructure? Should towercos rollout small cells in India or should it be a shared responsibility?

Akhil Gupta, Chairman, Bharti Infratel:

The tower industry must lead small cell deployment, so this mission of disarmament must also apply to them!

When we build a small cell, we spend a little extra capex so we can accommodate two tenants.However, that would enable us to impose a much lower charge to each operator as compared to their overall cost on individual basis.

Small cells are at a nascent stage in India at this point, but you can expect to see more over the coming year.

TowerXchange: How is the development of Smart Cities progressing in India? What role is Bharti Infratel playing in this?

Akhil Gupta, Chairman, Bharti Infratel:

Some tenders are now coming out, including Bhopal, and the DMIC in Delhi. The terms for the DMIC project were unfavourable and as a result there were no bidders; we have won the contract for Bhopal. It seems that Smart City implementations would evolve over the next few years.

TowerXchange: What makes some smart cities projects more investible than others?

Akhil Gupta, Chairman, Bharti Infratel:

Financial feasibility and clarity of terms & conditions.

TowerXchange: There is a Global trend toward carve out towercos owned by MNOs; what lessons would you share with companies like China Tower Company, Telesites and Telxius as you reflect on your journey and experiences during the founding of Indus Towers? What would you do differently if you were stating on that journey today?

Akhil Gupta, Chairman, Bharti Infratel:

The only thing I would change from the start would be the MSA amendments which we’ve just made. To my mind, what the other global operators need to do is create an Indus Towers equivalent in their market: pool resources with other MNOs, make it independent, cater to all clients with no discrimination, provide a common MSA, and a volume discount incentive.

Our model is a good one, and we’re proud of Indus Towers as a concept. We recommend that MNOs don’t make their own towercos, but that they either sell their towers to specialized tower companies or consolidate them with other MNOs in one portfolio. We would love to see towercos like China Tower Company – this is a must-happen – and we would be delighted to share our experience.

TowerXchange: How satisfied are you with the outcome of your African tower divestiture, and are there a handful of towers yet to be sold, or will those be retained? 

Akhil Gupta, Chairman, Bharti Infratel:

There are just a few countries left, the major ones are done.

It’s been a satisfying experience – we’ve raised about US$2.5bn to pay down debt, and passed towers into specialist hands and have started seeing good results in uptime and energy efficiency. Towers are not the MNOs’ cup of tea; they have a different mindset and low level engineering projects don’t fit with a marketing mentality – they’re chalk and cheese.

Towers are not the MNOs cup of tea; they have a different mindset and low level engineering projects don’t fit with a marketing mentality – they’re chalk and cheese

We didn’t do it ourselves under Infratel because we realised an operator-led towerco model would not have been accepted by many stakeholders in Africa.

TowerXchange: We’re looking forward to welcoming you back to the 3rd Annual TowerXchange Meetup Asia – how useful did you find last year’s event, and what do you hope we can deliver this year?

Akhil Gupta, Chairman, Bharti Infratel:

I must compliment you – TowerXchange is doing a tremendous job, and making this recognised as a proper, solid industry. You are to the tower industry what the GSMA is to the telecom industry!

The Asia Meetup is organised really well, and Singapore is a good venue for our annual symposium. You’re providing great service to the towercos as an independent body and highlighting issues surrounding the industry. There is so much more to be done in the tower industry. We’ll see a lot of developments in the coming years, such as diversification into transmission and Wi-Fi provisioning. I look forward to participating in the third edition.


Don’t miss the upcoming TowerXchange Meetup Asia being held on 13-14 December at the Marina Bay Sands, Singapore. For more information visit www.towerxchange.com/meetup/meetup-asia/


 

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