Indus Towers on the implications of the spectrum auctions, plus how they made 40,000 cell sites run diesel-free

The world’s largest and most renowned joint-venture towerco, Indus Towers has been hard at work efficiently providing passive infrastructure on a non-discriminatory basis to Indian telecom operators and wireless broadband service providers since its founding in 2007. The company is actively upgrading its portfolio to reduce its carbon footprint and increase its efficiency, and is also playing an important role in the development of India’s Smart Cities.

TowerXchange: Indus Towers is the most famous example of a joint venture towerco in the world - looking back at the history of the company, how were Airtel, Hutchison (now Vodafone) and IDEA able to structure a joint venture where many other operators in other markets had failed?

Firstly the purpose for which Indus Towers was formed was very clear amongst the shareholders from the outset and remains clear to this day. Indus Towers was formed to share expensive passive infrastructure. Transferring assets to a joint venture towerco represents a good method of taking cost out of the system.

As competition intensifies, passive infrastructure costs are becoming the biggest line item for MNOs. Total opex which the towercos represent is over 30% of Indian MNOs’ total costs; a very significant part of opex which needs to be constantly optimised. All the operators have achieved the optimisation we set out to achieve, and our stakeholders have recognised the same. We must give credit to our operator shareholders who brought together their operating teams and, also enabled the Indus Board to be distinct from the people who run operations within each MNO.

These ‘Chinese Walls’ are important – without them, Indus wouldn’t have reached where it stands today.

TowerXchange: We’ve seen many attempts to form joint venture towercos elsewhere in the world flounder due to boardroom politics – shareholders not being able to agree on equity ownership, assets injected et cetera. How did Indus Towers overcome such challenges?

Leadership plays a vital role in this; I’d be lying if I said that the determination of which assets would be included in the venture, and the impact on the equity ownership of the company, was not an issue.

It was critical that the three parties looked at their own benefits rather than comparing with their competitors.

It came out as a big commitment from Indus shareholders, to go down this route of collaboration with competitors. It took about 6-8 months to arrive at a resolution to integrate certain assets and to transform them into equity.

TowerXchange: How will the latest round of spectrum auctions affect the Indian tower market in terms of capital?

The auction concluded yesterday, and my colleague and I were speculating about the implications for Indian’s leading MNOs’ debt to equity ratio, and whether it would lead to dilution. Each MNO’s investment in spectrum has been particularly impressive given that it has been funded on their own balance sheets.

The way the auction has played out, each large player has consolidated its position, retained and added spectrum. Those with spectrum are set to accelerate their rollouts, deploying capex to gain market share before their competitors ‘eat their lunch’. There will probably be further consolidation among the smaller operators left without spectrum.

2014 was a very good year for Indian towercos, and next year will be even better – demand for new sites will outstrip supply.

TowerXchange: Where is the bottleneck when demand for new sites outstrips supply?

Site acquisition is always the biggest bottleneck. From our perspective, our capability to deliver sites is adequate, though at a high level, it’s the policy framework that makes it difficult to acquire sites. Even though the big cities already seem cluttered with cell sites, there are hot spots where the operators need more capacity and therefore more sites. Today, it is becoming challenging to acquire new sites especially in city areas. The policy framework is still under evolution in most states, so it can be tough to complete due diligence and attain statutory compliances for acquiring sites. At the same time, landlords have become more knowledgeable and rental benchmarks are rising. The issues concerning EMF and other reservations from neighbors and societies further add to the challenges we face on the ground.

TowerXchange: Some analysts have suggested that India will need twice as many towers for the 4G era, increasing from 400,000 today to 800,000. Do you agree with this forecast? How will this infrastructure growth be financed, and what role will the towercos continue to play?

I must emphasise the growth of data in the Indian market, driven by competitive pressures and customers’ increasing willingness to pay for and consume data. Phenomenal like-for-like traffic growth means more towers are needed, but forecasting the number of new towers needed for 4G is challenging as the situation remains dynamic. If 4G is rolled out on 800 or 900 MHz spectrum that’s one thing, but if 4G comes in on 2.3 GHz we would need many more towers; it’s all down to physics. If the ball rolls in either direction we’ll still need more towers, but with more widespread cell splitting.

TowerXchange: Indus Towers just announced a plan to use streetlights as towers; could you share some more detail on this?

We have a variety of infrastructure going in at street level; the street furniture or street lights can all be used as sites for small cells. This change is happening as we speak for operator network rollouts and it represents a big change for the towercos.

This strategy must be viewed in the context of India’s ongoing plans to develop cities as Smart Cities. This is a major ambition of the country’s leadership and the ministries are trying to create their own definition of a Smart City. The way I’ve been trying to position the towerco’s role in the Smart City is straightforward; it’s not about bricks and mortar but about digital connectivity. Smart grids, Wi-Fi and smart signaling all need high bandwidth digital connectivity and that’s exactly what a towerco provides.

Our role in the Smart City is to take street infrastructure and strengthen it to give seamless corridors for Wi-Fi, 2G, 3G or 4G to any operator. We are operator agnostic – anyone can put up their antennas and equipment at our sites. This means transitioning from tens of macro sites to suddenly talking about 20,000 small cells and micro cells in one go; it completely changes the equation.

TowerXchange: What are the operational implications as towercos supplement their existing macro network with a heterogeneous network layer?

At macro sites, our biggest operational challenge is keeping the sites on because of limited power availability; India is still an energy deficit country. The small cell rollout is at street level mostly in larger cities. We will not be powering any with diesel. These are low or no maintenance sites using specialised equipment and are concentrated in urban areas.

Personally I feel the operations and maintenance challenge of street furniture will ease relative to the macro network, and I look on it as a very positive development in terms of reducing the complexity of network management. It will reduce the time taken to maintain power systems and ensure uptime which requires maintenance of all sorts of equipment at a macro site. This is a great way to break that cycle and deliver energy efficiency.

TowerXchange: Do you have any idea how many micro cells and small cells are in Indian networks, or at least in Indus Towers’ network today, and how those numbers may increase in the coming two to three years? And do you anticipate the majority of such new sites being installed by towercos as opposed to MNOs?

Though I may not have the exact number on the records, there should be a good number of micro/small cell sites installed in the country. These sites especially provide street coverage and we have a few installed in places like Ahmedabad. With the advent of 4G and the government’s focus on Smart Cities, I believe there is an opportunity to reach at least 15-20,000 small/micro cell sites across the country in the next three years.

The role of towercos is essential in the smart cities landscape. Being MNO neutral in providing services, towercos should see a good opportunity in this business in comparison to MNOs themselves. On the other side, MNOs may not be able to achieve the scale and efficiency against the levels of investment required for these projects.

TowerXchange: India has a very mature independent towerco market; do you expect to see consolidation in the near term or do you think the competitive landscape will remain stable?

There have been many attempts at consolidation and there are ongoing talks, so I can’t say it’s not going to happen. The requirement for many more towers and many more tenancies on long term leases makes this business very attractive for people to pick up. Let’s watch this space together.

TowerXchange: Congratulations on Indus Towers’ recent GSMA Green Mobile Award. Tell us about your green energy project to transform 35,000 sites to zero diesel consumption, leveraging FCUs, smart batteries and other innovations.

This is the 4th year in a row Indus Towers have been nominated for the GSMA Green Mobile Award, and the second time we’ve won the award, all for different initiatives.

The initiative for which we won the award this year was for converting existing sites from indoor to outdoor, switching off the air conditioning and using Free Cooling Units or other technologies. If we switch off air conditioning, power consumption falls by more than 25% like for like. When consumption falls by that amount, we can put larger battery banks onto the site and remove diesel completely. Through this intervention alone, we have saved 35 million litres of diesel, and our customers have benefitted phenomenally and have appreciated this initiative.