India has been experiencing an unprecedented jump in data demand as a function of the sharp decline in data tariffs, driven by responses to Reliance Jio’s aggressive pricing strategy. In the meantime, MNOs across the country have ramped up their spending on 4G and site densification, while 5G remains a buzzword and not yet a reality. Fibre connectivity is key to create a high-performing, dense urban network able to sustain the level of data growth experienced in India. Should towercos get involved in fibre especially in light of the shrinking pool of tenants across India?
The restructuring of the Indian telecom market is having a direct impact on tenancy ratios as well as the the volume of new sites needed across the country. In fact, while the mergers and exits of mobile network operators will likely cause a drop in tenancy ratios for the coming one to two years (and without penalties in some cases), mergers among towercos will rationalise tower portfolios and may eventually lead to the removal of some parallel infrastructure.
It is estimated that Indian towercos will lose as many as 200,000 tenancies as a result of the consolidation among MNOs but this is somewhat counterbalanced by Jio’s rollout and all the MNOs’ continuing 4G overlay.
In terms of the MNOs landscape, it is worth noticing that India went from an 18-player market in 2008 to a 12-player one in 2012, when 122 licenses were cancelled. In 2015, with the launch of Reliance Jio, the landscape started shrinking and now effectively consists of four prospective MNO tenants, namely Airtel+Telenor+Tata, Vodafone+Idea, Reliance Jio and BSNL+MTNL.
While this new market structure is going to have a direct impact on balance sheets and business strategies, the results should be positive for the Indian market in the long term, leading to healthier competition, wealthier players and an overall more sustainable environment. And this is particularly true in India, where ARPU has seen a sharp decline over the past year, down -76% since Q217.
In the meantime, plenty of opportunities are arising for towercos to shift their attention from macro-towers to additional revenue streams such as fibre, smart cities and beyond. In particular, fiberisation is a crucial element of both the BharatNet project, the world’s largest rural broadband connectivity initiative through optical fibre, and of Digital India, the Government’s campaign that aims at making the country “digitally empowered”.
To date approximately 20% of Indian sites are fiberised and bringing fibre to the tower will be essential to sustain the swift increase in data demand across the country. But what are the drivers that are pushing towercos to get involved in fibre projects?
One key aspect is represented by an increase in smartphone penetration and, as mentioned, the associated spike in data traffic. But another driver is the greater adoption of small cells and IBS as a mean to densify urban networks, which require fibre backhaul to function optimally.
Mobile network operators worldwide are responding to the fiberisation trend by divesting or carving outlier fibre assets as exemplified by Telefónica, whose subsidiary Telxius now runs over 65,000km of fibre optic cable networks and Airtel, which is planning to carve out its fibre business to its subsidiary Telesonic Network.
Similarly to the divestment of towers, the monetisation of fibre will result in several opportunities for both the MNOs as well as towercos who are looking for ways to enter the fibre business across multiple markets.
In Indonesia, STP runs a diversified portfolio of towers, microcells, iDAS and 2,800km of fibre and iForte, who operates an extensive fibre network across Jakarta and Subaraya, was acquired by leading towerco Protelindo. In Malaysia, edotco partnered with Telekom Malaysia to offer Next Generation Backhaul and Smart CRAN services to MNOs. In Mexico, American Tower has recently acquired KIO Networks and its 50,000 concrete poles and 3,380km of fibre.
So the business case for towercos to get involved in fibre is there on a global basis. And even more so in India, where a deficiency in fibre connected, independent towers forced Reliance Jio to self deploy around half the macro towers in their network.
Towercos will doubtless remain focused on their core business but there is potential to cultivate new revenue streams from fibre, small cells and DAS and Indian towercos have a real opportunity to compensate for the slowdown in co-location growth they are facing by shifting to a broader business strategy.
In fact, early adopters like STP have seen the revenue generated by new products rising from around 6% in 2014 to over 10% in 2017. U.S. based Crown Castle is reporting site rental revenues for their fibre unit of US$389mn in Q1 2018 versus US$764mn for their tower segment, which means that fibre is a considerable revenue stream for the towerco, especially following the 2017 acquisition of Lighthtower.
While the opportunity is there, some crucial challenges need to be overcome for towercos to fully embrace fiberisation across India, especially at a regulatory level. In fact, the 2016 Right of Way (RoW) regulation does not include towercos in the expedited fibre rollout policy. To date, only seven states across India have aligned with the RoW rules so there is still quite a long way in terms of nationwide adoption of the streamlined process and in the meantime, it is crucial for towercos to be considered for the expedited policy, a change that would enable them to accelerate the rollout of infrastructure.
In India, at least fifteen companies already own and/or operate fibre assets. Among them, three Government owned entities (including BSNL/MTNL) who offer pan-Indian services, nine independent fibercos offering services at local level and three MNOs (Airtel, Vodafone and Idea), offering nationwide backhaul, FTTx and enterprise services.
Who owns fibre in India?
Such a fragmented fibre ecosystem results in multiple services overlapping in some locations, a variety of tariffs and an overall inefficiency in the way fibre is being deployed and utilised.
The importance of fibre in contemporary India is such that Prime Minister Narendra Modi recently was quoted saying “Cities in the past were built on riverbanks. They are now built along highways. But in the future, they will be built based on availability of optical fiber networks and next-generation infrastructure.” The role of towercos in making fibre largely available for projects like Digital India will open up considerable revenue opportunities, especially since the Government has already allocated US$1.2bn to Smart Cities initiatives.
Towercos such as Bharti Infratel and Indus Towers are already involved in several Smart City projects across India.
In a recent interview with TowerXchange, Akhil Gupta, Chairman of Bharti Infratel said that “The Smart City project is the perfect example of such an opportunity where we have either exclusivity and/or free right-of-way. Indus and Infratel are currently implementing Smart City projects in Vadodara, Delhi and Bhopal and rolling out fiber selectively after discussion with the operators on their requirements. The merged towerco will proactively work with all its customers to fiberize the sites owned by the merge co with an aim to share transmission with all operators co- located on such sites."
On the other hand, Bimal Dayal, CEO of Indus Towers, shared with us the progresses made by the towerco in an exclusive 2017 interview and said that “The smart city initiative is gaining traction, which is very exciting, and having taken a year to get going, we are now gaining ground. We have two very progressive smart city contracts on the table, of which phase one is already launched. Though the smart city drive is being taken up by multiple cities, until we have one or two robust rollouts, phase two will remain in the planning phase.”
TowerXchange, a strong advocate of infrastructure sharing across multiple segments of the telecom ecosystem, believes that the current situation in India is the perfect scenario for one or two towercos to scoop up fibre assets available in the country, eliminate duplicate investment, and offer fibre, small cells and additional services such as Smart Cities and intra-city networks at a nationwide, potentially pan-Asian level.
