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REPORT- TELECOM TOWER INDUSTRY

Moving towards data growth

The telecom industry has grown over the years considerably and with

the exponential data growth, the roll out of 3G/4G networks and with

few initiatives taken by the government, the telecom industry will see a

higher growth trajectory in the future. This document gives a brief

analysis of the Small and Medium Enterprises in the telecom industry

and contains the assessment of the key success factors, opportunities,

industry trends, challenges, technological changes faced and much more

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Table of Contents

About the author .............................................................................................................................................................. 3

Executive Summary ........................................................................................................................................................... 4

Telecom Infrastructure Overview ..................................................................................................................................... 5

Industry Structure ............................................................................................................................................................. 7

Industry Trend ................................................................................................................................................................... 7

Geographical distribution of major manufacturers .......................................................................................................... 9

Industry exports .............................................................................................................................................................. 10

Recent Developments ..................................................................................................................................................... 11

Government Initiatives ................................................................................................................................................... 11

Opportunities for SMEs: .................................................................................................................................................. 12

Challenges for SMEs: ....................................................................................................................................................... 13

The Way Forward ............................................................................................................................................................ 14

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About the author

Sohini Deb has 14 month of work experience in automationin TCS. She has keen interest in Marketing and Operationsarea and is currently pursuing MBA from InternationalManagement Institute (IMI) New Delhi. She did BTech inComputer Science from WBUT.

Kumar Rishi is a Post Graduate in Marketing from IMTGhaziabad and a Mechanical Engineer from ThaparUniversity, Patiala. He has experience in auto componentindustry and market research.

Ashwani Kumar holds wide experience helping SMEsgrowth in Steel & Automotive Component industries usingOperational excellence, LEAN & Six Sigma concepts. He is agraduate from IIM Rohtak with a Mechanical Engineeringbackground from IIT Delhi and currently running SookshmManagement Consulting Firm catering to SMEs.

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Executive Summary

In developing countries, telecom sector plays an important role in not only contributing to the growth and GDP of

the country but also connecting corners across the country. In India, the tele - density has reached 84.09% by

September 2016, leading to better connectivity and social benefits for the people of the country. Tele – density is the

total number of telephone connections per hundred individuals living in an area. For India with a population of 1.311

billion, reaching 84.09% tele-density by 2016 displays huge growth in the telecom sector.

With the rapid growth of the telecom sector, there has been a rapid change in the business models too making it

more dynamic in nature. The increased competition amongst the mobile operator companies has forced them to

make it their priority to increase subscriber base, thus focusing more on marketing and services. Their next focus

was network expansion, making the tower companies natural partners to the mobile operator companies. The

telecom tower industry grew at a high pace and became the backbone of the telecommunication sector.

The mobile operator companies, by partnering with the telecom tower companies could not only focus entirely on

increasing their subscriber base but also reduce their capital expenditure costs significantly. The needs of the

operator companies were clear:

Lower energy cost

Faster time to market

Easier penetration to unknown terrains

The tower industry has grown over the years considerably with a total size of 400,000 telecom towers currently and

is growing at a rate of 4-5% CAGR over the last 5 years. With exponential data growth, the roll out of 3G/4G

networks, and increased competition amongst the operator companies, the tower industry including both the bigger

players and the small and medium enterprises, will see a higher growth trajectory in the future. Other than these,

opportunities like higher smart-phone penetration, internet penetration, government initiatives like ‘Digital India’

will also help the tower companies to grow further in future.

Along with opportunities, there are few challenges too, the SME sector of the tower industry faces. Challenges like

consolidation of operators, resulting in reduction of tenancy ratio, or the usage of alternative technologies like Wi-Fi

hotspots and small cells to offload traffic. Though these threats are not so huge in nature, yet it would impact the

growth of the tower companies in the future averaging out the growth rate.

Considering India’s data revolution, we at Sookshm believe that the following key aspects are critical to the positive

growth of the tower industry in the future,

High usage and limited spectrum availability

Quality of service

More focus on operational optimization and prudence than tenancy

Data growth and traffic offloading

Green Towers

Roll out of newer technologies like small cells or Wi-Fi hotspots

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Telecom Infrastructure Overview

Telecommunication has emerged as an important

aspect of economic and social development in an

increasingly knowledge intensive global scenario. The

Indian telecommunication sector has about 1 billion

subscribers connected through 4, 00,000 towers and

is the world’s second largest telecom market, after

China. According to the joint report published by the

Department of Industrial Policy and Promotion and

the Department of Telecom, the mobile sector’s

contribution to GDP which is presently at 6.5 percent

will increase to 8.2 percent by 2020.

Below are the constituents of a mobile network-

Diagram-1: Mobile network Constituents

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The above diagram shows the main constituents of a

mobile network. The SMEs in the telecom industry

deal with either the passive network, which is the

non- electronic infrastructure containing only the

steel towers, power supply options, generators or the

active infrastructure containing all the components of

the passive infrastructure with radio wave

equipments, switches, antennas, transceivers etc

Size and growth rate

India has a total of 400,000 telecom towers and will

be growing at a rate of 4-5% over the next 4-5 years.

Though there is a decline in growth of voice, yet with

the increase in data explosion the tower industry will

experience huge growth in deployment of tower and

tenancies. Indus is the largest tower company in India

with a total of 85,000 towers. If we see the industry

average tenancy ratio (tenancy ratio is the number of

telecom operators per tower), it is 1.77 and for

independent tower players, that is excluding

BSNL/MTNL, it is 1.93.

According to Macquarie Capital’s Chirag Jain, India’s

data consumption will grow 12 times by 2020 from

the current levels on account of a sharp fall in data

tariffs and rise in smart phone penetration. This will

lead to higher tenancies for tower companies as

operators rapidly roll out 4G services in parallel with

their existing 2G set-up and expanding 3G networks.

And moreover, given the stiff competition among the

telecom operators, tower companies are expected to

be major beneficiaries as telecom companies intensify

their data rollout to counter Reliance Jio.

Indian tower industry market-

The following chart (fig-1) provides a snapshot of current tower infrastructure assets with various industry players

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

IndusTowers

BhartiInfratel

BSNL RelianceInfratel

ViomNetworks

GTL Others ATC TowerVision

Share of Towers

Share of Tenancies

Figure-1: Indian Tower Industry Market

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Indus Towers has the highest share of towers (31%) and tenancy (37%) in the telecom tower industry

BSNL comes next with the share of towers (18.2%), yet the share of tenancy for BSNL(9.9%) is very low as

compared to the share of towers it has

These companies cover 80 % of Tower Industry in India, however Indus Tower is the biggest

Industry Structure

Functioning of a Tower Infrastructure Company:

A tower infrastructure company provides passive

infrastructure on a sharing basis to telecom operators.

The role of a tower infrastructure company may be

summarized as follows:

Planning of site, keeping in mind the network

rollout plans of customers.

Site acquisition, keeping in view the long term

agreements with the owner of the land

Obtaining of necessary regulatory approvals.

Erecting the tower with the allied instrument.

Providing for the support services such as, air-

conditioning service, backup power and security.

Types of Towers

On the basis of their placement, telecom towers are broadly classified as (see Figure-1)

Industry Trend

1. Moving towards operational efficiency

Tower businesses are undergoing a fundamental

transformation, with time. For years, one dimension—

tenancy ratio—has governed the tower businesses.

But as mobile markets mature, the number of

operators a tower company has is no longer a

measure of success. Slowing subscriber growth,

operator consolidation, and active network sharing

are making it more difficult to add revenue-bearing

tenancies and are forcing tower companies to shift

their focus from just rolling out more sites to adopting

and incorporating pioneering models, fuel efficient

technologies, better asset utilization, state of art

towers, real time site monitoring, data analytics, and

green energy to achieve operational optimization.

GROUND BASED TOWERS MONOPOLES ROOF TOP TOWERS

LATTICE TOWER

GUYED TOWER

CONCEALED TOWERS DISTRIBUTED ANTENNA SYSTEM CELL ON WHEELS

Diagram -2: Types of towers

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2. Focus on Energy

Telecom tower companies generally pass through the

energy costs to the telecom operators and thus have

very limited interest to contain cost which leads to

inefficiencies on their part. No proper monitoring of

electricity consumption, fuel consumption results to

leaks, higher energy consumption, and higher vendor

costs. To tackle with these problems, few tower

companies have started using prepaid petrol cards to

limit the diesel used to the ‘should-be’ consumption

amount.

3. Green Towers

4. Collaborative Models

Normally, the large tower companies like Indus

Towers enter into separate Master Service

Agreements (MSAs) with its tenants (telecom

companies like Vodafone). The tower infrastructure

companies and telecom operators (tenants) come into

agreement wherein it is mentioned clearly about the

overall tower requirements of the tenants, the pricing

terms, and other binding conditions between the two

parties. Indian tower infrastructure companies have

started to collaborate with the telecom companies to

provide an overall solution to them. These tower

companies collaborate by either understanding the

special needs of the customers, or by attractive

pricing models, or by providing 24x7 customer

services, better quality management, or trust. Again,

the large tower companies in the tower infrastructure

industry generally do not manufacture these towers

but procure towers from mainly small manufacturing

tower companies which make the collaborative model

more viable economically and less risky.

The telecom towers use diesel generators to consume

energy which causes high amount of air pollution. As

per a report from Telecom Regulatory Authority of

India (TRAI) - Green Consultation published on 2011,

the telecom operators spends almost Rs 300 crores

every month to run diesel generators located at

remote areas. These generators along with grid

electricity consumed in urban areas to run the telecom

towers, emits a total of 13 million CO2 every year.

To solve this, the government’s green telecom policy

unveiled nearly five years ago entailed mobile carriers

to migrate 50% and 20% of their cell towers in rural

and urban areas, respectively, to hybrid power by

December 2015, and as much as 75% and 33% by

December 2020. Hybrid power is a mix of grid supplies

and renewable energy based on solar, wind, biomass

or fuel cells.

Indus Tower’s initiative

Green Sites project

helped it to convert

35000 towers,

approximately 30% of

Indus’s total towers to

‘Green’ by eradicating

the use of diesel to

power the sites

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Geographical distribution of major manufacturers

Ventura Electricals Hindustan Limited

Telecom Network Solutions Private

Limited

Goodluck India Limited

Pragati Electrocom Limited

Cell Com Teleservices Private Limited

Trident Structures Private Limited

VSP Enterprises Pvt. Ltd.

Satec Envir Engineering

India Pvt Ltd.

Goodluck India Limited

Vinfab Engineers India

Pvt. Ltd.

Astra Microwave Products

Limited

HBL Power Systems Limited

Satec Envir Engineering (India)

Private Limited

Gurpreet Galvanising Pvt Ltd.

Arvind Limited

PSL corrosion control

service limited

Parmar Metals Pvt.

Ltd

Delhi

NCR

Gujrat

Hyderabad Pune, Mumbai

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Industry exports

Note: Yearly average based on data from Jan 2014- Nov 2016

During the period Jan 14- Nov 16

A total of 0.2 million units (average yearly of telecom towers accounting for a total value of $4.4 millions (average yearly), is exported (average yearly) mainly to countries like Myanmar, Cote D Ivorie, Nepal.

A total of 37.1 billion units (average yearly) of optical fibres accounting for a total value of $428.3 millions (average yearly), is exported (average yearly) mainly to countries like United States, Germany, Poland.

India exports telecom towers mainly to

Myanmar, approximately 46% of the total

exports of telecom towers yearly, followed by

Cote D Ivories and Nepal.

Optical fibres is mainly exported to United States,

approximately 15% yearly, followed by countries

like Germany and Poland.

45.9%

14.4%

14.0%

6.4%

5.4%

3.7%10.2%

Figure-4: Telecom Tower: Export by Countries (%)

Myanmar

Cote D Ivorie

Nepal

Nigeria

Italy

Niger

Others

15.1%

11.0%

7.2%

6.6%

6.5%5.9%5.8%3.6%

3.4%

34.9%

Figure-5: Optical Fibre: Export by Countries (%) United States

Germany

Poland

Turkey

China

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Merger and Acquisitions India has high growth potential and

is growing at a rate higher than

other countries. Investors like

Brookfield and American Tower

Corporation, are investing mainly

because of the growth potential in

India

- Reliance Infratel sold its tower

portfolio to global alternative asset

manager Brookfield at an enterprise

value of Rs 21,500 crores

- American Tower Corporation

acquired Viom Networks f

Recent Developments

An Master Services Agreement (MSA) has been signed between

Reliance Jio Infocomm Limited (“Reliance Jio”), and GTL

Infrastructure Limited (“GTL Infra”) for infrastructure sharing.

GTL Infra, together with Chennai Network Infrastructure Limited

(CNIL), has a combined tower of more than 27,800 towers

spread across 22 telecom Circles in India, serving all the major

telecom operators. The situation was a win-win for both the

parties, since Reliance Jio’s mission is to launch a pan India next

generation voice and data service and GTL accelerated their

launce. And for GTL infra pairing up with Jio would act as a

growth driver.

The growth driver for the tower companies would be the

rise in the consumption of data services and the launch

of 4G networks. GTLInfra and Reliance Jio are all ready

and geared up to capture the opportunity. They hold a

good position in regions like North East and South which

would surely play an important role in the future.

Government Initiatives

Both TRAI and the Indian government are taking steps to clear

issues regulatory discrepancies and are making investments to

expand the telecom backhaul networks. Initiatives like National

Optical Fiber Network (NOFN), Universal Service Obligation Fund

(USOF), Digital India and smart cities, or providing with

‘infrastructure’ status to the tower companies would not only

increase the penetration of telecom infrastructure in the country

impacting day-to-day life of the consumers but also will lead to

higher and better growth opportunities for the SMEs.

Apart from these, the recent demonetization also saw a push in the

digital payments and the cashless transactions space giving a boost

to the smart phone industry as well as the adoption of internet

making the tower market riper to the entrepreneurs.

The Rs 20 Billion project- National Optical Fiber Network (NOFN) involving the overhaul installation in the rural and the farthest parts of India to provide better connectivity to 1 lakh Gram Panchayats to be able to provide e-services and e-applications like e-health, e-banking nationally.

Government has created a Universal Service Obligation Fund (USOF) to support the initiative of services in rural areas

India has high growth potential and is growing at a rate higher than other countries. Investors like Brookfield and American Tower Corporation, are investing mainly because of the growth potential in India - Reliance Infratel sold its tower portfolio

to global alternative asset manager Brookfield at an enterprise value of Rs 21,500 crores

- American Tower Corporation acquired Viom Networks for about Rs 21,000 crore

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Opportunities for SMEs:

Government initiatives have created many opportunities for the small and medium enterprises in this industry.

Increasing number of smart phones among

Indian masses. (see Figure-6)

Increasing competition among telecom

operators to gain market share

Huge potential to add the rural customers in

the active user base of telecom operators

With new initiatives from government like

the ‘Digital India’, smart city initiative, new

customer segments are expected to emerge

in the future with huge opportunities for the

telecom tower industry

Reduction in the custom duty of the inputs and raw materials to reduce costs, to incentivize domestic value addition

With the penetration of mobile and data services like 3G/4G, there is huge data growth and the tower

companies can take advantage of this situation by investing more on services like small cells, Wi-Fi sites to

maintain the growth curve. It has been estimated that, by 2020 a total of 44% of the traffic would be

offloaded to small cells and Wi-Fi, with small cells accounting for 7% of the off loaded traffic.

The government has also provided the tower companies with ‘infrastructure’ status, thus allowing them to

obtain higher overseas loans, avail depreciation benefits and pay less import duties. By providing with

infrastructure status, tower companies would also be eligible to easy bank financing, by way of softer

interest rates and longer loan tenures

The Rs 20 Billion project- National Optical Fiber Network (NOFN) is also expected to provide SMEs with huge opportunities in optical fibres segment.

The government has planned an investment of INR 70 billion to roll out free Wi-Fi service in 2500 cities across India. As a result various opportunities in optical fibres and wireless media segment will be generated for SMEs

Figure-6: Projected Smartphone penetration

and mobile data consumption for India

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Challenges for SMEs:

Consolidation of operators: The tenancy of the tower companies gets reduced with the consolidation of

operators, since the requirement for additional sites gets reduced. Thus, impacting the opportunities of the

SMEs in the tower infrastructure industry.

Infrastructure sharing and NetCo: Operators share network for minimizing cost, hampering the growth of

the tower companies

Traffic Offloading: Mobile operators use small cells, micro sites and Wi-Fi to extend network capacity. These

technologies render cost advantage making it economically feasible to provide rural coverage or to remote

and smaller communities. And due to large traffic volumes it is expected that with 4-5 years operators would

off load a large amount of traffic on the small cells and micro sites. Thus, reducing the macro site tenancy

growth of the SMEs.

Alternate Technologies: Entry of new market players like Google’s gigabit internet and technological

disruptions like MVNO’s using Wi-Fi hotspot poses a threat for the growth of the tenancy of the tower

companies thereby reducing the demand for tower sites. In future it would possess a threat for the SMEs in

the tower industry.

Emission of green house gasses: The telecom towers use diesel generators to consume energy which causes

high amount of air pollution and to tackle this problem government’s green telecom policy was unveiled

nearly five years ago entailed mobile carriers to migrate 50% and 20% of their cell towers in rural and urban

areas, respectively, to hybrid power by December 2015, and as much as 75% and 33% by December 2020.

This would increase the costs of the SMEs and reduce their profit margin.

Waste Disposal: The disposal of network equipment should be done properly in an environment friendly

manner so as not to channelize the toxic material used during the production of such materials. This requires

huge cost and experienced workers making it difficult for the tower companies to earn better profits.

Diagram-3: Challenges for SMEs

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The Way Forward

The tower infrastructure companies are shifting focus from just rolling out more sites to making processes and

systems lean and optimized by incorporating pioneering models, fuel efficient technologies, state-of-art towers,

real time site monitoring, data analytics, green energy technology and much more.

By the look of the report, the voice market in urban India is highly saturated and with the increase in the data

market the small and medium enterprises can sustain in the long run by either adopting newer technologies like

small cells, Wi-Fi hotspots or by exploring newer and cheap ways to fulfil the domestic demand in rural areas for

both voice and data. The SMEs could also look to export at the markets in South Asia or African countries. These

markets are now getting organized so can be looked at as a core market. The SMEs could also grow manifolds by

partnering with firms having R&D capabilities of their own, which can be achieved through various routes like FDI.

This might not be enough to feed the entire industry so other options will have to be looked into.

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Ff

About Sookshm

Aiming to Achieve Growth through

CREATIVITY & INNOVATION

We believe that there is always a better way to manage a business.

At SOOKSHM, we are reinventing the way Businesses

think, operate and grow.

Our vision is to be India’s leading advisory

in Business Consulting for Indian Business

Houses

We seek to develop systems to help Businesses

work more efficiently, thereby raise themselves

to World Class Business Institutions.

In the next 5 years, we wish to impact 1000

businesses, hand holding them in their

journey towards Business Excellence.

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