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Telcos share infrastructure to cut costs, spur growth

Telcos share infrastructure to cut costs, spur growth
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First Published: Wed, Apr 11 2007. 08 21 PM IST
Updated: Wed, Apr 11 2007. 08 21 PM IST
Mumbai: Indian telecom firms are spinning off their infrastructure business and sharing it with competitors to become leaner and cut costs as they move into rural areas, to spur the next phase of growth.
Market leaders Reliance Communications Ltd. and Bharti Airtel Ltd. have demerged their infrastructure units, while unlisted Tata Teleservices Ltd. plans to follow suit and Idea Cellular Ltd. is also considering such a move.
“When network operators started their mass roll-outs they realised infrastructure would be the most expensive part of their cost,” Prakash Ranjalkar, chief operating officer of GTL Infrastructure Ltd., said.
India, with 162.5 million wireless subscribers, is the fourth largest mobile market adding some six million subscribers a month. However, mobile penetration is only 15%.
De-merging the infrastructure business mean fewer assets on the balance sheet, which improves return on capital and reduces costs in terms of site acquisition and preparation, which make up around 20% of a network’s rollout costs.
“Bharti has got into hiving off the towers into a separate subsidiary to bring more focus into this part (infrastructure sharing) of the business,” a Bharti Airtel spokesman said.
Bharti now shares around 23% of its infrastructure.
While de-merging Reliance Communications’ infrastructure division, chairman Anil Ambani had said, “This is the first of a series of initiatives we will be taking to remain asset-light, leading to unlocking of further value for the benefit of our nearly 2 million shareholders.”
Macquarie Research Equities in a recent report said the move would lead to the emergence of standalone revenue models as these assets turn from pure cost centres to legitimate profit centres.
Passive infrastructure like towers, repeaters, shelters and generators makes up 60% of roll-out cost, Ranjalkar said. A new operator would need infrastructure at low cost and from that perspective sharing becomes more sensible, he added.
Macquarie said, “This is the beginning of a collaborative growth phase in Indian telecoms that would be a win-win situation for incumbents and new entrants expanding into new circles.”
A recent Angel Broking report said cost of setting up towers in rural areas was 30-40% higher than in urban areas as these had to be ground-based and more steel would be consumed.
Third-party infrastructure providers such as GTL, Essar Telecom Tower & Infrastructure and Srei Group’s Quipo are setting up and providing passive infrastructure to telecoms players.
Sharing reduces costs of operators up to 60% with the savings going up as more operators share a site, Ranjalkar said.
Rising interest rates, rising steel and real estate prices, and surge in wages raises costs for service providers, he added. The cost of setting up a tower and associated accessories ranges between 0.30-0.35 million rupees. The Cellular Operators Association of India has estimated India would require 300,000 towers in 2-3 years. At present there are 90,000 such towers.
Macquarie has estimated that infrastructure sharing would lead to savings of 1.5% of revenue.
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First Published: Wed, Apr 11 2007. 08 21 PM IST
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