2009 March Telecom Infra

8/14/2019 2009 March Telecom Infra

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TELECOM INFRASTRUCTURE INDUSTRY IN INDIA

Contact:

Anjan [email protected]+91-22-30470006

Vikas [email protected]+91-124-4545300

Nidhi [email protected]+91-124-4545337

Website:www.icra.in

1.0 India is among the fastest growing mobile markets in the world: India,the second largest mobile market in the world, is also among the fastest growingmobile markets globally. The total number of mobile subscribers in India (i.e., thesubscriber base)has increased from6.4 million inMarch 2002 toaround 350 millionin December 2008,at a compoundedannual growth rate(CAGR) of 81%,aided by asignificant increasein network coverage and acontinual decline intariffs and handsetprices.

Table 1: Mobile Subscribers as Percentage of Total Telephone Subscribers

India, a relatively late entrant into mobile services, has benefited from asignificant decline in mobile network costs during the last three to four years. Ascompared with a capital cost of US$50-90/subscriber to provide mobile service, itcosts as much as US$200-350/subscriber to provide fixed-line services. This andthe added benefit of mobility have led to stagnation in the total fixed linesubscriber base, which along with the significant growth in the mobile base hastranslated into India having one of the highest ratios globally of mobilesubscribers to total telecom subscribers.

Region Growth inMobile Base

CAGR

(2002-07)

Mobile Subscribers as % of Total Telephone Subscribers

(December 2007)

Africa 48.9% 89.3%

Americas 20.7% 69.7%

Asia 27.1% 70.0%

Europe 16.8% 72.9%

Oceania 11.7% 69.2%

India 78.2% 85.6%Source: International Telecommunication Union (ITU) Database

ICRARatingFeatu

re

March2009

ICRA Rating Feature

March 2009

Chart 1: Growth in Indian Mobile Subscriber Base

Source: Telecom Regulatory Authority of India (TRAI) Database

0.9 1.21.9 3.6

6.413.0

33.7

52.2

90.1

166.1

261.1

346.9

0

50

100

150

200

250

300

350

400

S u b s c r i b e r B a s e ( i n m i l l i o n )

http://www.icraindia.com/

http://www.icraindia.com/



Telecom Infrastructure Industry in India March 2009

ICRA Rating Services www.icra.in Page 2

2.0 Despite the growth, mobile penetration remains moderate: As on endSeptember 2008, India had a mobile penetrationof around 27%, which is relatively lower ascompared to other countries as depicted inChart 2.

Given the moderate penetration levels atpresent, mobile growth in India is expected tocontinue in the short to medium term albeit at alower level because of the larger base effect.

3.0 Growth expected to be led by B and C Class circles:The growth in the domestic telecom industry haslargely been concentrated in the Metros and Class A circles in the past decade, with coverage reaching around 90%and 35%, respectively. However, coverage in the Class B and Class C cities is still low at 15-25%.

Moreover, within these circles growth has largely been concentrated in the urban areas while penetration in the ruralareas remains lower. Thus future growth is likely to come largely from Class B and C circles and rural areas.Keeping this in view, larger players like Bharti Airtel Limited, Reliance Communications Limited, and BharatSanchar Nigam Limited (BSNL) are largely focusing on increasing their geographical coverage in Class B and Ccircles.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

North-East (C)

Assam (C

Bihar (C)

Jammu & Kashmir (C)

Orissa (C)

Himachal Pradesh (C

Uttar Pradesh (B)

Madhya Pradesh (B)Rajastan (B)

Haryana (B)

Punjab (B)

West Bengal (B)

Kerala (B)

Maharashtra (A)

Gujarat (A

Tamil Nadu (A)

Andhra Pradesh (A)

Karnataka (A)

Kolkata (Metro)

Chennai (Metro)

Mumbai (Metro)

Delhi (Metro)

37%16%

14%

22%19%

39%

20%20%

30%

35%48%

16%44%

28%37%37%

33%36%

70%

97%95%

99%

Mobile Penetration

C i r c l e ( C a t e g o r y )

Low penetration areas offer

higher growth potential

Source: TRAI Database, ICRA’s estimates

Note: Mobile penetration does not account for one person having more than one

connection

Chart 4: Circle-wise Population vs. Mobile Subscriber Base (Dec’08)

Source: Ministry of Statistics & Programme Implementation Database,

TRAI Database, ICRA’s estimates

Mobile Subscriber Base (Dec’08)

Chart 3: Circle-wise Mobile Penetration (Dec’08)

Chart 2: Mobile Penetration Levels: India vis-à-vis World

Source: Market Sources

Note: Mobile penetration data for US pertains to June 2008

0% 20% 40% 60% 80% 100% 120%

India

Pakistan

US

Japan

France

Malaysia

Spain

27.32%

55.90%

84%

85.60%

91.30%

93.90%

109.90%

Mobile Penetration







Chart 9: Competitive Matrix

Source: TRAI Database, ICRA’ s estimates

23 23 23 22

14

6

23

13

21

17

13

6

0

5

10

15

20

25

Sistema

Shyam

BPL/ Loop Unitech Da ta com Swa n

Telecom

Stel

N u m b e r o f C i r c l e s

Competitive Positioning - New Entrants

Licensed circles Start-up spectrum available

0

5

10

15

20

25

N u m b e r o f C i r c l e s

Licensed Circles (Dec'07 vis-à-vis Sep'08)

# of circles licensed (Dec'07) New circles licensed between Jan'08-Sep'08

GSM GSM & CDMA

GSM &

CDMA CDMA GSM GSM GSM CDMA CDMA GSM GSM GSM GSM GSM

85.7 61.3 5 0.4 3 1.8 60.9 3 8.0 16.1 0.4 0.4 1.9 0 0 0 0 346.9

LEGEND:

Licensed

No Licence NL

Category

22.4% 15.7% 9.8% 21.5% 19.2% 11.4% NL NL 12

16.0% 20.6% 13.0% 12.6% 24.6% 1.9% NL 11.4% NL 12

23.5% 15.6% 12.0% 4.9% 17.1% 26.9% NL NL 12

22.1% 23.8% 12.0% 14.1% 24.2% 3.8% NL NL NL 11

19.7% 1 3.1% 13.3% 14.6% 14.6% 24.7% NL NL 12

17.6% 14.0% 11.8% 5.8% 34.2% 16.6% NL NL 12

30.2% 1 8.1% 11.1% 10.9% 12.9% 16.7% NL NL 12

43.6% 16.0% 11.2% 6.2% 16.1% 6.9% NL NL 12

22.9% 13.4% 12.4% 2.9% 19.1% 29.3% NL NL 1213.7% 17.0% 19.5% 4.9% 18.7% 26.2% NL NL 12

27.4% 9.6% 18.2% 9.3% 15.1% 17.5% 2.9% NL N L 12

14.1% 1 4.6% 17.0% 14.1% 23.2% 17.0% NL NL 12

12.4% 1 7.5% 14.2% 11.4% 23.2% 21.4% NL NL 12

23.0% 16.9% 22.4% 5.9% 24.9% 7.0% NL NL 12

31.2% 11.7% 14.5% 12.0% 22.9% 5.8% NL 1.8% NL 12

23.0% 30.7% 15.7% 6.2% 0.5% 23.9% NL NL NL 11

23.0% 19.9% 13.0% 6.4% 30.5% 7.2% NL NL NL 11

30.5% 31.1% 25.7% 4.3% 0.3% 4.1% 3.9% NL NL 12

37.7% 29.8% 14.5% 8.4% 1.0% 1.5% 7.1% NL NL 12

34.9% 25.7% 18.7% 8.1% 2.4% 10.2% NL NL 12

25.0% 25.7% 17.5% 0.3% 1.3% 30.1% NL NL 12

28.3% 15.7% 23.1% 0.0% 1.6% 31.2% NL NL 12

48.6% 0.0% 31.6% 0.2% 0.0% 19.5% NL NL 12

Id ea / S pi ce A ircel HF CL

Sistema

Shyam Unitech

Swan

Telecom Stel Datacom

Pan-India Operators ---------------------------------------------------------------------------------- Regional Operators -------------------- ---------------------- ----------------------- ----------------- New Entrants

Bharti Airtel

Reliance

Communications

BSNL/

MTNL Tata Tele Vodaone Total

Circle-wise Market Share of Existing Wireless Operators (December 2008)

Bharti Airtel

Reliance

Communications

BSNL/

M TN L T at a T el e V od ao ne I de a/ Sp ic e

BPL/ Loop

Aircel HFCL

Sistema

Shy am B PL / L oop U ni te ch

Swan

Telecom Stel Datacom

Circle-wise expected

number of operators

Metros

Class 'A' Circles

Class 'B' Circles

Gujarat

Andhra Pradesh

Karnataka

Tamil Nadu

Existing base of operations

Subscriber Base (million) - Dec'08

Delhi

Mumbai

Chennai

Kolkata

Maharashtra

Punjab

Rajasthan

Class 'C' Circles

North East

Jammu & Kashmir

Assam

Circles

Madhya Pradesh (including Chhattisgarh)

West Bengal (including Andaman & Nicobar)

Himachal Pradesh

Bihar (including Jharkhand)

Orissa

Kerala

Haryana

Uttar Pradesh (W) (including Uttaranchal)

Uttar Pradesh (E)





7.0 Passive infrastructure sharing (tower-sharing) gaining signficance: Passive infrastructure being oneof the most important components of a mobile network, the same has been a critical area of operations fortelecom companies in the past. However, with increasing competition posing an urgent need for telecomcompanies to expand their coverage and sharpen their focus on core operations so that they can sustain andimprove their market position, passive infrastructure has assumed the status of an independent industry duringthe past few years.

Overall, sharing of infrastructure, passive as well as active, is beneficial for all parties involved as it bringsalong significant operational as well financial savings, thus enabling the companies to minimise duplication of efforts and costs and improve profitability.

Chart 10: Constituents of a Mobile Network

Mobile Networks

According to ICRA’s estimates, passive infrastructure accounts for 60-70% of the total cost of setting up awireless network.

Passive Infrastructureor

Non-Electronic

Infrastructure

Active Infrastructureor

Electronic Infrastructure

Backhaul

Key components include:- Steel tower/antenna

mounting structures- Base tower station shelter- Power supply- Battery bank - Invertors- Diesel generator (DG) set

for power backup- Air conditioner- Fire extinguisher- Security cabin, etc.

Key components include:- Spectrum (radio

frequency)- Base tower station- Microwave radio

equipment- Switches- Antennas- Transceivers for signal

processing andtransmission, etc.

The backhaul part of thenetwork consists of theintermediate links between thecore of the network and thevarious sub-networks





7.1 Functioning of a Tower InfrastructureCompany: A tower infrastructure company providespassive infrastructure on a sharing basis to telecomoperators.

The role of a tower infrastructure company may be

summarised as follows:

- Site planning, keeping in view the network rollout plans of prospective customers.

- Site acquisition, including entering intolong-term agreements with land owners.

- Obtaining of necessary regulatoryapprovals.

- Erection and commissioning of tower andallied equipment.

- Provision of support services such as back-up power, air-conditioning and security.

- Provision of turnkey solutions to telecomcompanies such as sourcing of equipment,testing and maintenance.

7.1.1 Types of Towers

Telecom towers are broadly classified on the basis of their placement as Ground-based and Roof-top.

(i) Ground-Based Tower: Erected on the ground, ground-based towers (GBTs) are taller (typically 200to 400 feet) and are mostly used in rural and semi-urban areas because of the easy availability of real-estate space there. GBTs involve a capital expenditure in the range of Rs. 2.4 to 2.8 million, dependingon the height of the tower.

(ii) Roof-Top Tower (RTT): Roof-top towers (RTTs), which are generally placed on the roofs of high-rise buildings, are shorter (than GBTs) and more common in urban and highly populated areas, wherethere is paucity of real-estate space. Typically, these involve a capital expenditure of Rs. 1.5 to 2million.

It is the height of a telecom tower that determines the number of antennas that can be accommodated, which inturn determines the capacity of the towers, apart from factors such as location and geographical conditions(wind speeds, type of terrain, etc.). Hence, typically, while GBTs can accommodate up to six tenants, RTTs canaccommodate two to three tenants.

7.1.2 Master Service Agreements

A tower infrastructure company normally enters into separate Master Service Agreements (MSAs) with itsoccupants/tenants. MSAs are signed between tower infrastructure companies and telecom operators (tenants),and clearly spell out the overall tower requirements of the tenants, the pricing terms, and other binding termsand conditions between the two parties.

Figure 1: Telecom Tower Structure with Key Components

Antennas

MicrowaveFeeders

ShelterRoom

DG Set

Steel

Tower





Broadly, an MSA specifies the following terms and conditions:

Table 2: Key Terms under MSAs between Tower Infrastructure Companies and Telecom Operators

Rental Rentals are specified, depending on factors such as:- Type of tower (GBT or RTT): Tower rentals are normally higher for GBTs as

compared with RTTs. In some cases, the rentals may also be computed as a percentage

of the capital invested.- Location: In the case of strategically located sites (congested areas, city centre,

highways) and in hilly terrains, tower infrastructure companies may charge a premiumover the standard rentals.

- Level of sharing on towers: As sharing increases, tower infrastructure companiesusually pass on a percentage of the cost saving to their tenants. At present, discountsrange from 10 to 20% for twin sharing and from 20 to 30% for triple sharing.

- Tenure: Tower infrastructure companies usually offer more attractive terms for longertenure MSAs as they lower occupancy risks for them.

- Number of sites: Tower infrastructure companies may also offer discounts on standardrentals, which may range from 2 to 5%, depending on the number of sites to be rolledout in accordance with the MSA. So, a larger number of sites may mean higherdiscounts for the telecom operator.

Tenure The tenures of MSAs generally range between 10 and 25 years. The rentals stated in the MSAsare generally applicable over the tenure of the contract, with provisions of periodic revision(mostly annual).

Tenancy Generally, each active electronic module is considered a separate tenant. For instance, if a playerhas entered into an agreement with a tower company for its GSM services and thereafter wants toinstall additional equipment for alternative services (Third Generation (3G), Wi-max, CDMA,etc.), the same would be treated as additional tenant(s) for the purpose of the agreement.

Statutory Clearances/ Approvals

MSAs clearly specify the list of approvals and clearances to be taken by the tower companies.Generally, all the approvals pertaining to passive infrastructure are obtained by the towerinfrastructure company. However, any approvals pertaining to active components are largelyobtained by the telecom operators.

Operating Expenses Fixed Charges Expenses such as security and maintenance are usuallyborne by the tower infrastructure companies.

Space/Ground Rental Space/ground rentals are usually borne by the tower

infrastructure company. Any excess over a pre-specifiedlevel is generally shared with the tenants.

Variable Costs like Fuel and EnergyCharges

Such costs are charged from tenants on the basis of theiractual consumption.

Increase in Variable Costs Most MSAs also provide for pass-on of any escalations invariable costs to the tenants.

Lock-in-Period Most MSAs specify a lock-in period. Moreover, in the case of termination of contract by thetelecom operator during the lock-in period, there is generally a provision of penalty on the tenant.

Penalty Clauses Rollout: Usually MSAs provide for penalties for delay in the deployment of towers beyond thedate specified in the agreed rollout plan.

Service Level: Most MSAs specify the services levels with respect to power availability, uptimefor regular and strategic sites, and other operations and maintenance parameters, and also the

penalties on tower infrastructure companies in the case of failure to achieve the same.

8.0 Industry Structure: At present, there are broadly two kinds of operators in the domestic towerinfrastructure industry: Tower infrastructure subsidiaries, which are the spun-off tower divisions of the telecom-operator

companies; and Independent tower infrastructure companies (ITICs)

8.1 Tower Infrastructure Subsidiaries: In India, Bharti Airtel Limited, Reliance CommunicationsLimited, and Tata Teleservices Limited have hived off their tower assets into separate tower infrastructuresubsidiaries, namely Bharti Infratel Limited, Reliance Infratel Limited, and Wireless TT InfoservicesLimited, respectively. Also Bharti Infratel Limited together with Vodafone Essar Limited and Idea CellularLimited in a joint-venture agreement has created India’s largest tower infrastructure company – Indus

Towers Limited, which has an estimated portfolio of around 85,000 towers.





Table 3: Tower Portfolios of Operator-Promoted Tower Infrastructure Companies/ Telecom Operators

Company Name Background Tower Portfolio

Reliance InfratelLimited

Reliance Communications Limited’s subsidiary ~ 44,000

Bharti Infratel Limited Bharti Airtel Limited’s subsidiary ~ 27,000

Indus Towers Limited Joint venture of Bharti Infratel Limited, Vodafone Essar Limited,

and Idea Cellular Limited

~ 85,000

Wireless TT InfoServices Limited(WTTIL) + Quippo

Tata Teleservices Limited’s subsidiary WTTIL merged withQuippo Telecom Infrastructure

~18,000

Others BSNL, Mahanagar Telephone Nigam limited (MTNL), SistemaShyam TeleServices, Aircel etc.

~ 70,000

Source: Market sources, ICRA’s estimates

Hiving off of tower divisions into separate companies is strategically beneficial for telecom operators as itleads to significant unlocking of value while simultaneously improving operational and capital efficiencies.The parent telecom company benefits from reduced incremental capital requirements, lower operating costs,and a favourable capital structure, while the tower infrastructure subsidiaries gain an advantage in terms of an assured occupancy from their parent, which in turn may serve to attract other tenants.

8.2 Independent Tower Infrastructure Companies: Over the past few years, a number of ITICs haveventured into the domestic telecom tower industry. These include, among others, GTL InfrastructureLimited, Quippo Telecom Infrastructure Limited1, Essar Telecom Infrastructure Limited, Xcel TelecomPrivate Limited, Tower Vision India Private Limited, Aster Infrastructure Private Limited and TVSInterconnect Systems Limited.

Table 4: Illustrative List of Some Third Party Tower Companies in India

Company Name Existing Tower Portfolio

GTL Infrastructure ~9,500 towers

Xcel Telecom ~1,500 towers

Essar Telecom Infrastructure ~4,000 towers

Aster Infrastructure ~1,000 towers

Others ~2000

Source: Market sources, ICRA’s estimates

These companies have their business model based largely on the following two approaches: Contract Approach Anticipatory Approach

Under the contract approach, tower companies set up tower sites going by the requirements of thetelecom operators, and the terms of the contract are specified beforehand in the MSAs signed by the twoparties. Under the anticipatory approach however, tower companies set up tower infrastructure at siteswith reasonable demand potential and subsequently invite telecom operators to set up their network onthese towers. The latter model involves higher business risks as the tower company may not be able toachieve reasonable tenancy for its tower infrastructure and at profitable terms.

8.3 ITICs versus Tower Companies: ITICs, especially those following the anticipatory approach, areusually at a disadvantage as compared with tower subsidiaries as ITICs do not have assured occupancy ontheir tower portfolios. Moreover, as most large telecom companies in the country have their own towersubsidiaries, the market for ITICs consists largely of regional operators and new entrants, in whose casecredit quality can also be a concern. Nevertheless, in certain cases, ITICs are in a better position to addressthe needs of growing telecom operators who have recently received licences and spectrum to launchoperations in new circles because of flexible rollout plans that are more suited to new entrants. Moreover,ITICs differentiate themselves by offering flexible payment terms to mobile operators (for instance, back-ended payment structure), which enables the mobile operators to reduce their costs in the initial years.

1 Now merged with WTTIL, tower subsidiary of Tata Teleservices Limited







According to ICRA’s estimates, thetelecom infrastructure business generatesstrong financial metrics once the averageoccupancy ratio (indicating averagenumber of tenants per tower) crosses 1.7times. Assuming an initial capital

expenditure of Rs. 2.6 million and a life of 15 years, the manner in which the IRRmoves at various occupancy levels isdepicted in Chart 11.

9.1 Factors driving growth for passive infrastructure sharing: Apart from favourable industryprospects, there are several other factors too that drive increase in tower sharing, as discussed in the followingbullet list.

Viability of business at low ARPUs: At present, incremental growth in the subscriber base is comingmainly from rural/semi-urbanareas (also in these areas, theincremental ARPUs are relativelylower). Further, network designand planning in rural areas isdifferent from that in urban areas,given that the population in ruralareas is widely dispersed, whichincreases the tower requirementsto cover the same number of subscribers (vis-à-vis urbanareas). But as Chart 12 shows,

even at low ARPUs, businessviability can increasesignificantly on the strength of infrastructure sharing (pleaserefer Chart 7 also).

High usage and limited spectrum availability: India has one of the highest MoUs in the world, whichincreases the number of base tower stations (BTS) required to handle the same subscriber base. Thuswhile on an average, a GSM BTS can handle around 1,100 subscribers, in the case of high usage areasthe figure can be as low as 600-700 subscribers, which means a larger number of cell sites would berequired for the same area. Moreover, the country has the problem of spectrum scarcity, whichincreases the requirement of towers to maintain a reasonable level of service quality.

Quality of service: In the past, domestic telecom operators competed largely on the pricing plank.However, as mobile tariffs in India are currently one of the lowest in the world, the scope for furthertariff reduction is low. Given this fact, going forward, quality of service (QoS) would become theprime distinguishing factor among the competing companies. Moreover, a rapidly increasing subscriberbase and spectrum crunch would further add to the problem of telecom operators having to maintainthe minimum level of QoS. Besides, with the likely introduction of mobile number portability, QoSwill become more important as customers will then have a broader range of options available withlimited switching costs. Thus to retain existing subscribers by preventing subscriber churn, operatorswill require additional infrastructure in their existing areas of operation to be able to offer better QoS.

Enhancement of profitability: Tower sharing helps operators lower their operating costs and capitalexpenditure and thereby earn better margins and higher Return on Capital Employed (RoCE); theoverall impact on Profit and Loss is also positive. Analysis suggests that there would be net annual cost

savings for mobile operators if they opt to lease towers from a tower company rather than own them.

Chart 12: Impact of Declining ARPUs on IRRs at Different EBITDA MarginLevels in an Infrastructure Sharing Scenario

Source: ICRA’s estimates

-10%

0%

10%

20%

30%

40%

50%

200 175 150 125 100 75

I n t e r n a l R a t e o f R e t u r n

ARPUs (Rs. Per month)

IRR a t 25% ma rgin IRR a t 30% ma rgin IRR a t 40% ma rgin

Chart 11: Impact of Increasing Occupancy on IRRs

Source: ICRA’s estimates

0.3%

5.3%

9.6%

12.2%

15.5%

18.7%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

1 1.2 1.4 1.6 1.8 2

Tenancy/ Occupancy Ratio

I n t e r n a l R a

t e o f R e t u r n ( I R R





Table 6: Incremental Costs in Owning vs. Leasing a Tower

Amounts in Rs. Owned Leased Difference

Operating Expenses 543,000 312,000 231,000

Tower Rentals 0 408,000 -408,000

Depreciation 173,333 0 173,333

Cost of Capital 312,000 0 312,000Overall Saving 308,333

Source: ICRA’ s estimates

Note: Calculations assume a tower cost of Rs. 2.6 million, life of

asset of 15 years and 12% cost of capital. The operating expenses

are indicative.

Entry of new players and expansion plans of existing operators: Recently, several regionaloperators such as Vodafone Essar Limited, Idea Cellular Limited, Aircel Cellular Limited and ShyamTelelink Limited (now Sistema Shyam Teleservices Limited) have received licences as well spectrumin new circles, which would enable them to become pan-India operators in the next one-two years.Also, new licences have been issued to players such as Unitech, Swan Telecom, and S Tel Limited.Given the significant expansion plans of new entrants over the medium term and the need for them tooptimise investments in order to maintain returns, demand for towers is expected to report a sharpincrease.

Shorter rollout time, a key necessity: As the domestic telecom industry is highly competitive, doingbusiness may not be easy for the new entrants. Moreover, given that the incumbents already have thecompetitive advantages of widespread distribution networks, established brand names and strongsubscriber base, shorter network-rollout time would be a critical success factor for the new entrants; alonger rollout time could mean loss of substantial market share to other operators. Tower companiesallow players to start operations in a particular region just by installing their electronics on the ready-to-use towers, thereby significantly shortening the rollout time.

New technologies to further stimulate demand: 3G services are expected to be launched in thecountry in 2009-10. Moreover, in order to augment their services, various operators plan to launch Wi-Max services as soon as they receive additional spectrum from Government. This would furtherincrease the demand for sharing of passive infrastructure.

10.0 Industry on the path of consolidation: Within the span of the last one to two years, with severalplayers spinning off their tower portfolios and independent operators expanding their operations, competitionhas intensified significantly in the domestictower infrastructure industry. The marketshares of the various players are depicted inChart 13.

With leading GSM players forming aconsortium (Indus Towers) and other largerplayers such as Tata Teleservices andReliance Communications entering into long-term agreements for passive infrastructuresharing mostly with their tower subsidiaries,the new and smaller third-party infrastructureproviders are likely to get most of theirbusiness from smaller players and newentrants, as the following table shows.

Table 7: Telecom operators and their potential passive infrastructure suppliers

Incumbent Operators Subscriber Base

(million) Dec'08

Main Suppliers of Incremental Passive Infrastructure

Bharti Airtel 85.65 Bharti Infratel - for 7 circles;Indus Towers - for 16 circles

Reliance Communications 61.35 Reliance Infratel - for all circlesVodafone Essar 60.93 Indus Towers

BSNL 46.23 MTNL, own tower portfolio and other tower companies

Chart 13: Market Share Distribution – Tower Infrastructure Industry

Source: Industry sources, ICRA’s estimates

Reliance Infra tel

16.8%

Bharti Infratel

10.3%

Indus Towers

32.4%

WTTIL +

Quippo

6.9%

GTL

Infrastructure

3.6%

Xcel Telecom

0.6%

Essar Telecom

Infrastructure

1.5%

Aster

Infrastructure

0.4%

Others

27.5%





Incumbent Operators Subscriber Base(million) Dec'08

Main Suppliers of Incremental Passive Infrastructure

Idea Cellular/ Spice 38.01 Indus Towers

Tata Teleservices 31.76 WTTIL

Aircel Cellular 16.08 Own and other tower companies

MTNL 4.19 BSNL, own tower portfolio and other tower companies

BPL Mobile Communications 1.95 Own and other tower companies

HFCL Infotel 0.38 Own and other tower companies

Sistema Shyam TeleServices 0.37 Own and other tower companies

Overall, the domestic telecom infrastructure industry is expected to see consolidation in the near future given therapidly increasing number of independent tower infrastructure companies and following the entry of severallarge telecom companies in the infrastructure business.

Summary: ICRA is of the view that demand for passive telecom infrastructure in India would continue to growat a healthy rate, at least over the medium term, and that this increased demand would be accompanied bygreater sharing of infrastructure by the existing as well as new telecom players. The need for such sharing, in

ICRA’s view, would be dictated by the imperative of remaining profitable in an increasingly competitivemarket.





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Documents

2009 March Telecom Infra