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Despite immense competition to increase the customer base, telecom majors-Vodafone Essar, Bharti Airtel, and Idea Cellular-have joined hands to form an independent tower company, Indus Towers, to provide passive infrastructure services to all operators in India on a non-discriminatory basis.

This joint initiative would reduce the need for individual mobile operators to invest funds in passive infrastructure, leading to the proficient use of resources. This will also present a stiff competition to the IP-1 (infrastructure provider-1) players, which have recently upped their ante.

As a result of the formation of Indus Towers, the IP-1 companies, which were waiting to tap the expansion plans of Idea Cellular and Vodafone Essar, will end up talking to companies like BSNL, MTNL, Spice, Aircel, etc to get fresh business. Tata Teleservices and Reliance Communications have their own tower ventures. And now, the IP-1 companies will have another competitor, Indus Tower, owned by the telecom biggies.

On the IP-1 front, there is a long list of companies of which majority are Indian. This includes GTL Infrastructure, Essar Telecom Infrastructure, QTIL, Tower Vision, American Tower, XCEL Telecom, TVSICS, Aster Infrastructure, Independent Mobile Infrastructure, and others.

Presently, there are over 1.1 lakh towers in the country. To meet the government's target of providing 500 mn telephones by 2010, nearly 3.3 lakh towers will be required in the next three years. Erecting one cell site involves an investment of about Rs 30 lakh. For setting up 2.2 lakh more towers in the next three years, Rs 66,000 crore will be required.

Today, infrastructure sharing is holding the glare of publicity. But, with this big deal of service providers, they come under a severe pressure. With their independent tower company, these three giant service providers would enable Indian telecom operators to reduce operating costs while providing customers with improved network quality and broader coverage, especially in rural areas.

As of October 2007, Bharti Airtel provides telecom services to 53 mn customers, of which over 50 mn are mobile customers. Bharti Airtel's unit, Bharti Infratel, is also involved in the independent tower joint venture. Idea covers approximately 60% of India's telecom population in eleven circles, with a customer base of over 20 mn.

Setting aside their spectrum war, the three companies will merge their existing passive infrastructure assets in sixteen telecom circles, where Indus will assume new passive infrastructure rollouts. Bharti Airtel and Vodafone Essar will own about 42% stake each in the new company while idea will own the remaining 16%.

Indus Towers will operate as an independently managed company, offering services to telecom operators, broadcasters and broadband service providers. It will carry out the new passive infrastructure rollout in the sixteen circles to push the mobile sector toward achieving India's teledensity and rural coverage goals within the next few years.

Indus Towers will have approximately 70,000 sites. And it will fund its expansion through debt and may sell shares to the public two years later.

The deal also marks the companies' commitment to take a firm step toward delivering on the TRAI's proposal on infrastructure sharing. TRAI had proposed infrastructure sharing in November last to address efficiency issues and ensure faster rollout of services. Despite the fact that tower sharing has not been very successful in most European and Asian countries, it is believed that it will do well here, because no other country has as many as twelve operators.

Alliances among top companies have assisted consumers to get the best quality services as these companies enjoy economies of scale and better bargaining power. Formation of Indus Towers may bring down the Capex and Opex of these major mobile companies and the result may be passed on to the consumer. This alliance, though, may disturb the business of IP-1 players for the time being.

Arpita Prem
arpitap@cybermedia.co.in