Eyeing the Global Market

Comment

Digg

Del.icio.us

In the last two years, telecom infrastructure provider category-I (IP-I) players have witnessed phenomenal growth as a result of the boom experienced by the Indian telecom industry. The year 2008 saw the Indian telecom industry touch the much-anticipated figure of 250 mn subscribers and, today, the total cellular subscriber base stands at around 277 mn.

This telecom revolution makes enough room for telecom infrastructure players to expand their horizon, in both the domestic and global markets.

India is a growing market and is aiming to add close to 500 mn additional wireless users by 2012. This requires substantial investment in infrastructure by operators, a major portion of which will be diverted toward passive infrastructure and backhaul connectivity. But despite the growth opportunities in the domestic market, IP-I players are still looking at increasing their market share in the global segment.

Indonesia, Malaysia, Vietnam, Cambodia, Africa, and South-east Asia are some countries attracting Indian infrastructure providers. IP-I players like Xcel Telecom, Quippo Telecom Infrastructure, GTL Infrastructure, and Essar Telecom Infrastructure are putting in best efforts to strengthen their footprint in the global landscape.

The global markets have advantages like crucial growth, new and advanced technologies, learning and innovation, and bigger and more profitable markets are like cherries on the cake.

International markets also have a large talent pool that can support and enhance business efficiencies. The infrastructure business would become profitable only with scale and size because cost would get optimized. And global markets have healthier margins and better profit realization.

A Broader Horizon
Xcel Telecom is a relatively young company in the telecom infrastructure sharing business. Xcel's present focus is on working toward a leadership position in the Indian telecom infrastructure space.

According to Sandip Basu, CEO, Xcel Telecom, “We are acutely aware of global opportunities and are evaluating the possibilities of geographical diversification, especially in countries like Indonesia, Malaysia, Vietnam, and Cambodia, where the teledensity is low, mobile telephony growth rate is reasonably high, and multiple mobile operators are in business.”

Another player, Essar Telecom Infrastructure is evaluating options in Africa. Ajay Madan, CEO, Essar Telecom Infrastructure, says, “We are expanding globally and are looking for tie-ups for increasing the scale of operations. And our experience from India is the ideal model for us and is helping us tap the global market.”

Another significant player, Quippo Telecom Infrastructure is in a rapid expansion mode, both organic and inorganic. It is also planning to expand globally. According to Probal Ghosal, CEO, Quippo Telecom Infrastructure, “We definitely intend to build on our track records of success in the international scenario as well. Our strategic expansion plans include exploring new geographies and new economies. Also, we are already in discussion with telecom operators in SouthEast Asia.”

Apart from global expansion, these players are also trying their best to grab a major share in the Indian market. In the coming days, Xcel will be partnering with major operators like Aircel, BSNL, HFCL, TTML, TTSL, Spice, and Vodafone to enhance their business in the domestic market. The company is also targeting 25,000 towers in the coming three years.

Xcel has a vision of growing to a one-stop solution for all network infrastructure needs of telecom operators.

Essar is currently operational and has set up telecom tower sites in the circles of Mumbai, rest of Maharashtra, Madhya Pradesh, Rajasthan, Chennai, Tamil Nadu, Kerela, Karnataka, Andhra Pradesh, UP, Bihar, and Orissa. Further, it has plans to cover the rest of India in FY 2007-08. Essar Telecom Infrastructure has plans of installing 6,000 sites by the end of this fiscal and another 20,000 sites over the next three years. It also has long term agreements with multiple mobile and broadband service providers across India, and, with the help of a strong financial position, can undertake telecom projects abroad.

Ajay Madan, CEO, Essar Telecom Infrastructure says, “Telecom operators are our customers and we build for them. We provide them relief from capex, and all the hassles of building and maintaining passive infrastructure so that they can focus on customer-centric operations.”

GTL Infrastructure, as part of its huge rollout spree, is setting up a pan-India network of over 25,000 towers with a capital expenditure of over Rs 7,200 crore. The company is expecting robust expansion plans both domestically, and globally in the coming 2-3 years.

According to Prakash Ranjalkar, director and COO, GTL Infrastructure, “We are constantly looking at strategic tie-ups on the vendor side which will help decrease our cost and become competitive. This will include tie-ups to harness innovative ways to reduce energy consumption which is a major chunk of the opex today.”

With investment plans of $1.5 bn in the current fiscal, Quippo Telecom Infrastructure is planning to increase their portfolio from 4,500 to 10,000 towers and extend their services spectrum to many other states. It has recently acquired around 1,000 towers from Spice Telecommunications across Punjab and Karnataka.

Boosting Growth
One or a mix of factors like better margins, scale, and growth rate will drive expansions in the other markets. According to Ranjalkar of GTL Infrastructure, “Global expansion will be driven through a mix of organic growth strategy in known markets, and the M&A route on both known and unknown turf.”

Xcel Telecom is in the asset management business and in such businesses it is always better to diversify. It helps them to reap the benefits of growth in multiple markets while simultaneously reducing exposure to adverse local market fluctuations in individual markets. Moreover, the deceleration in sectoral growth may not be simultaneous in all markets and such geographical diversification expands the window of opportunity on a time scale.

Sandip Basu, CEO, Xcel Telecom says, “We also intend to leverage our expertise in this sector, faster roll-out capabilities, experienced team, and our learning curve by catering to infrastructure demand in new geographies.”

Some other significant factors that drive infrastructure business to go global include imperative growth, new technology, learning and innovation, new talents and markets, global brand building and awareness, enhanced efficiency, better profit realization, etc.

Roadblocks in India
Despite promising growth and tremendous rollouts, the telecom infrastructure industry faces a number of challenges that are still to be overcome. The key challenge besides rising prices are rollouts in the rural segment, where security and operations, and maintenance are quite challenging.


“We believe that business would become profitable only with scale and size, where cost could get optimized” Ajay Madan, CEO, Essar Telecom Infrastructure	“We are constantly looking at strategic tie-ups on the vendor side which will help decrease our cost and make us more competitive” Prakash Ranjalkar, COO, GTL Telecom Infrastructure

Managing the scorching pace of growth and yet capturing the emerging opportunities is the biggest challenge. Hence, developing a world-class customer centric organization, which is process driven and scalable. Absorption of technology velocity, and, most importantly, developing knowledge and skills are the key focus areas.

At the same time, continuous rise in tower prices coupled with lowering ARPUs is further putting pressure on telcos to optimize opex spending, and to rationalize capital deployments. This will, in turn, push them for increased infrastructure sharing and will translate into higher demand for infrastructure from dependent IP-1 companies.

Ranjalkar of GTL Infrastructure says, “Steel prices have gone up substantially over the past few months which are putting a lot of pressure in terms of cost. We are already exploring lighter but equally durable tower designs from various Indian and overseas manufacturers, which will help us cushion the price rise.”

Some other key challenges posed due to expansion are availability of concurrent teams in a circle for large rollouts due to ongoing deployments by players and infrastructure providers, statutory and non-statutory approvals from government and local bodies, availability of site components at the right time, and acquiring rooftop and land at the right cost.

Regulatory Issues
Like all evolving industries, infrastructure sharing will also get further boost. But for this the government should take some necessary measures such as:

Rationalizing the levies and taxes, electricity connection rates, etc in case of multi-tenancy
Single window clearance for all telecom infrastructure related statutory needs
Recognition of IP-1 service providers under the infrastructure industry
Stringent measures for limiting the number of towers

Ajay Madan, CEO, Essar Telecom Infrastructure adds, “Local and municipal clearances that are different in each state or sometimes even in different districts within a state, pose a real roadblock for fast rollouts. ”


“We are acutely aware of global opportunities and are evaluating the possibilities of geographical diversification especially in countries like Indonesia, Malaysia, Vietnam, and Cambodia” Sandip Basu, CEO, Xcel Telecom	“We definitely intend to build on our track record of success in the international scenario. Our strategic expansion plans definitely include exploring new geographies with new economies” Probal Ghosal, CEO, Quippo Telecom Infrastructure

Industry Outlook
The mobile telephony industry is India's showcase of growth, state-of-the-art technology, business model innovation, and significant value creation, all in barely a decade. The Indian telecom sector ranks as the fifth largest world over.

The Indian telecom industry is also one of the prime contributors to India's GDP. The once monopolistic market is today highly competitive, further necessitating the growth of the Indian telecom infrastructure. India's rapidly growing telecom market has cast its spell on global telecom infrastructure companies as well.

Ranjalkar says, “We are looking at connectivity as another core area of focus, which will act as a value add to the current tower infrastructure. The increase in traffic and the addition of new towns to networks will require the backhaul infrastructure to be strengthened and expanded. We believe that sharing of backhaul infrastructure will substantially reduce cost and help connect areas which are otherwise unviable to connect on a standalone basis.”

The tower industry will keep growing at the current pace of more than 80-100% for the next 2-3 years as the investment in infrastructure by current operators is bound to stay robust.

Arpita Prem
arpitap@cybermedia.co.in

Page(s) 1