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Infrastructure sharing was introduced by Tata Teleservices way back in FY 2003-04 when the company announced plans to use Bharti's long distance network and also other operator networks for its second phase expansion in the country. Presently, Tata Teleservices has the highest ratio of shared towers in the country. Presently, service providers also do some sharing with other operators, which is more on a bilateral basis.

The model got a further boost with the IT Ministry's MOST (Mobile Operators Shared Tower) project launched on July 5, 2006 by Dayanidhi Maran, minister for communications and IT, government of India. Till date MOST is still in single digits whereas it had a potential of around 1,800 towers in 3-4 years. Though the project was a failure it helped in establishing infrastructure sharing as a model in the country.

India is the third largest in terms of subscriber base and number one in terms of mobile growth. It has overtaken China in terms of subscriber acquisition and is adding around 6-7 mn lines every month. But we still have a long way to go, as vast geography is still not covered. Right now, we are present in more than 5,000 towns and cities and one lakh plus villages across the country. In terms of tele-density there is a wide gap-with metros at around 40 and rural areas at 2.5.

So a lot needs to be done for the rural population. Presently, 80% of the towers are located in urban areas, with rural India having around 20%. We are seeing a shift and it is expected that in couple of years it would be 60% in urban and 40% in rural areas-as 70% of the population resides there and a lot of coverage is yet to happen; unlike China where the majority lives in urban areas.

Indian market is also unique as it has the lowest call tariff in the world, lowest ARPU, and highest minutes of usage. It makes all the more sense to go for infrastructure sharing if plans are to connect 500 mn people by 2010. Service providers are exploring all possibilities of reducing cost and time to rollout services in rural areas. Creation of infrastructure like erecting towers, backhaul connectivity account for about 50-60% of cost and infrastructure sharing helps in reducing capex by around 25 to 40%. And in rural areas it is all the more important as the majority of towers are ground based and per tower costs are high.

The need of the hour is to rollout telecom services at an affordable price to ensure higher penetration of telecom services in rural areas. Hence, it is all the more important to share infrastructure. Infrastructure sharing helps in reducing capex, opex, and the time required to rollout services.

The Business Model
In the US, infrastructure sharing is an established industry and after twelve years of existence the average tenancy ratio is at around 2.5 plus. Just some statistics: in the US, 87% of towers are outsourced, with only 13% owned by operators. American Towers, the pioneer in this field, started in 1995 and presently has around 30,000 towers and has a marcap of around $19 bn whereas, on the other hand, Crown Castle with 15,000 towers has a marcap of $14 bn.

Infrastructure sharing has been there from the last one and a half to two years and is not a new concept. It has been used by operators to get rid of their non-core activities, so that they can focus on their core business. The only concern service providers have is that their EBITDA should not be hit and opex should go down. Not only does it help in reduction of capex as well as opex, it also helps in reducing management bandwidth for non-core activities as the operation is now taken up by IP-1 players. IP-1 players, for whom this is a core area, have to focus on doing all things right, right from RF planning, site acquisition, site preparation, soil survey, municipal clearances, pollution clearance, site construction, power connection, battery back up, air conditioning, shelter, cable tray, and others. And the company charges a monthly fee from the operator, which includes infrastructure usage and operations and maintenance charges on a monthly basis.

On the other hand, service providers are hiving off their towers into a separate subsidiary as they plan to unlock shareholder value and also focus on core competencies. It will take around 3-6 months to put the structure in place before the rollout begins. Hiving off also helps the subsidiary as they can start with a sizable number from day one.

One does not see a lot of competition between third party and service providers, subsidiary as companies have not built majority of towers on the sharing model. The shelter cannot accommodate more than two operators, tower loading also does not allow more than two operators. Some of the operators are not planning to share their towers as they plan to use it for 3G services as well as 2G. And so the built up is not large.

Arun Kapur, group CEO & executive director, Quipo Infrastructure Equipment said, "Service providers should unlock shareholders value by not bringing financial investors but strategic investors like IP-1 players who can take the asset, reinforce the asset, and offer sharing, providing win-win to both service providers as well as the IP-1 players."

According to a government directive, companies planning to hive off their tower business before March 31, 2007 can avail of tax benefits. There have been a lot of announcements in this regard, for eg those from Bharti and Reliance of forming a separate subsidiary called Bharti Infratel and Reliance Communications Infrastructure, respectively. The benefit is not only to operators but also the government as it helps in eliminating digital divide by through mobile, says Arun Kapur.

According to Ajay Madan, CEO, Essar Telecom Infrastructure, "Infrastructure sharing is based on the BOOL (build, own, operate and lease) model. So, we own the site, build the site, lease the site to operators on a sharing basis. And on a day-to-day basis operations and maintenance of all sites are undertaken."