How Do You Think 3 G Services Will Change India

After Sachin Tendulkar’s double century what is probably heard the most in India is 3G services. Department of telecom have planned to issue 3G licences in phased manner according to circles in which DoT has divided entire Indian telecom operations. What 3G is offering is basically high capacity data transmission and other value added services. With high competitive environment there is a tough race amongst all the telecom operators to get the licence to tap larger market share. With so much hoopla around 3G services more or less everyone is aware the potential benefit it will render to consumers at but in this article lets go a little behind the scene and find out how it will impact on telecom infrastructure which has gained altogether a separate industry status in past few years. Telecom infrastructure industry in India stands at nearly $28 billion. There are three main constituents of this industry Passive (steel tower), backhaul and active(BTS & microwave). Passive infrastructure being one of the most important components of a mobile network, the same has been a critical area of operations for telecom companies in the past. However, with increasing competition posing an urgent need for telecom companies to expand their coverage and sharpen their focus on core operations so that they can sustain and improve their market position, passive infrastructure has assumed the status of an independent industry during the past few years.

With the competition in Indian telecom industry set to intensify further for 3G services the key factor that would earn competitive advantage to the operators is faster rollout. Faster rollout necessitates the need for sharing of passive infrastructure. By sharing of passive infrastructure means that on a single tower more than one operator can install their active communication devices which was not the case earlier. This will change the entire working model of this industry. Not only will it bring down the operating expense of telecom operators but also at the same time will increase the revenue of ITICs(Independent Tower Infrastructure Company). According to ICRA’s estimate the improvement in a tower company’s profitability with increase in tower-sharing ratio to 49% (approx.). Analysis indicates that capital expenditure savings could reach US$4 billion if operators achieve double tenancy on deployed sites by 2010.Apart from faster rollout in race of providing affordable 3G service the only way Telecom Company could improve their ARPUs(average revenue per user) is to reduce their operating expense which is possible through tower sharing.

Initially larger telecom companies in order to focus on their core operation hived off their tower portfolios but with the increasing scope of tower sharing comes increase in revenue generation several large telecom companies are entering in to infrastructure business.

So in near future with the advent of new technologies like 3G not only will we see the change in the revenue generation model of tower infrastructure industry but also the telecom infrastructure industry will see the path of consolidation like formation of consortium of leading GSM players as Indus tower.

References:

Booz & Company report, ICRA’s report

Written By:

LEENA CHAND

MBA-IB

2009-11

IIFT Kolkata