Passive telecom infrastructure?chiefly, towers?has taken an altogether different role in the last one-and-a-half years. Telecom companies, which rushed to set up towers to cope with the explosion in the number of subscribers, have now realised that it?s better to share the infrastructure. For large players who have a pan-India footprint, it means a new source of revenue, while for those expanding nationwide, it means lower capex and opex, as well as faster rollout of services.

Anil Ambani?s Reliance Communications, which is the country?s second largest mobile telecom company, became the first to demerge its tower operations, christening it Reliance Telecom Infrastructure Ltd (RTIL). Bharti Airtel, Tata Teleservices and Idea Cellular followed suit.

Industry regulator Telecom Regulatory Authority of India (Trai) also supported infrastructure sharing. ?Mobile operators will require a large number of towers to sustain this growth pattern, which will need huge expenditure and time to roll out services. It is likely to further deteriorate the skyline by erecting more towers. Passive infrastructure sharing will help reduce the growth of towers,? Trai observed.

Infrastructure sharing may be new to India, but it?s a standard practice, globally. Though tower sharing has not been very successful in most European and Asian countries, experts believe India will do a US, because no other country in the world has 12 operators. Currently, there are 1.1 lakh towers in the country. To meet the government?s target of providing 500 million telephones by 2010, nearly 3.3 lakh towers will be required in the next three years. Moreover, 3G will also require denser coverage.

According to TV Ramachandran, director-general, Cellular Operators? Association of India, erecting one cell site costs about Rs 30 lakh. ?To set up 2.2 lakh more towers in the next three years, an investment of Rs 66,000 crore will be required,? he said, adding that hiving off tower infrastructure is an Indian innovation.

While telecom companies are hiving off their tower infrastructure to cut capex and opex in the wake of declining average revenues per user, third-party companies like GTL Infrastructure, Quipo, and Essar Telecom are setting up independent tower companies. Analysts predict tower sharing can reduce cost of ownership by 16-23%. Kotak values the telecom tower business opportunity in India at around $23 billion.

According to a report by HDFC Securities, tower sharing will help Bharti increase Ebitda margins by 50-150 basis points. It expects an additional revenue potential of Rs 4 billion in the FY08 for Bharti. Capex savings will be approximately Rs 170 billion but will depend on the tenancy ratio, configuration of the base transceiver station, height of the tower, and size and type of the power plant.

Bharti expects to demerge its tower operations into Bharti Infratel by October. The company, which has 45,000 towers, plans to build 65,000 by the end of the fiscal. ?Roughly $1 billion of the planned $3.5 billion capital expenditure next fiscal will go towards our towers and infrastructure unit Bharti Infratel Ltd,? Bharti Airtel joint managing director Akhil Gupta said after the company?s Q1 results.

RComm, which recently sold 5% stake in RTIL to a group of international investors at an equity value of Rs 27,000 crore, plans to add another 23,000 towers, taking the total to 37,000 by the end of the fiscal. The towers will initially have a capacity to have four tenants, with a provision to increase capacity further. While Bharti is also thinking about selling a stake in its tower business, Anil Ambani is planning to list RTIL ?in the near future?.

Idea Cellular?s board gave the go ahead to the formation of a wholly-owned subsidiary for the tower business and other passive infrastructure last week, whereas Tata Teleservices is also going to follow in the footsteps of its peers. According to SC Khanna, secretary-general, Association of Unified Telecom Service Providers of India, infrastructure sharing will be a boon as technically six operators, whether GSM or CDMA, can share one tower.

Currently, service providers share infrastructure at their own initiative. About a quarter of the tower sites are shared, mainly in rural areas and small towns. In order to facilitate deeper penetration in remote areas, the department of telecom has decided to provide subsidy support to encourage infrastructure sharing in rural areas.