Over the last few weeks we have seen announcements from both Reliance Jio as well as Vodafone Idea, about their actions or plans related to divesting their stake in their Fibre and Tower subsidiaries. Telecom Towers and Fibre Optic cables form the crucial backbone of Wireless telecom services. Then why are two of India's Top-3 operators in a hurry to reduce or divest their stake in their telecom infrastructure subsidiaries?
Each of the Top-3 wireless operators in India; i.e. Vodafone Idea, Bharti Airtel and Reliance Jio; have their network equipment working on nearly 2 lakh telecom towers across the country, which helps them to cover over 90% of the population of India with their 2G or 3G or 4G services. While Reliance Jio is a 4G-only operator, Bharti Airtel and Vodafone Idea are still offering 2G services with a population coverage of almost 95%. It is mainly being used to serve the people who are yet to upgrade to smart phones and mainly use their phones for voice calling service. 2G service is being used by many Smart phone users as well, where their primary sim is on 4G network, but their secondary sim has to be on 2G network. The secondary sim doesn't generate much revenues and is mainly used for incoming calls. And now we can see newer smart phones being launched with the ability to have both sim cards latched on to 4G networks.
Hence the days of 2G networks existence are now numbered. The 3G network will die even faster. Vodafone Idea and Bharti Airtel were having a 3G network mainly in areas of higher population density and was mainly used for Wireless Data services, before the advent of 4G networks. Now both the operators are focused on expanding their 4G networks, starting with areas of higher population density and busy highways, and then moving to lower density regions. While doing so, they are even re-farming their 2100 MHz spectrum (which was used for 3G service) for use with their 4G network in order to increase their 4G Data handling capacity. It goes without saying that the 4G network is lot more efficient than 3G or 2G networks and can now carry both Data as well as Voice traffic.
Since the traffic on 2G networks is also decreasing with every passing day, these operators are reducing the spectrum allocated for 2G networks (mainly 900 Mhz and 1800 Mhz bands) and re-farming major portions for use with their 4G networks. While Reliance Jio has already achieved a population coverage of nearly 90% with their 4G-only network, both Bharti Airtel and Vodafone-Idea are currently at about 65 to 70% with their respective 4G networks. As and when they approach 90% population coverage with 4G networks, these operators will start shutting down their 2G & 3G networks at a much faster pace, forcing their customers to upgrade their phones to receive better service.
Each of the three operators offering 4G service, are seeing an average monthly Data consumption of nearly 10 GB or more per customer. With nearly 450 to 500 million people already enjoying 4G services, there is humongous amount of Data traffic being carried by these operators. This is where the role of the Fibre Optic cables comes into play. While Reliance Jio has a higher proportion of their telecom towers connected with Fibre optic cables, it has a capacity advantage. Reliance Jio network design was planned to handle such huge amounts of Data traffic, right from Day-1. On the other hand, Bharti Airtel and Vodafone-Idea were relying more on Wireless micro-links for communication between different towers in a region and only a select few 'Node' towers were connected with fibre optic cables. They are now being forced to increase the fibre connectivity to higher proportion of their towers in order to be able to handle the hugely increased data traffic.
With the Towers and the Fibre infrastructure playing such an important role in the functioning of a wireless data network, Why are these operators in a hurry to reduce or divest their stakes in those subsidiaries?
And the reason is Monetisation. Reliance Jio has built nearly 1.5 lakh towers of it's own. On all these towers currently only Reliance Jio equipment is fixed. Most of these towers are said to have the capacity of have equipment of more than 1 operator. By having another operator putting up their equipment on a tower, Reliance Jio's tower company can start earning rental income, without any significant increase in operating costs. Whichever operator becomes a tenant on Reliance Jio's towers, would also be interested in sharing the Fibre optic cable that most of these towers are connected with. This way Reliance Jio's Fibre company will start earning lease income by leasing a portion of it's cables capacity. With progress in technology, Fibre optic cables have seen huge increase in their capacities and it's not too expensive to increase the capacities of older cables, that were laid a few years ago.
Bharti Airtel, Vodafone India and Idea Cellular had collaborated to form a company called Indus Towers, which has been India's largest tower company for many years now. Now Reliance Jio's tower company will give it a tough fight, in a number of towers department. Bharti Airtel has it's tower company too, i.e. Bharti Infratel, which also is amongst the larger tower companies in India. Indus Towers is an unlisted company with 42% ownership each with Bharti Infratel and Vodafone India and the remaining 16% with Idea Cellular. Indus Towers is now merging with the listed Bharti Infratel to regain the No.1 position in terms of number of towers. Idea Cellular's shareholding in Indus Towers is now a part of Vodafone-Idea JV. It's highly likely that Vodafone-Idea will encash their stake in the merged Bharti Infratel, as the merger concludes.
In the Fibre front, both Vodafone and Idea Cellular had their own respective Fibre optic cables laid across nearly a lakh kilometres each. After the merger, it is likely that they have several overlapping routes. Just last week, Vodafone-Idea have received the approval from NCLT to separate their Fibre optic cables capacity into a separate subsidiary. This is most likely in preparation to divest a part of their stake in it and then let it operate as an independent company, which can lease it's surplus capacity to other operators.
Monetisation and all is fine as of now. But the question in mind is that, since the Data volumes are increasing at a rapid pace, they will be using an increased portion of their Fibre optic capacity with every passing month. So whatever is said to be Surplus capacity today, might not remain Surplus maybe say 12 or 24 months from now. That time they might have to lease capacity from someone else. Or else build new capacities. Sometimes I think that these operators lack long-term foresight. A few years back, they did nothing when Reliance Jio was building a brand new 4G-only network with huge capacities for Data consumption. Airtel, Vodafone & Idea clearly were over-confident on their 2G & 3G services and thought that their customers are more than happy with the services they were offering. Reliance Jio spent about 3 good years building it's fibres, towers & network and with it's big bang launch, it completely changed the way people consumed Data and also the financial metrics of the entire industry.
Hence the days of 2G networks existence are now numbered. The 3G network will die even faster. Vodafone Idea and Bharti Airtel were having a 3G network mainly in areas of higher population density and was mainly used for Wireless Data services, before the advent of 4G networks. Now both the operators are focused on expanding their 4G networks, starting with areas of higher population density and busy highways, and then moving to lower density regions. While doing so, they are even re-farming their 2100 MHz spectrum (which was used for 3G service) for use with their 4G network in order to increase their 4G Data handling capacity. It goes without saying that the 4G network is lot more efficient than 3G or 2G networks and can now carry both Data as well as Voice traffic.
Each of the three operators offering 4G service, are seeing an average monthly Data consumption of nearly 10 GB or more per customer. With nearly 450 to 500 million people already enjoying 4G services, there is humongous amount of Data traffic being carried by these operators. This is where the role of the Fibre Optic cables comes into play. While Reliance Jio has a higher proportion of their telecom towers connected with Fibre optic cables, it has a capacity advantage. Reliance Jio network design was planned to handle such huge amounts of Data traffic, right from Day-1. On the other hand, Bharti Airtel and Vodafone-Idea were relying more on Wireless micro-links for communication between different towers in a region and only a select few 'Node' towers were connected with fibre optic cables. They are now being forced to increase the fibre connectivity to higher proportion of their towers in order to be able to handle the hugely increased data traffic.
With the Towers and the Fibre infrastructure playing such an important role in the functioning of a wireless data network, Why are these operators in a hurry to reduce or divest their stakes in those subsidiaries?
Bharti Airtel, Vodafone India and Idea Cellular had collaborated to form a company called Indus Towers, which has been India's largest tower company for many years now. Now Reliance Jio's tower company will give it a tough fight, in a number of towers department. Bharti Airtel has it's tower company too, i.e. Bharti Infratel, which also is amongst the larger tower companies in India. Indus Towers is an unlisted company with 42% ownership each with Bharti Infratel and Vodafone India and the remaining 16% with Idea Cellular. Indus Towers is now merging with the listed Bharti Infratel to regain the No.1 position in terms of number of towers. Idea Cellular's shareholding in Indus Towers is now a part of Vodafone-Idea JV. It's highly likely that Vodafone-Idea will encash their stake in the merged Bharti Infratel, as the merger concludes.
Monetisation and all is fine as of now. But the question in mind is that, since the Data volumes are increasing at a rapid pace, they will be using an increased portion of their Fibre optic capacity with every passing month. So whatever is said to be Surplus capacity today, might not remain Surplus maybe say 12 or 24 months from now. That time they might have to lease capacity from someone else. Or else build new capacities. Sometimes I think that these operators lack long-term foresight. A few years back, they did nothing when Reliance Jio was building a brand new 4G-only network with huge capacities for Data consumption. Airtel, Vodafone & Idea clearly were over-confident on their 2G & 3G services and thought that their customers are more than happy with the services they were offering. Reliance Jio spent about 3 good years building it's fibres, towers & network and with it's big bang launch, it completely changed the way people consumed Data and also the financial metrics of the entire industry.
