Sharing Mobile Network Infrastructure in India
The Department of Telecommunications (DoT) of the government of India sought the recommendations of the Telecommunications Regulatory Authority of India (TRAI) on setting legislation, and for modifying licence agreements, to enable mobile operators to share passive infrastructure, such as towers and related facilities as shown in the diagram below. The changes were being sought specifically to assist with expansion of mobile services into the remaining 60 percent of India’s geographical area where the commercial viability of competitive and separate mobile infrastructures was in doubt.
Source: Recommendations on Infrastructure Sharing, TRAI, April 2007
TRAI subsequently issued a consultation paper in November 2006 and sought the comments of stakeholders on a wide variety of issues related to the proposition. Summaries of the responses were placed on the TRAI website. This was followed by an open house discussion in January 2007. TRAI published its final recommendations on infrastructure sharing in April 2007, that approved of the proposal to offer subsidies from the universal service obligation fund (USOF), in support of the scheme. For a summary of the key recommendations made by TRAI, see the Practice Note, "Infrastructure Sharing in India: An Imperative for Sustained Growth".
Estimated costs and subsidy offers
According to earlier analysis, TRAI estimated the capital cost of installing a mobile site at around INR 5 million (USD 120 thousand) inclusive of building and power equipment. Significant numbers of existing cell sites are already shared by operators across the country, mainly in urban areas. In rural areas, sharing infrastructure would reduce costs and offer substantial benefits. The response of the stakeholders during the consultation process was as expected; the incumbent (and the owner of majority of the rural infrastructure) did not wish to give up its first mover advantage by sharing its own infrastructure. Other operators, having experienced the advantages of sharing infrastructure in urban areas, were keen to share infrastructure. TRAI determined from the industry responses that infrastructure sharing would help to increase the level of competition between the operators sharing the facilities, which could lead to price reductions for service.
Based on discussions with various service providers, TRAI had estimated in its 2005 study Recommendations on the growth of telecommunications services in rural India: The way forward that operators would provide coverage commercially in 5,161 towns/cities on their own. To increase the coverage in rural or remote areas (outside the 5,161 towns/cities), it was predicted that the operators would need to share the passive infrastructure, such as towers, sites and power supplies in order to be economic.
TRAI had recommended in the study that operators installing base stations in rural or remote areas should be offered a one time subsidy from the USOF, in two instalments, which was set at a maximum of INR 1.2 million (USD 30 thousand) per base station, provided the installed infrastructure is shared with at least one other operator.
TRAI had determined that the size and nature of the rural market, and the numbers of operators in different areas, meant that tower sharing between three operators would be the ideal solution to spur rural expansion. It was proposed that operators sharing the installed infrastructure would also be offered a maximum USOF subsidy of INR 1.2 million (USD 30 thousand) per base station for rolling out service. The payments would be made in tranches over a specified operating period.
The regulator determined that it would offer USOF subsidies to only three operators; if additional operators come into the area, then they would not get support from the USOF, but the operators in that area may negotiate other inter-operator settlements.
The TRAI recommendations included setting up of a joint working group in each rural district to identify potential base station sites for approval under the scheme. Under the recommendations, the USOF, managed under the DoT, would offer the financial support for the setting up and managing of infrastructure sites and the provision of mobile services in specified high cost rural and remote areas.
The USOF competitions and outcomes
A total of 7,871 base station locations in 500 districts in a total of 27 states were identified as eligible USOF financial assistance. It was estimated these would to serve 212,304 villages and over 48 million households.
The passive infrastructure portion of this project included common-access towers, electric generation sets and connection, site construction, and operation and maintenance.
The competition for the USOF finance, held in 2007, was intense amongst various commercial infrastructure operators. Following the tendering process, the final awards amounted to USD 23 million per year for five years. This averaged a total of only about USD 3,000 per site, or one tenth of the minimum subsidy amount on offer.
Separate award competitions for the right to use the infrastructure were made to three mobile operators in each cluster. The required subsidy, after the competition, for use of the sites was negative, i.e., on average operators were willing to pay for the use of infrastructure they did not need to construct for themselves, indicating the value of having the passive infrastructure already in place in high cost areas.
In early 2008, the USOF was preparing to support a second round of infrastructure sites in high cost rural and remote areas. For the second round, support will be provided to build 11,049 towers. This competition will extend coverage to approximately 242,866 villages, made up of over 49.9 million households consisting of 275.7 million people.
DoT expects that an average tower will cost USD 75,000 to USD 87,000, although that cost could increase significantly in areas with hilly terrain. The installation of towers will cost an estimated USD 747 to USD 871 million. With additional costs for generators and other equipment the total investment required to establish the second group of infrastructure sites is expected to be USD 1.12 to USD 1.24 billion. Again, the maximum allowable subsidy will be a certain portion (e.g., 25 per cent) of the projected capital and operating costs.
Sources: Recommendations on Growth of Telecom services in rural India: The Way Forward (TRAI, October 2005), www.trai.gov.in/trai/upload/recommendations/6/recom3oct05.pdf.
Recommendations on Infrastructure Sharing, TRAI, April 2007