the green telecom story - wipro

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Introduction


Mamta Sharma and Chandi Rout Ray

The Green Telecom Story

Nov

embe

r200

9

WCS Opinions/1018/201109

http://www.wipro.com/index.aspx�




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Introduction

Two-third of Indian population stays in rural areas with a mere13% tele-density. With saturation in urban markets, rural Indiaposes a huge untapped opportunity for the telecom operators. Aconnected rural India can transform the entire Indian landscape.However, this great Indian telecom story cannot be realizedwithout having a diligent and intelligent telecommunicationinfrastructure.Setting up a telecom infrastructure in rural area has its own set ofchallenges. Due to rare or non availability of grid power in ruralareas, the telecom tower needs to be fuelled by diesel generatorsadding to the already high cost of operations. This leaves theoperator with no other choice but fuelling the tower withrenewable sources of energy or optimizing current powerconsumption through IT support. But huge capital expenditureinvolved in setting up this renewable power based infrastructure isa big deterrent for this colossal expansion.This paper tries to build a business model to realize this greentelecom story.




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The Green Telecom Story

Rural sector forms the largest part of India, and so the development of ourcountry depends upon the development of this sector. The economy of acountry or a geography is directly dependent upon the telecom penetrationin that region. But the basic needs like connectivity and utility still pose ahuge challenge in rural sector. Rural India is yet to reap the fruits ofliberalization in India. The benefits that were supposed to trickle down to thevillages are still out of reach. The need of the hour is to take these basicfacilities to the rural area which would lead to multifold benefits. It wouldhelp in development of this much neglected part of country, adding tocountry’s economy and it would also be a huge business opportunity for thebusiness players, especially in the telecom industry.

There is a wide disparity in the telecom penetration levels. Rural teledensityin India is only 13% as against the urban teledensity which stands at 74%. Theevolving telecommunication revolution is essentially an urban phenomenon.And the fact that two-third of Indian population does not have access totelephone communication is a strong enough reason to expand to rural areasto tap the potential. And this can only be achieved if telecommunicationinfrastructure is put in place. It is estimated that to maintain or increase thetelecom growth rate, more than 300,000 new BTS (Base Transceiver Stations)sites will be rolled-out in the coming three years. And majority of these BTSneeds to be deployed in rural area. But the challenges that the operators arefacing in setting up infrastructure in rural areas have been huge deterrents inexpansion of telephony in rural sector.

The challenges are:

• Grid power availability

The base station for any networking company runs on power provided bylocal grid. But the quality of power available in rural area is very poor. Eitherthe power is available just for few hours during a day or in few places there isno grid connectivity at all. Strengthening their foothold in rural area withoutadequate power backup spells danger for the Telcos. The expansion ofoperators into the new circles will remain an elusive goal until there is anassured supply of power.

• High dependency on fuel

The cut throat competition requires the operators to run BTS efficiently onnon stop supply of power, which leaves operators with no choice but to runby fuel against unreliable grid power. To run these networks operators haveto spend billions on fuel. “The overall opex for 2008-09 is approximately Rs3,000 crore. Out of this the expenses for power (commercial supply) is Rs 616crore and for diesel it is Rs 741 crore,” says Harish Jere, GM, InfrastructurePlanning & Operations, RCOM. For rural areas, this dependency on fuelincreases because of unavailability of grid power. As per the figures of theState Electricity Board, in rural areas DG runs for nearly 14-15 hours in a day.

It is estimated that 300,000 new base transceiver stations (BTS) sites will roll-out in the next three years, but the challenges that the operators are facing in setting up infrastructure in rural areas is a big deterrent in expansion of telephony in rural sector




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`

Transportation cost of diesel

A larger part of these rural areas have road infrastructure problem. Theinaccessible terrains, hilly areas and the distance of these rural areas froma towns, makes it difficult to transport fuel to these regions. Hence thetransportation cost increases adding on to the operational expenditure.

Pilferage

Pilferage accounts for a significant portion(15-20%) of the energy cost pertower. One of the leading tower operating companies iloses around Rs 500crore per annum out of diesel theft. This would be further challenging inthe remote areas of India. Providing security solutions to so many BTS sitesis not viable and so operators will have to live with the problem

Lower ARPUs

ARPUs have been declining overall in the country. And according to arecent research the potential ARPU generated out from a rural consumeris $2 per month in comparison to $7 per month in the urban areas.Looking at the low margins and high investment, telecom service providerdo not see any business viability in investing this huge capital.

Existing network infrastructure management

Telecom network infrastructure mainly comprises of the telecomequipment, power equipment and the site itself. Optimizing theinfrastructure cost is critical to the company’s operational efficiency.Infrastructure operators have identified power consumption as one of thekey contributor to the annual opex. The energy cost reduction could beachieved by a two-fold approach, by energy efficient solutions or byreplacing the conventional source of power by unconventional source ofpower.

It is very important to understand the operational cost break up of a BTStower to identify the challenges and opportunities around that.

According to a recent research the potential ARPU generated out from a rural consumer is $2 per month in comparison to $7 per month in the urban areas. Thus telecom service provider are not able to reach a consensus in investing huge capital expenditure

Depreciation & Cost of Capital

38%

Rent8%

Overhead4%

Security & taxes10%

Insurance3%

Maintenance5%

Energy32%

Other40%

Operational cost break up of Tower

Graph 1.0 – Operational cost breakup of tower

Fig. 1




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As graph 1.0 states that the component energy is the highest contributor(32%) to BTS annual operational expenditure. Thus proper deployment ofenergy efficiency solutions could reduce the opex by 30%.

In addition to the opex, there is a huge capital expenditure involved. Theaverage cost of setting up a telecom tower is around 30 lakhs, assumingthat the infrastructure for providing grid power is in place. And if the gridpower is not available, then the TSP/Infrastructure Provider has to evenbear the cost of laying down the infrastructure for grid power. This cost isinevitable if the Telecom Service Provider wants to enter the rural market.Thus with the significant size of capex and opex posing as the bottleneck,there is no sustainable business case for the service providers to enter theuntapped, high potential rural market.

Solar powered BTS

Considering the cost of setting up telecom infrastructure in rural areawhile attempting to realize the desired telecom story in rural India, onelogical solution is to use renewable sources of energy to power the BTS.Various pilot projects have proved that running a telecom tower byrenewable source of energy brings down the operational expenses byalmost 30%.

There are multiple options available to harness the green energy. Solar andWind energy are the most proven and accepted form of energy being usedin the generation of electricity. Considering the Indian climatic conditions,solar energy seems to be the most viable option, due to the variable speedand inconsistent availability of winds. Also the existing BTS infrastructurethat are being fuelled by DG set needs to be maintained and oiledregularly which adds to the opex cost as against solar cells which arebased on mature technology and have a life of 20 years with no significantmaintenance expenditures.

The major hindrance to such an initiative is the huge capital expenditureincurred in setting up the solar panels and providing security. On anaverage it would require an investment of around Rs 60 lakhs in setting upone BTS, which is not a feasible business model for a telecominfrastructure player to invest, considering the long breakeven. This is whythe rural areas with low paying capacity and low concentration ofsubscribers are being bypassed. The need of the hour is to think of a newmodel of business that allows these people – with low incomes – whohave never made a phone call to be part of the telecom revolution.Realizing this dream will remain an elusive goal without the relentlesssupport from various bodies in the telecom value chain.

The new BTS which are expected to roll out in next few years covering mainly the rural and semi-urban areas would depend solely on renewable source of energy




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Creating a sustainable participatory model

To realize the dream of taking the telecom revolution to the remote partsof the country, there has to be a model where provisioning of telecomservices in rural areas is divided among several stakeholders instead of itbeing the responsibility of the operator only. We propose a SustainableParticipatory Model where all the stakeholders of the ecosystem realize aneconomic/functional gain over a period of time. It takes into account theunique skills and strengths of the various stakeholders in the system whoplay a specific role in realizing our telecom story.

In this model, there are different stakeholders playing critical role.

All these stakeholders will achieve there goals by participating in thismodel. We enlist the support that would be required from them in thismodel and their consequent gain with this participation.

Ministry of power (MoP)

As discussed, availability of power in the remote areas is the biggestchallenge that the telecom players are facing. Neither, laying of powertransmission cables is feasible for telecom operator, nor setting up BTStowers running on solar energy is a viable business case, considering thehuge capex and very low ARPUs in these areas. This model calls for apartial investment my MoP into the capex involved in setting up BTSfuelled by solar energy.

Rural Telecom

MoP

DoT / TRAI

TOC (Tower

operating Company)

Telecom Operator

Eco -System

StakeholdersFig. 2




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The MOP has set the goal of providing electricity to all citizens by 2020.Ironically according to the Rural Electrification Policy a village would beclassified as electrified with as less as 10% of the total number ofhouseholds in the village getting electricity. The above requirements arenot enough to realize the dream of ‘power to all‘. If MoP helps in settingup solar cells, the energy generated to fuel a BTS could also be utilized forpumping generators and lighting individual houses. So with minimalinvestment, MoP would be able to achieve its goal of electrifying thevillages.

This will also bring solar photovoltaic products into the mainstream retailmarkets which were in the pilot phase for more than two decades in India.As a result it will open up huge market opportunity for the renewableenergy sector which was facing hurdle due to huge capital investments andlimited market size.

Department of Telecom (DoT)

DoT has also a vested interest in the model since investment involved insetting up solar energy based infrastructure is huge and government has ahuge amount of money in the form of USO (Universal Service Obligationfunds). The New Telecom Policy (NTP) announced in 1999 aims to providea balance between the provision of universal service to all uncoveredareas, including the rural areas and Encourage the development oftelecommunication facilities in remote, hilly and tribal areas of thecountry. With participatory model, DoT would be able to achieve itsobjectives with partial utilization of its USO funds, which can be used toachieve its other goals like induction of new technological developments inthe telecom sector. Also a connected village would generate moreemployment and business generation, leading to more prosperity.

Telecom Service providers

Telecom Service Provider would set up its offices or distribution system inthe rural areas to render telecom services. It would provide employmentto the villagers who would assist the operators and providing services.




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Challenges vs. Opportunities

Challenges

Opportunities

A multi stakeholder approach between MOP,

DOT, TSP and Tower company

TSP • Provide network•Choose business partners•Get spectrum and

clearances

TRAI/DOT•USO funding• Ease on spectrum

allocation for green telecom operators

TOC • Energy efficient equipment• Low cost solar energy

equipment

Ministry of Power• Solar plant set up in

collaboration with operator and infrastructure provider

•Arrange for distribution of electricity form solar energy

A collAborAtive ApproAch

Fig. 3




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Tower Operating Company (TOC)

As is the case of telecom service providers, even the TOC have hugebusiness in the rural areas but the high set up cost coupled with hugeoperational cost in the areas of energy and O&M has been a deterrent.Now that MoP and DoT would be investing partially in setting up the ruraltelecom network infrastructure, these infrastructure players share ofinvestment also comes down, making it a viable business case for themtoo.

Once the Capex has been taken care of, these infrastructure players haveto optimize the operational cost of the tower by bringing in efficient towermonitoring solutions in place. The solar energy based infrastructure is costeffective in terms on maintenance and hence brings down the operationalcosts by almost 30% as compared to an infrastructure running on fuel andgrid power.

Investment sharing model

To derive at an investment model for the business case, consider a pilotproject of setting up 100 tower sites, providing telecom network in ruralregion.

Capital expenditure of setting up a telecom tower infrastructure ismajorly shared by DoT and MoP and the infrastructure providers

The DOT and MoP being non-profit organizations would invest forboosting rural lifestyle and employment opportunities

Networking company will have a fixed source of income (rent)

The operational expenditure will be borne by the Infrastructureproviders

Revenue will be shared between the TOC and the TSP in the ratio of90:10

Graph 2.0 – Investment sharing model of tower

Fig. 4




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The paper tries to establish the importance of solar powered BTS througha comparative financial modeling exercise . The pilot project involves 100BTS.

CAPEX sharing model (in 000’s INR)Stakeholders Year 0

DOT 400,000

MoP/MNRE 240,000

Telecom service providers 40,000

TOC 120,000

OPEX model (in 000’s INR) Year

0 1 2 3 4 5 TotalThe opex optimization due to solar BTS

10% 15% 25% 30% 30% 30%

DoT nil nil nil nil nil nil nilMoP/MNRE nil nil nil nil nil nil nilTOC (non - solar) 80,000 80,000 80,000 80,000 80,000 80,000 480,000TOC (solar) 72,000 68,000 60,000 56,000 56,000 56,000 368,000TSP nil nil nil nil nil nil nil

Calculation of Opex and Capex details of a tower

Solar Non Solar

Number of BTS sites being fuelled by renewable energy 100 100

The capex for each BTS tower per annum (INR) 8000000 6000000

The opex for running a BTS tower per annum (INR) 600000 800000

Total capex for 100 BTS (INR) 800000000 600000000

Total Opex for 100 BTS (INR) 60000000 80000000

Table 1

Table 2

Table 3




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Revenue sharing (in 000’s INR) Year

0 1 2 3 4 5 Total

TOC 65,208 65,860 67,164 69,120 72,381 75,641 415,377

TSP 7,245 7,317 7,462 7,680 8,042 8,404 46,153

Equipment Vendors 60,000

Growth rate 0% 1% 2% 3% 5% 5%

P&L account (in 000’s INR) Year

0 1 2 3 4 5 Total

TOC -14,772 -14,140 -12,836 -10,180 -7619 -4349 -63896

TSP7,245 7,317 7,462 7,680 8,042 8,404 46,153

Equipment Vendors60,000

P&L account (in 000’s INR) Year

0 1 2 3 4 5 Total

TOC -6772 -2140 8836 13860 16389 19651 49824

TSP7,245 7,317 7,462 7,680 8,042 8,404 46,153

Equipment Vendors60,000

*As the comparative P&L account states, a solar powered BTS will achieve a faster breakeven compare to the non-solar one

Non-solar powered BTS

Solar powered BTS

Table 4

Table 5

Table 6

1st year

2nd year

INR -14,772

3rd year

Non-Solar Solar

INR -14,140

INR -12,836

INR -6772

INR -2140

INR 8836

Comparative P&L account(Solar vs. Non Solar BTS*)

4th yearINR -10,180 INR 13860

3rd yearINR -7619 INR 16389

Fig. 5




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As observed in tables 5 and 6, in case of Solar powered BTS, the TOCswould achieve the breakeven faster as compared to the conventional BTS.Hence TSPs and TOCs, as a part of the ecosystem, get a profitable share inthis proposed business model.

And while achieving their social and functional goals, Government bodieshave to play a role of evangelist if they truly want to see a developed andconnected India. This cohesive model would encourage private players toinvest in this business model and create altogether a new market for thenew and existing telecom players and a sustaining livelihood for the ruralIndia.

The Way Forward

Telecom industry has witnessed almost a double digit growth over thelast decade due to plethora of services being offered in both wireless andbroad band side and increased telecom penetration in emergingeconomies. This growth has led to increase in their carbon foot print andenergy requirements. Telcos worldwide have now started puttingcontinuous focus on going Green with key objectives being GHGreduction and energy optimization.

In emerging economies apart from going green a huge emphasis is beingput on energy cost and its reliability. This is due to heavy reliance on backup power sources (DG, Battery back up) as the pockets of growth are inthe region where the grid power is either not available or extremelyunreliable.

Going forward Telcos are looking forward to partner with IT serviceproviders and other players to achieve their green objectives withminimum CAPEX investments and no design realignment while gettingfaster benefits towards energy cost reduction and environmentsustainability. This dream wouldn’t be realized without the multistakeholder in place.

Going forward Telcos are looking forward to partner with IT service providers and other players to achieve their green objectives with minimum CAPEX investments and no design realignment while getting faster benefits towards energy cost reduction and environment sustainability




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About Wipro Consulting Services

Wipro Consulting Services (WCS) partners with you to transform your business through a combination of business insights, technology innovation and deep industry knowledge. Wipro Consulting offers Business Advisory, IT consulting and Risk and Compliance services designed to improve business performance, drive operational efficiency and maximize ROI.

With experts based in Western Europe, North America, India, Asia Pacific and the Middle East, our integrated Consulting, IT, BPO and Product Engineering services combine the benefits of expert proximity with global leverage to provide the technology edge and speed to your strategic programs. Wipro Consulting Services is a division of the Wipro Ltd (NYSE: WIT), a $5bn enterprise that employs over 90,000 employees across the globe.

For more details contact: [email protected] us at www.wipro.com

Mamta Sharma is a Consultant at the GRCC (Global Research Center for Consulting), Wipro Consulting Services. She has completed her MBA (Masters in Business Administration) and has 4 years of experience in Reliance Communications in both Retail and Corporate sales. She is currently aligned to the benchmarking group within GRCC


Chandi Rout Ray is a Consultant at the GRCC (Global Research Center for Consulting), Wipro Consulting Services. He had completed his MBA(Masters in Business Administration) and was aligned to the Energy & Utilities vertical within GRCC for one year. Currently he is working under a new Green initiative business of Wipro.

mailto:[email protected]�




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