vodafonelogo_1Vodafone Essar has received an approval from India’s Foreign Investment Promotion Board (FIPB) for including ‘Internet Service Provider’ as an additional item of activity for its company Vodafone Essar South Ltd. Earlier last month, PTI had reported that Vodafone had sought ISP and National Long Distance (NLD) licenses.

An NLD license is understandable – Vodafone currently has to pay other mobile operators for carrying voice traffic for STD calls, but this interest in an ISP license is intriguing. When the last mile is still not open, and with other Telcos like Airtel and Reliance struggling to add wireline and broadband subscribers, why would Vodafone want to book a spot in the ISP graveyard that this country has become? Does Vodafone intend to bid for a Broadband Wireless Access license? Or does it expect the last mile to be opened, as has been recommended in the Economic Survey? Public sector companies BSNL and MTNL are the largest ISPs in India, largely due to legacy ownership of copper to the home. There were just 6.28 million Internet users in the country as of April 2009.

The Economic Times reports that Vodafone has also sought permission to divest its tower infrastructure division into a separate arm, as many of the other Telecom operators in India have also been doing. In March, Vodafone set up a separate tower unit called Ortus Infratel & Holdings.

A Look At Tower Companies

Vodafone Essar, Bharti Airtel and Idea Cellular had merged their tower businesses into a new entity called Indus Towers in 2007 to share their resources. Vodafone owns 42% stake in Indus, and so does Bharti Airtel while Idea owns 16%. Indus has become the largest tower owner in the country with over 1 lakh towers as of May 09.

Vodafone had shared some of its towers with Indus: the rest were operated by it under Vodafone Tower Holdings and Essar Infratel. Ortus was still a Vodafone Essar company, but is now going to become independent. The 42% stake in Indus Towers will be shifted to Ortus.

There are few independent tower companies in India: GTL Infrastructure and XCEL Telecom (recently taken over by ATC), the rest are either directly owned by operators or by joint ventures between operators.

Bharti hived its tower division into Bharti Infratel, which owns and operates 45,000 towers, Reliance’s is called Reliance Telecom Infrastructure Ltd. Tata Teleservices (Tata Indicom) merged its tower company Wireless Tata Telecom Infrastructure with Quippo Telecom Infrastructure. Aircel was recently in talks with the JV to sell 12,000 towers in order to raise money for expansion, while Unitech Wireless will be leasing towers from the firm. Other new operators – Shyam Sistema, MTS, S-Tel, etc, can benefit from a similar deal.

Problems Facing Tower Companies

They are around 2.6 lakh towers overall in the country and there is a pressing need for more. India is adding between 8 to 10 million mobile connections per month and operators are now looking to enter rural areas to drive growth. Red tape and litigation are issues they have to encounter every time they set up a tower. In a budget request, Cellular Operators Association of India (COAI) expressed that operators were bothered by unwarranted show cause notices on cell phone towers.

Exiting a tower business reduces costs of network expansion, decreases tenancy rates and congestion. It will also unlock shareholder value, and help operators focus on expanding their user base.

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