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Everybody wants something these days. Service providers want to create new revenue streams and simplify existing infrastructure, while contact centre organizations need world-class ready-made infrastructure to provide highest level of standards to their agents to deal with customers and reduce costs. How can all these parties get what they want? Outsource infrastructure requirements. And to fulfill these requirements, vendors such as GTL have already taken the first mover advantage.

The company recently went through the restructuring process and as a result formed a separate subsidiary GTL Infrastructure (GIL), which will provide infrastructure services in telecom and BPO. Creation of Telecom and BPO infrastructure are logical extension of the existing business within the group in GTL.

Tryst with Telecom
Debt-laden mobile operators need every financial embellishment going to make investors look more kindly on them. Infrastructure sharing will provide savings or will even have a long-term impact on an operator's cost model. And as these operators have aggressive roll out plans, it has given the opportunity for vendors such as GIL to get into telecom infrastructure business.

GIL is planning to enter into the business of passive infratsructure provisioning and management. The company will own, operate, and provide passive infrastructure comprising towers, shelter with ACs, diesel generating sets, battery back-up etc, and related site structures in ground based as well as roof top sites for co-locating active elements owned by different operators. It will also provide the operations and maintenance services relating to the passive infrastructure. The company will not get into sharing of electronic elements such as the radio access network or antennae. At present, the ratio between the infrastructure components and electronic elements is 70:30.

Since India boast of both CDMA and GSM networks, GIL has huge opportunity lying ahead. GIL is planning to have around 12,000 cell sites over the period of three years. This includes acquisition of the existing cell sites also. At present it has around 1,300 cell sites in north, east, and south circles. This would help operators' reducing initial debt exposure and that's some thing the financial market is definitely in favor of. In rural areas, private operators don't have the resources, money, and staff to build networks in the beginning. Therefore, infrastructure sharing is of real interest to those operators that need to improve their balance sheets in the short term, rather than those who are looking to make savings over the long term.

To reach out the roll out targets, the approximate capex required in telecom infrastructure alone is to the tune of $20 bn over the next three years. Average reveneue per user (ARPU), which is currently Rs 374 would come down to less than Rs 200, once the rural India is covered. Therefore, to balance this, capex per subscriber should come down by 40% if operators have to be profitable in semi-urban and rural areas. “Network sharing would clearly benefit both incumbent and greenfield operators-newcomers can take advantage of existing infrastructure, while established operators have a route to reduce their investment costs,” said Prakash Ranjalkar, COO, GIL.

GIL would provide shared infrastructure services to telecom and BPO players on a business operate owned (BOO) model. The annuity driven business model will have long-term contracts with primary anchor operator co-locating other telecom operators. The duration of these contracts would range from 5-20 years. It would ensure fixed income growth for GIL over the period of years.

"Network sharing would clearly benefit both incumbent and greenfield operators-newcomers can take advantage of existing infrastructure, while established operators have a route to reduce their investment costs" -Prakash Ranjalkar, COO, GIL

GIL would build both ground based and roof-top cell sites. A full scale ground based cell site of 60 m length costs around Rs 30-35 lakh, while roof-top cell sites comes in different denominations ranging from 24 m to 9 m. A 15 m roof-to cites would cost around Rs 7 lakh. At present there are around 54,000 cell sites, operated by different CDMA and GSM operators. This number would further go up to 80,000 in the next couple of years. At present, sharing is happening only in 22% of these 10,000 cell sites. The idea is to increase sharing up to 80%.  “The third party infrastructure sharing would be more effective as telecom operator's  competition will not hamper co-operation and high leverage of assets would ensure early revenue streams and consequently the ability to finance rapid roll-out,” added Ranjalkar.

An operator would have to pay approximate Rs 45,000 per month as rent for the tower and would be allowed to fix his own antennae and radio network depending on the Radio frequency requirement in that particular area. The first tenant on the shared site would get 35% discount and the second tenant would get around 65%. Maximum five operators would be able to share a single site. If five operators share a single site, it would almost become free for them.

“Depending on number of operators sharing the same cell site infrastructure for housing their electronics, effective cost of cell site for each operator reduces by 30-40%,” Ranjalkar said.

Further, GIL is in serious discussion with various operators for large deals on BOO as well as acquisition of existing sites. The company recently had discussion with one CDMA operator and after initial scrutiny, has submitted an offer for operation and maintenance of 4,500 existing sites and development and maintenance of additional 2,000 sites that have to be rolled out under the BOO model. The company has also got an offer from GSM operator for BOO of 500 sites spread over a zone and is under active consideration.

  The company has also applied to the Department of Telecommunication for registration as a Category 1 infrastructure provider.

Platform for Outsourcing
One of the fastest growing BPO industry is also on GIL's radars. The low cost base and availability of quality manpower are the key drivers supporting the growth rate of the Indian BPO industry. However, the industry is facing challenges thrown by shrinking profit margins and scalability of operations. GIL is aiming to provide solutions to the BPO players in the Indian industry by offering a shared BPO facility with the strategy in mind.

The idea is to maximize its own revenues from the BPO facility by accommodating various clients at the same facility so that maximum seats can be utilized at the same time. The sharing of facility will also allow it to accommodate clients involved in low-end as well as high-end services. This will enable the company to earn higher margins from different clients based on their end activity and the criticality of the infrastructure support required. It is also planning to adopt a process framework and procedures, which will allow the client to start the operations in the least possible time leading to early revenues for both the parties.

GIL would provide complete infrastructure required by customers for running BPO operations for their clients. This can be custom built to suit the clients requirement or can be modified based on their required setup. It will also manage the entire facility for its customers by taking care of the maintenance, housekeeping, and security functions allowing the client to focus on their core business.

The company currently providing shared seat facility in its Pune center, which has the capacity of 600 seats. It is coming-up with another 350 seats in Mumbai and 2,500 seats in Pune. Apart from this an international bank has short listed GIL's bid for creation of back office infrastructure on operating lease basis, resulting in creation of approximately 500 seats spread over four major cities in India.

As per the international standards, a BPO company prerequisite is 50-60 sq ft per seat. The rent per seat would be around $550 per month.

Since GTL is already there in telecom services segment, GIL is planning to reap the benefits of it, as there is synergy in both the company's businesses. “The businesses of both the companies have completely different focus, but has synergies and we definitely see value in it,” Ranjalkar added.

Restructuring Phenomenon
A major restructuring exercise has been done within the organization to chalk out focus areas for both the companies.

In the process, the entire infrastructure related business and assets of GTL would be transferred to GIL through de-merger and sale process. After obtaining statutory approvals, the boards of the respective companies has approved that infrastructure assets aggregating approximately Rs 214 crore comprising data centers, international gateways, VPN, operating systems for billing, HR, and CRM would be transferred to GIL by GTL for a cash consideration. The cash will be utilized by GTL for re-paying outstanding debts.

GTL currently comprises the network engineering and IT services division. A part of the IT services division, comprising an infrastructure undertaking would be de-merged from GTL and merged into GIL pursuant to a court approval. The net asset value of this division is approximately Rs 101 crore. In lieu of the de-merger, the shareholders of GTL will receive one share of GIL for every one shares of GTL.

Also GTL Technology Investment, a wholly owned subsidiary of GTL would be merged with GTL. This has been done to consolidate GTL's investments in international businesses, e-security, infrastructure, and others on a single platform under GTL.

Business model of GIL has been built on the basic premise that the company would first enter into long-term contract with primary anchor tenant and acquire the telecom infrastructure and BPO infrastructure in such a way that the cash inflow capture is ensured prior to the capital expenditure.

The current capital of GIL is Rs 27 crore (100% subscribed by GTL). GTL has made a further investment of Rs 106 crore in the equity share capital of GIL at a share price of Rs 10 per share. The Board of GIL has also approved the issue of equity shares at share price of Rs10 per share to foreign investors under the FDI scheme of approximately 26% of the post-restructuring shareholding. Post re-structuring, the shareholding composition of GIL is expected to be 41% of GTL, 26% with FDI investors, and balance 33% with GTL stakeholders. GIL is planning to invest around Rs 322 crore in various infrastructure projects it has planned.

Both BPO and telecom are growing industries, and operators and BPO players are finding innovative ways to cut down on cost. GTL and other players in infrastructure provisioning have the chance to unleash the opportunity that this new segment offers.

Rahul Gupta
rahulg@cybermedia.co.in