The Green Telecom Story - Wipro

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style Introduction
style
November 2009

The Green Telecom Story
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• Click to edit Master text styles
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xxxxxxxxxxxxxxxx – Second level
WCS Opinions/1018/201109
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– Fourth level
» Fifth level

Mamta Sharma and Chandi Rout Ray

© 2008-09, Wipro Limited 1

style Introduction
Two-third of Indian population stays in rural areas with a mere
13% tele-density. With saturation in urban markets, rural India
poses a huge untapped opportunity for the telecom operators. A
connected rural India can transform the entire Indian landscape.

However, this great Indian telecom story cannot be realized
without having a diligent and intelligent telecommunication
infrastructure.

– Second level Setting up a telecom infrastructure in rural area has its own set of
challenges. Due to rare or non availability of grid power in rural
areas, the telecom tower needs to be fuelled by diesel generators
• Third level
adding to the already high cost of operations. This leaves the
operator with no other choice but fuelling the tower with
renewable sources of energy or optimizing current power
– Fourth level
consumption through IT support. But huge capital expenditure
involved in setting up this renewable power based infrastructure is
» Fifth level
a big deterrent for this colossal expansion.
This paper tries to build a business model to realize this green
telecom story.


Click to edit Master title The Green Telecom Story

style Rural sector forms the largest part of India, and so the development of our
country depends upon the development of this sector. The economy of a
country or a geography is directly dependent upon the telecom penetration
in that region. But the basic needs like connectivity and utility still pose a
huge challenge in rural sector. Rural India is yet to reap the fruits of
liberalization in India. The benefits that were supposed to trickle down to the

villages are still out of reach. The need of the hour is to take these basic
facilities to the rural area which would lead to multifold benefits. It would
help in development of this much neglected part of country, adding to
country’s economy and it would also be a huge business opportunity for the
– Second level
It is estimated that
300,000 new base
business players, especially in the telecom industry.
There is a wide disparity in the telecom penetration levels. Rural teledensity
transceiver stations
• Third level
(BTS) sites will roll-
in India is only 13% as against the urban teledensity which stands at 74%. The
evolving telecommunication revolution is essentially an urban phenomenon.
out in the next And the fact that two-third of Indian population does not have access to
three years, but the – Fourth level
telephone communication is a strong enough reason to expand to rural areas
challenges that the to tap the potential. And this can only be achieved if telecommunication
operators are » Fifth level
infrastructure is put in place. It is estimated that to maintain or increase the
facing in setting up telecom growth rate, more than 300,000 new BTS (Base Transceiver Stations)
infrastructure in sites will be rolled-out in the coming three years. And majority of these BTS
rural areas is a big needs to be deployed in rural area. But the challenges that the operators are
deterrent in facing in setting up infrastructure in rural areas have been huge deterrents in
expansion of expansion of telephony in rural sector.
telephony in rural
sector The challenges are:

• Grid power availability
The base station for any networking company runs on power provided by
local grid. But the quality of power available in rural area is very poor. Either
the power is available just for few hours during a day or in few places there is
no grid connectivity at all. Strengthening their foothold in rural area without
adequate power backup spells danger for the Telcos. The expansion of
operators into the new circles will remain an elusive goal until there is an
assured supply of power.

• High dependency on fuel
The cut throat competition requires the operators to run BTS efficiently on
non stop supply of power, which leaves operators with no choice but to run
by fuel against unreliable grid power. To run these networks operators have
to spend billions on fuel. “The overall opex for 2008-09 is approximately Rs
3,000 crore. Out of this the expenses for power (commercial supply) is Rs 616
crore and for diesel it is Rs 741 crore,” says Harish Jere, GM, Infrastructure
Planning & Operations, RCOM. For rural areas, this dependency on fuel
increases because of unavailability of grid power. As per the figures of the
State Electricity Board, in rural areas DG runs for nearly 14-15 hours in a day.


Click to edit Master title `

style Transportation cost of diesel
A larger part of these rural areas have road infrastructure problem. The
inaccessible terrains, hilly areas and the distance of these rural areas from
a towns, makes it difficult to transport fuel to these regions. Hence the
transportation cost increases adding on to the operational expenditure.

Pilferage
Pilferage accounts for a significant portion(15-20%) of the energy cost per

– Second level
According to a
recent research
tower. One of the leading tower operating companies iloses around Rs 500
crore per annum out of diesel theft. This would be further challenging in
the remote areas of India. Providing security solutions to so many BTS sites
the potential
ARPU • Third level
is not viable and so operators will have to live with the problem
generated out
from a rural – Lower ARPUslevel
Fourth
consumer is $2 ARPUs have been declining overall in the country. And according to a
per month in » Fifth level
recent research the potential ARPU generated out from a rural consumer
comparison to is $2 per month in comparison to $7 per month in the urban areas.
$7 per month in Looking at the low margins and high investment, telecom service provider
the urban areas. do not see any business viability in investing this huge capital.
Thus telecom
service provider
Existing network infrastructure management
are not able to
reach a Telecom network infrastructure mainly comprises of the telecom
consensus in equipment, power equipment and the site itself. Optimizing the
investing huge infrastructure cost is critical to the company’s operational efficiency.
capital Infrastructure operators have identified power consumption as one of the
expenditure key contributor to the annual opex. The energy cost reduction could be
achieved by a two-fold approach, by energy efficient solutions or by
replacing the conventional source of power by unconventional source of
power.
It is very important to understand the operational cost break up of a BTS
tower to identify the challenges and opportunities around that.
Operational cost break up of Tower
Security & taxes
Overhead 10%
Rent 4% Insurance
8% 3%
Maintenance
5%
Other
40% Energy
Depreciation & 32%
Cost of Capital
38%
Fig. 1
Graph 1.0 – Operational cost breakup of tower

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

In addition to the opex, there is a huge capital expenditure involved. The
average cost of setting up a telecom tower is around 30 lakhs, assuming
that the infrastructure for providing grid power is in place. And if the grid
power is not available, then the TSP/Infrastructure Provider has to even
bear the cost of laying down the infrastructure for grid power. This cost is

which are
– Second level
The new BTS inevitable if the Telecom Service Provider wants to enter the rural market.
Thus with the significant size of capex and opex posing as the bottleneck,
expected to
roll out in • Third level
there is no sustainable business case for the service providers to enter the
untapped, high potential rural market.
next few
years Fourth level
– Solar powered BTS
covering
mainly the Considering the level setting up telecom infrastructure in rural area
» Fifth cost of
rural and while attempting to realize the desired telecom story in rural India, one
semi-urban logical solution is to use renewable sources of energy to power the BTS.
areas would Various pilot projects have proved that running a telecom tower by
depend solely renewable source of energy brings down the operational expenses by
on renewable almost 30%.
source of There are multiple options available to harness the green energy. Solar and
energy Wind energy are the most proven and accepted form of energy being used
in the generation of electricity. Considering the Indian climatic conditions,
solar energy seems to be the most viable option, due to the variable speed
and inconsistent availability of winds. Also the existing BTS infrastructure
that are being fuelled by DG set needs to be maintained and oiled
regularly which adds to the opex cost as against solar cells which are
based on mature technology and have a life of 20 years with no significant
maintenance expenditures.
The major hindrance to such an initiative is the huge capital expenditure
incurred in setting up the solar panels and providing security. On an
average it would require an investment of around Rs 60 lakhs in setting up
one BTS, which is not a feasible business model for a telecom
infrastructure player to invest, considering the long breakeven. This is why
the rural areas with low paying capacity and low concentration of
subscribers are being bypassed. The need of the hour is to think of a new
model of business that allows these people – with low incomes – who
have never made a phone call to be part of the telecom revolution.
Realizing this dream will remain an elusive goal without the relentless
support from various bodies in the telecom value chain.


style Creating a sustainable participatory model
To realize the dream of taking the telecom revolution to the remote parts
of the country, there has to be a model where provisioning of telecom
services in rural areas is divided among several stakeholders instead of it
being the responsibility of the operator only. We propose a Sustainable
Participatory Model where all the stakeholders of the ecosystem realize an
economic/functional gain over a period of time. It takes into account the
unique skills and strengths of the various stakeholders in the system who
play a specific role in realizing our telecom story.
– Second level
In this model, there are different stakeholders playing critical role.
• Third level Eco -System

– Fourth level
MoP
» Fifth level
Telecom Rural DoT /
Operator Telecom TRAI

TOC
(Tower
operating Stakeholders
Company) Fig. 2

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

Ministry of power (MoP)
As discussed, availability of power in the remote areas is the biggest
challenge that the telecom players are facing. Neither, laying of power
transmission cables is feasible for telecom operator, nor setting up BTS
towers running on solar energy is a viable business case, considering the
huge capex and very low ARPUs in these areas. This model calls for a
partial investment my MoP into the capex involved in setting up BTS
fuelled by solar energy.


style The MOP has set the goal of providing electricity to all citizens by 2020.
Ironically according to the Rural Electrification Policy a village would be
classified as electrified with as less as 10% of the total number of
households in the village getting electricity. The above requirements are
not enough to realize the dream of ‘power to all‘. If MoP helps in setting
up solar cells, the energy generated to fuel a BTS could also be utilized for
pumping generators and lighting individual houses. So with minimal
investment, MoP would be able to achieve its goal of electrifying the
villages.
– Second level This will also bring solar photovoltaic products into the mainstream retail
markets which were in the pilot phase for more than two decades in India.
• Third level
As a result it will open up huge market opportunity for the renewable
energy sector which was facing hurdle due to huge capital investments and
limited market size.
– Fourth level
» Fifth level
Department of Telecom (DoT)
DoT has also a vested interest in the model since investment involved in
setting up solar energy based infrastructure is huge and government has a
huge amount of money in the form of USO (Universal Service Obligation
funds). The New Telecom Policy (NTP) announced in 1999 aims to provide
a balance between the provision of universal service to all uncovered
areas, including the rural areas and Encourage the development of
telecommunication facilities in remote, hilly and tribal areas of the
country. With participatory model, DoT would be able to achieve its
objectives with partial utilization of its USO funds, which can be used to
achieve its other goals like induction of new technological developments in
the telecom sector. Also a connected village would generate more
employment and business generation, leading to more prosperity.

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


style Challenges vs. Opportunities

– Second level
• Third level
– Fourth level
» Fifth level

Challenges A multi stakeholder
approach between MOP,
DOT, TSP and Tower
Opportunities company

Fig. 3

TSP TRAI/DOT TOC Ministry of Power
• Provide network • USO funding • Energy efficient equipment • Solar plant set up in
• Choose business partners • Ease on spectrum • Low cost solar energy collaboration with operator
• Get spectrum and allocation for green equipment and infrastructure provider
clearances telecom operators • Arrange for distribution of
electricity form solar
energy

A collAborAtive ApproAch


style Tower Operating Company (TOC)
As is the case of telecom service providers, even the TOC have huge
business in the rural areas but the high set up cost coupled with huge
operational 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 rural
telecom network infrastructure, these infrastructure players share of
investment also comes down, making it a viable business case for them
too.
Once the Capex has been taken care of, these infrastructure players have
– Second level to optimize the operational cost of the tower by bringing in efficient tower
monitoring solutions in place. The solar energy based infrastructure is cost
• Third level
effective in terms on maintenance and hence brings down the operational
costs by almost 30% as compared to an infrastructure running on fuel and
grid power.
– Fourth level
» Fifth level
Investment sharing model
To derive at an investment model for the business case, consider a pilot
project of setting up 100 tower sites, providing telecom network in rural
region.
 Capital expenditure of setting up a telecom tower infrastructure is
majorly shared by DoT and MoP and the infrastructure providers
 The DOT and MoP being non-profit organizations would invest for
boosting rural lifestyle and employment opportunities
 Networking company will have a fixed source of income (rent)
 The operational expenditure will be borne by the Infrastructure
providers
 Revenue will be shared between the TOC and the TSP in the ratio of
90:10

Fig. 4

Graph 2.0 – Investment sharing model of tower

style The paper tries to establish the importance of solar powered BTS through
a comparative financial modeling exercise . The pilot project involves 100
BTS.
Table 1

CAPEX sharing model (in 000’s INR)

Stakeholders Year 0

DOT 400,000

– Second level MoP/MNRE
Telecom service providers
240,000
40,000

• Third level
TOC 120,000

– Fourth level
Calculation of Opex and Capex details of a tower
» Fifth level
Table 2 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 3
OPEX model (in 000’s INR) Year
0 1 2 3 4 5 Total
The opex optimization due
10% 15% 25% 30% 30% 30%
to solar BTS
DoT nil nil nil nil nil nil nil
MoP/MNRE nil nil nil nil nil nil nil
TOC (non - solar) 80,000 80,000 80,000 80,000 80,000 80,000 480,000
TOC (solar) 72,000 68,000 60,000 56,000 56,000 56,000 368,000
TSP nil nil nil nil nil nil nil


style Table 4

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
Growth rate
60,000
0% 1% 2% 3% 5% 5%

– Second level
Table 5 Non-solar powered BTS
• Third level INR)
P&L account (in 000’s Year
0 1 2 3 4 5 Total
– Fourth level
TOC -14,772 -14,140 -12,836 -10,180 -7619 -4349 -63896
TSP
» Fifth level 7,245 7,317 7,462 7,680 8,042 8,404 46,153
Equipment Vendors
60,000

Table 6 Solar powered BTS
P&L account (in 000’s INR) Year
0 1 2 3 4 5 Total
TOC -6772 -2140 8836 13860 16389 19651 49824
TSP
7,245 7,317 7,462 7,680 8,042 8,404 46,153
Equipment Vendors
60,000

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

Non-Solar Solar

INR -14,772 1st year INR -6772

INR -14,140 2nd year INR -2140

INR -12,836 3rd year INR 8836

INR -10,180 4th year INR 13860

INR -7619 3rd year INR 16389

Fig. 5

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

style As observed in tables 5 and 6, in case of Solar powered BTS, the TOCs
would achieve the breakeven faster as compared to the conventional BTS.
Hence TSPs and TOCs, as a part of the ecosystem, get a profitable share in
this proposed business model.
And while achieving their social and functional goals, Government bodies

have to play a role of evangelist if they truly want to see a developed and
connected India. This cohesive model would encourage private players to
invest in this business model and create altogether a new market for the
new and existing telecom players and a sustaining livelihood for the rural
– Second level
Going forward Telcos
are looking forward
India.
to partner with IT
service providers and• Third level
The Way Forward
other players to
achieve their green Fourth level
– Telecom industry has witnessed almost a double digit growth over the
objectives with last decade due to plethora of services being offered in both wireless and
minimum CAPEX broad Fifth level increased telecom penetration in emerging
» band side and
investments and no economies. This growth has led to increase in their carbon foot print and
design realignment energy requirements. Telcos worldwide have now started putting
while getting faster continuous focus on going Green with key objectives being GHG
benefits towards reduction and energy optimization.
energy cost In emerging economies apart from going green a huge emphasis is being
reduction and put on energy cost and its reliability. This is due to heavy reliance on back
environment up power sources (DG, Battery back up) as the pockets of growth are in
sustainability the region where the grid power is either not available or extremely
unreliable.
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. This dream wouldn’t be realized without the multi
stakeholder in place.


style
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
– Second level
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
• Third level
90,000 employees across the globe.

– Fourth level
For more details contact: Wipro.Consulting@wipro.com.
Visit us at www.wipro.com
» Fifth level

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.


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– Fourth level
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