The Green Telecom Story - Wipro


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The Green Telecom Story - Wipro

  1. 1. Click to edit Master title Click to edit Master title style Introduction style November 2009 The Green Telecom Story xxxxxxxxxxxxxxxxxxxxxx • Click to edit Master text styles xxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxx – Second level WCS Opinions/1018/201109 xxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxx • Third level xxxx – Fourth level » Fifth level Mamta Sharma and Chandi Rout Ray © 2008-09, Wipro Limited 1
  2. 2. Click to edit Master title 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. • Click to edit Master text styles 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. © 2008-09, Wipro Limited 2
  3. 3. 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 • Click to edit Master text styles 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. © 2008-09, Wipro Limited 3
  4. 4. 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. • Click to edit Master text styles 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 © 2008-09, Wipro Limited 4
  5. 5. Click to edit Master title 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 • Click to edit Master text styles 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. © 2008-09, Wipro Limited 5
  6. 6. Click to edit Master title 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 • Click to edit Master text styles 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. © 2008-09, Wipro Limited 6
  7. 7. Click to edit Master title 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 • Click to edit Master text styles 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. © 2008-09, Wipro Limited 7
  8. 8. Click to edit Master title style Challenges vs. Opportunities • Click to edit Master text styles – 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 © 2008-09, Wipro Limited 8
  9. 9. Click to edit Master title 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 • Click to edit Master text styles 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 © 2008-09, Wipro Limited 9
  10. 10. Click to edit Master title 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) • Click to edit Master text styles 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 © 2008-09, Wipro Limited 10
  11. 11. Click to edit Master title 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 • Click to edit Master text styles 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 © 2008-09, Wipro Limited 11
  12. 12. Click to edit Master title 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 • Click to edit Master text styles 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. © 2008-09, Wipro Limited 12
  13. 13. Click to edit Master title 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. • Click to edit Master text styles 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: Visit us at » 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. © 2008-09, Wipro Limited 13
  14. 14. Click to edit Master title style Wipro Limited Level 3, 201 Miller Street, North Sydney, Wipro Limited #13-00, Hub Synergy Point , NSW - 2060, 70 Anson Road Australia Singapore 079905. Phone: +61 (2) 9384 8100 Phone: +65 6496 2000 Fax: +61 (2) 9394 8199 Fax: +65 6496 6323 4557 • Click to edit Master text styles Wipro Technologies 76 route de la Demi Lune, Immeuble Wipro Technologies 425 National Ave., Madeleine D, 92057 – Second level Paris La Défense Cedex 6 France Mountain View, CA 94043 USA Phone: (650) 316 3555 Phone +33 (0) 1 46 93 95 95 • Third level Fax +33 (0) 1 46 93 95 99 Fax: (650) 316 3468 – Fourth level Wipro Technologies Doddakannelli Sarjapur Road Wipro Technologies 15455 N. Dallas Parkway Suite 1450 Bangalore - 560 035 Addison India » Fifth level TX 75001 USA Phone: +91 (80) 28440011 Phone: (972) 789 7812 Fax: +91 (80) 28440256 Wipro Limited Wipro Technologies Level 40, Tower 2, Petronas Twin Tower 245 Park Avenue 24th Floor Kualalampur City Centre New York, NY 10167 USA Kualalampur– 50088 Phone: (212) 792 4256 Malaysia Fax: (212) 372 8798 Phone: +6 (03) 2168 4200 Wipro Limited Wipro Technologies Suite 209, Level II Jarir Book Store 2 Tower Center Boulevard, Building Corniche Road, Suite 2200 East Brunswick , Al Khobar NJ 08816 USA Kingdom of Saudi Arabia Phone: 732-509-1500 Phone: +966 (3) 898 4015 Wipro Limited Wipro Technologies 218, Building No. 11 Dubai Internet City Third Floor, Mimet House, PO Box 500 119 5a Praed Street Dubai, UAE London W2 1NJ. UK Phone: +971 (4) 391 3480 Phone: +44 207 087 3770 Fax: +971(4) 390 8578 Fax : +44 0207 262 5360 Wipro Consulting Services © 2008-09 Wipro Limited. All Rights Reserved. This is a Wipro registered document. The information contained herein is an intellectual property of Wipro Consulting Services and is controlled under Wipro’s document management control process. This material should not be distributed to any other persons except mentioned in the list herein. Any duplication and reuse of the material contained herein to any external resources would be considered as the infringement of intellectual property of Wipro. © 2008-09, Wipro Limited 14