Boom in Telecom Sector: Emerging Tower Business

Ever Since Hewlett-Packard began its journey from a garage and became one of the world’s largest companies, the idea of a start-up has often been connected with humble beginnings. You pooled in some savings, quit your job and started with nothing but a laptop, mobile phone and a dream. 

Funds were initially raised in small installments and investments were also made in modest complements. To start small, learn and then expand was the route entrepreneurs took.

But what if you worked in an industry where a billion dollars is no big deal? What if you need hundreds of millions of dollars to start, and as much to scale up? Can you make it big in an industry that thrives on megabucks and compete with big business groups playing in the same field? Or should you just stick with pickle-making, sericulture, or a one-person consultancy? 

Welcome to the era of ivory tower start-ups. It no longer takes an industrial conglomerate and surname-led brand to start cash-rich start-ups. Investment companies are on the lookout for managers with entrepreneurial spirit and the right skill sets to start killer companies. And the combination is creating some start-ups in the big league. 

The telecom tower business is a classic example. From being almost a non-existent business few years ago, it now has all major telecom players scrambling to hive off their tower infrastructure to unlock value, and international players vying for a toehold in this growth story. And as India’s mobile subscriber base continues its fairy-tale run, the towers which power the cellular networks are enjoying a dream run too. 

Today, the country has 1,10,000 telecom towers. By 2012, it is projected to balloon three times as the mobile subscriber base touches 500 million. Is there room in it for an entrepreneur with the skill and the knowledge? “Yes,” according to Xcel Telecom MD Sandip Basu. 

Besides financial muscle, start-ups in this space need skilled teams that can set up towers fast and scale the business quickly. “And skilled manpower to set up and maintain towers is not easily available because it is still a relatively new industry,” says Mr Basu. This is where entrepreneurs with the knowledge and the urge to play the big stakes come in. 

In October 2006, Q Investment incubated Xcel Telecom, a standalone tower firm, and roped in Sandip Basu to manage it. Mr Basu had been eyeing the tower segment and knew that subscriber numbers made leasing towers to operators a viable business proposition. So he grabbed the chance. 

“I knew it was an emerging opportunity,” says Mr Basu. “But it is a very capital intensive business. Q Investment had done a lot of research in this phase. When I met them, Q Investment was already looking at tower opportunities.” Q Investment is pumping in $500 million into Xcel Telecom and is targeting 25,000 towers in three years both through expansion and acquisitions. 

Entrepreneurs looking to set up tower networks need not be overwhelmed by the need to raise large sums as a lot of companies were looking to finance these ventures, according to Mr Basu. “There is an assured cash stream and no ambiguity about accruals. Though the industry is new, it is not difficult to get funding (both on debt and equity) because of the huge growth potential.” 

The payback time for phone operators is typically more than a decade, but it is just five years or less for tower companies. Tower companies have been found to be 10% more capital efficient and 20% more operation-efficient than operators because, this is their core business. Monthly rents, varying from Rs 40,000 to Rs 1 lakh depending on location, don’t diminish but only see annual increases. While incremental costs go up only 10%, revenues increase by 80%. 

There are quite a few survival tips from industry veterans who say the telecom towers business is all about costs and scale. The first challenge, of course, is to secure capital at reasonable costs. “If you are putting up infrastructure at a cost of capital that is higher than that of operators like Airtel and Idea Cellular, then you are starting at a disadvantage. The ability to get smart capital and a moratorium for two-three years when you are scaling up operations is critical,” says Arun Kapur, president and executive director of the Srei group-backed Quipo Telecom Infrastructure.

Expansion is also crucial to grow rapidly. For instance, Bharti Airtel, also a player in this space, plans to add 30,000 towers in this fiscal year and that means nearly 100 towers would come up each day. 

And a tight lease on costs, that good old startup virtue, would be required too. “It is essential to have the ability to bring operating expenses down. With operators lowering the tariffs and reaching out to lower paying subscribers, they want partners who can take costs off on the operating side. The ability to innovate and bring down capex and opex is crucial,” says Mr Kapur. 

Also, the ability to bring in more tenants on towers is important. The more the number of operators sharing the tower, the more the rent and quicker the returns on investment. With a single tenant, the gestation period can be as long as ten years. “If you get the number of tenants right, you got the business model right,” he adds. 

A big boon for the industry is the absence of any kind of licensing, though the telecom sector is highly regulated. So, the entry barriers are not high. But on the flip side, the setting up of a single telecom tower requires nearly 40 clearances, ranging from those from the Wireless Planning Commission and municipal corporation to soil investigation clearance and state electricity boards. These are, clearly, barriers to entry despite the massive need to expand telecom networks to every nook and corner of the country. While the huge demand for towers continues to make it a lucrative industry, those who started earlier are better placed. Firms which have already signed master service agreements are better than those starting up now. 

With the mushrooming of many small tower companies that have just about 50 to 100 towers in their portfolio, acquisition opportunities are also emerging in the sector. Xcel Telecom, for instance, has an acquisition war chest of $2 billion. 

Sunil Bharti Mittal: The Unsung Hero of the Telecom Sector.

The Unsung Hero of the Telecom Sector.

The son of a politician, Sunil Mittal is from the town of Ludhiana in Punjab. He has built the Bharti group, along with two siblings, into India's largest mobile phone operator in just ten years. The UK based telecommunication giant, Vodafone and Singapore's SingTel both own stakes in the recently renamed flagship company Bharti Airtel. The group also has partnerships with Axa for insurance and with the Rothschild family for exporting fruits and vegetables.

He has been Chairman & Managing Director of Bharti Group since October 2001.

Entrepreneurial Ventures

Residing in Delhi, he is married, with three children. A first generation entrepreneur, he started his first business in 1976 at the age of 18, with a capital investment of Rs 20,000 (U$1500) borrowed from his father. His first business was to make crankshafts for local bicycle manufacturers.

In 1980 he sold his bicycle parts and yarn factories and moved to Mumbai.

In 1982 he became the exclusive dealer for Suzuki Motors's portable electric-power generators imported from Japan. The importing of telecom equipment were banned by the Indian Government as ITI (Indian Telecom Industry ) monopoly practices & sole OEM for Department of Telecommunication.[citation needed]

He established the first company to manufacture push button telephones in India. He was one of the first Indian entrepreneurs to identify the mobile telecom business as a major growth area and launched services in the city of Delhi and the National Capital Region in the year 1995.

Tie-Up with Wal-Mart

In November 2006, he struck a joint venture deal with Wal-Mart, the US retail giant, to start a number of retail stores across India.

In July 2006, he attracted many key executives from Reliance ADAG, NIS Sparta and created Bharti Comtel.

How does he relax? "I used to play golf before, now sometimes I play tennis. But I thrive on my work. For me, work is love, not stress. But I won't say there's no stress. As you come to the top of the pyramid, the intensity of competition, of jealousy, is high."

What about his family? "I have a daughter who's 17 and twin sons who are 13. I don't get to spend much time with the family. Everybody has a job to do and I think I was ordained to do what I'm doing. My family is supportive, however. Whenever I'm with them I try to spend some quality time. We have an occasional holiday. First generation entrepreneurs always have this problem."

Is the business environment in India changing to enable operations with integrity? Replies Mittal: "I've walked the corridors of power and there's a big positive change, which is very palpable at the higher level, since licensing has mostly been dismantled. At the lower levels, however, things are quite the same. But once change starts from the top there is some impact downwards..."

Don't Search, Just Dial...

VSS Mani
Chasing a dream with Rs 50k in your Pocket

Starting with just Rs 50k, V.S.S. Mani has built a business with an annual turnover of Rs 100 crore and a valuation in excess of Rs 500 crores. Just Dial is a case of getting it right the second time around. Not giving up after having to wind up Ask Me, VSS has taken his phone-based business model to print, online and SMS. He is now busy executing an International rollout.

Where did the Idea Come from?

Ok so going back to the early days, Mani was actually doing CA articleship along with Graduation. But some where down the line, he had to drop his CA exams because he had to contribute to the family income. So he took up a sales job with a yellow pages company called United Database India (UDI) in 1987. He worked with the company for about two years. While working there, he thought – why not to have something like this over the phone? In 1989, he got some like-minded people to join him and started a company called Ask Me.

Mani came from a middle class family, where if there is no (other) family income, one could set back to zero and sometimes even minus. He needed more capital. From 1992 to 1996, he worked on different ideas to survive, and to save some money to start Just Dial. This included a concept called Wedding Planner, which was in tie-up with The Times of India. He just used to dream of numbers and millions of people using his services.

Mani could not start Just Dial because he didn’t had enough capital. In those days, a phone line used to cost Rs 15,000 under OYT or else one had to wait for a few years. He did not have Rs 15,000 for a phone. He applied by paying Rs 3k, and actually came a year later! Finally, he started Just Dial, with number 8888 8888, some borrowed furniture, rented Pcs and with a capital of Rs 50,000!

Call for Information, but share some too.

The next time you call Just Dial for some information and a sweet little voice on the other end of the line makes a plea for your name, phone number and email address, please don’t say: “I’d rather not give it.” Just give it. The tele-information provider, which is present in 42 cities, receives on an average more than three million enquiries per month nationwide. And 11 years after Just Dial was flagged off, more and more callers are beginning to realize the virtues of providing the operator with their own details. As V.S.S. Mani, Founder & MD, Just Dial explains: “ Till date, we have never ever given out our database to telemarketers, but we just don’t have the time to explain it to people over the phone.”

Well, this is how it really works. When you call Just Dial, it is obliged to inform the establishment/service provider about your inquiry. As Mani puts it: “Our revenues come from sponsored customers, and sponsored customers need to see tangible results. Our sole purpose of being is to help people out with information, the end result of which leads to sales for paying clients.

Apart from its core function of just giving numbers and addresses of specific establishments, Just Dial also offers a plethora of services through its vendors; these include offers on electronic products, travel packages, medical services and moving and packing services.

Boasting a turnover of Rs 100 crore, a database of 2 million business records and 10 million regular users, along with 2700 employees across 12 Indian cities, Just Dial has come a long way. In 1996, Mani landed in Mumbai with a princely sum of Rs 50,000 to find a home and an office space. Both weren’t easy to find. What Mani did find were generous relatives, who offered him an empty flat in one of the city’s far-flung suburbs, rent free. Mani soon after succeeded in renting a 25-square feet office in Mumbai’s financial district, Nariman Point, for Rs 5000 a month.

Mani was a part of the trio that started the now all-but-defunct Delhi-based ‘Ask Me’ Service. “We were much ahead of the times. Those were the days when people had to wait years to get phone connections. The idea was good and well-appreciated, but we didn’t see any financial gains from it,” he says.One of the invaluable lessons he was taught during his experience at Ask Me was that the phone number for this service would simply have to be easiest one to remember. Enter 8888888. Today the number is no longer seven eights, but 39999999 – and here’s the best part – irrespective of which city in the country you are calling from, the number remains the same.

In mid-march, Just Dial took an online avatar, somewhat belatedly, one could argue. But Mani say’s he’s already getting page views of 220,000 per day, which he expects to take up to 1 million by the year end. But this seems one business model that work best with Voice.

References:
Business Today
Deepti Khanna Bose

Dhiru Bhai Ambani

Dhiru Bhai Ambani built India's largest private sector company. Created an equity cult in the Indian capital market. Reliance is the first Indian company to feature in Forbes 500 list.

Dhirubhai Ambani was the most enterprising Indian entrepreneur. His life journey is reminiscent of the rags to riches story. He is remembered as the one who rewrote Indian corporate history and built a truly global corporate group.

Dhirubhai Ambani alias Dhirajlal Hirachand Ambani was born on December 28, 1932, at Chorwad, Gujarat, into a Modh family. His father was a school teacher. Dhirubhai Ambani started his entrepreneurial career by selling "bhajias" to pilgrims in Mount Girnar over the weekends. He was the second son of a school teacher. Dhirubhai Ambani is said to have started his entrepreneurial career by selling "pakora" to pilgrims in Mount Girnar over the weekends. When he was 16 years old, he moved to Aden,Yemen. He worked as a dispatch clerk with A. Besse & Co. Two years later A. Besse & Co. became the distributors for Shell products and Dhirubhai was promoted to manage the company’s oil-filling station at the port of Aden.

Assisted by his two sons, Mukesh and Anil, Dhiru Bhai Ambani built India's largest private sector company, Reliance India Limited, from a scratch. Over time his business has diversified into a core specialisation in petrochemicals with additional interests in telecommunications, information technology, energy, power, retail, textiles, infrastructure services, capital markets, and logistics.

Dhirubhai Ambani is credited with shaping India's equity culture, attracting millions of retail investors in a market till then dominated by financial institutions. Dhirubhai revolutionised capital markets. From nothing, he generated billions of rupees in wealth for those who put their trust in his companies. His efforts helped create an 'equity cult' in the Indian capital market. With innovative instruments like the convertible debenture, Reliance quickly became a favorite of the stock market in the 1980s.



In 1992, Reliance became the first Indian company to raise money in global markets, its high credit-taking in international markets limited only by India's sovereign rating. Reliance also became the first Indian company to feature in Forbes 500 list.

Despite his almost Midas Touch, Ambani has been known to have flexible values and an unethical streak running through him. His biographer himself has cited some instances of his unethical behavior when he was just an ordinary employee at a petrol pump in Dubai. He has been accused of having manipulated government policies to suit his own needs, and has been known to be a king-maker in government elections. Although most media sources tend to speak out about business-politics nexus, the Ambani house has always enjoyed more protection and shelter from the media storms that sweep across the country.

Dhirubhai Ambani was named the Indian Entrepreneur of the 20th Century by the Federation of Indian Chambers of Commerce and Industry (FICCI). A poll conducted by The Times of India in 2000 voted him "greatest creator of wealth in the century".