The government has rejected telecom regulator TRAI’s proposal that stand-alone tower companies be made to share a certain per cent of their revenues with it.
All major telcos including the likes of Bharti Airtel, Reliance Communications, Vodafone Essar, Idea Cellular and Tata Teleservices have hived off all their physical infrastructure (including towers) into separate companies. While telecom companies pay 6-10% of their gross revenues to the government as licence fee, stand-alone tower companies are not subject to this levy.
Hiving off their infrastructure into separate tower arms, therefore, enables all telcos to make significant savings. For instance, Bharti Airtel earned Rs 1,000 from Infratel, its hived off tower arm, during Q1 in 08 and will not have to share any revenues from this to the government. But prior to the hive off, Bharti paid revenue share on its combined revenues.
“Currently, a telecom infrastructure company needs only a registration. We had told the government that this registration should be converted into a licencing regime. A licencing regime implies these companies must pay a certain per cent of their revenues as licence fee. The department of telecom (DoT) had informed us that it has rejected our suggestion for a licencing regime for these companies,” Trai chairman Nripendra Misra told ET.
In addition to the hived off tower arms, the DoT move will also benefit all independent tower companies such as GTL Infrastructure, American Tower Co, Quippo Telecom Infrastructure and Essar Telecom Infrastructure amongst others. Executives of tower companies contacted by ET said they would comment on the development only if the DoT officially notified them of it.
Trai had suggested this to the government after evaluating the potential of tower companies in India. This is best explained by the fact that the country, which has about 190,000 telecom towers at present, will have to add an additional 150,000 towers by 2010 to maintain the current growth rates. Besides, with several new operators set to launch mobile services over the next 12 months, infrastructure companies are also set to rake in huge revenues by sharing their facilities.
A possible reason for DoT rejecting Trai’s proposal is that an independent study conducted by the regulator had established that telcos move to hive off their tower businesses into separate companies did not have a major impact the government’s revenues. As the business model involves several complex agreements between the parent company and the hived off tower arm, Trai had examined the possibility of both companies cross subsidising each other.