Telcos forced to hive off assets, share network to bear costs of fiberisation: Crisil

Rating agency CRISIL said that telcos will be forced to hive off assets, share networks, or diversify so that they can meet the financial needs for fiberisation and be ready for 5G despite tightened purse strings.
“India is set to witness some tectonic shifts in the fiberisation landscape and the birth of new business models among telcos and tower companies around the launch of 5G,” said Hetal Gandhi- director and Rounak Agarwal - senior research analyst at CRISIL Research.

The rating agency in its report on Monday said that the telcos saddled under a debt of Rs 4.3 lakh crore as of March 2019 will need investments of up to Rs one lakh crore only in laying fibre networks over the next 2-3 years.

This specially because the industry is at the cusp of 5G which requires fiberisation levels of over 70%, versus 25-30% levels at present. The report commented on how the upcoming spectrum auctions will add to the financial burden with process fixed for 5G band being higher than global prices. “..the reserve price recommended by the Telecom Regulatory Authority of India (TRAI) for 5G spectrum bands is much higher than in countries like the United Kingdom or South Korea. How much money there is for investment is crucially linked to price-setting at the auctions,” the report stated.

Crisil Research says one way that the telcos could absorb the impact is to -restrict 5G launch in the initial years to metros and select circle ‘A’s that show high data consumption appetite. Or, they could evolve business models for sharing fibre infrastructure.

The report named – ‘5G is here, but where’s the fibre?’ also commented on how telcos are hiving off their tower and fibre assets to bring in more investments visa sales or InviTs. “It imparts flexibility to the hived off entity for providing services to third parties in the industry, and thus enables them to pursue topline growth opportunities. It also reduces capex requirements, deleverages the balance sheet, and leads to higher valuation of entities as cash flows get predictable. India, too, has learnt from global cases,” wrote Gandhi and Agarwal. It commented that while Bharti Artel and Jio have hived off their tower and fibre business ...the ”large incumbents are in talks to form a joint venture for sharing fibre and in order to reduce capex”.