Energy Cost Impact on Telecom Tower Companies

Telecom companies’ power cost has three components – grid power, batteries and diesel. Grid power is the cheapest source of power and is the main source in most urban sites. Telecom sites need upwards of 99% uptime, but round-the-clock grid power is not available for most towers. When grid power is not available, the cell site shifts to battery backup. In rural India, most sites either do not have grid connectivity or have grid power availability for a very short period, and grid and battery are not sufficient to provide the high uptime levels required for a cell site. Therefore, most of these sites run on diesel generators

Power and fuel cost is the single-largest cost head for a telecom operator (8-10% of revenue for the most efficient operators). Reading into the Balance sheet of Pure telecom Infratel Player, Bharti Infratel, 37% of standalone revenue goes towards fuel cost.

Tower companies are responsible for provision of energy to the sites and for maintaining a high level of uptime. They are also responsible for providing security to cell sites. Under complete fuel-cost-passthrough contracts, tower companies had no incentive to reduce fuel pilferage or to invest in high-quality batteries or generators, which could help optimise the energy cost.

We discuss the energy cost from the perspective of the tower industry in greater detail as, Tower companies are entering into fixed-fuel-cost contracts instead of pass-through contracts. These contracts incentivize the tower company to optimize fuel cost and reduce pilferage. Under fixed-fuel-cost contracts, tower companies can work on lowering the fuel cost by investing in
batteries and security, and the efficiencies generated can be shared by the operator and the tower company.

Incurring capex on batteries and generators to optimise the power and fuel cost, which accounts for majority of its replacement capex. Indus and Bharti Infratel are already focusing on renewable energy. The operator and the tower company share the benefit of any investments by the tower company to reduce the energy cost, or to reduce pilferage.