Sanjeev Aga, Former Managing Director, Idea Cellular
The 20th anniversary of Indian Infrastructure provides a moment in time to cast one’s gaze back upon an important pillar of India’s physical infrastructure, the telecom sector. The privatisation of the telecom sector in the country is only a little older than Indian Infrastructure. Undoubtedly, the country’s biggest experiment so far with privatisation, the telecom sector has brought both pride and shame to our citizens. Pride in the manner countless young men and women working in this sector responded in this pressure cooker of competition to the rocketing needs of consumers, the way they raised their game several notches, and wrought magical change in the life of every Indian. Pride also in the capacity of our governance to rise to a challenge and produce a policy document as thoughtful and brilliant as the National Telecom Policy 1999. But also shame; shame in the manner in which the telecom sector, episodically but frequently, from inception and to this day, displays the ugly face of cronyism. We do hope that when Indian Infrastructure marks its 40th anniversary, the latter 20 years will provide reason for pride only, and none for shame.
But in this piece I wish to recall the conception of Indian telecom tower companies, the biggest of which was Indus Towers in 2007. And through the prism of Indus Towers, I will seek to identify the common thread linking the evolutionary events – from the US of 1976, to India of 2007, and to the world in 2018 and beyond – and picture how managerial ingenuity and market dynamics prod a sector from one peak of efficiency to a higher one, in which the big picture of Indus Towers is but one small dot.
Travelling back in time, I first make a pit stop on January 1, 1984, the day when the erstwhile regulated quasi-monopoly AT&T was dismembered into Baby Bells. From the days of Alexander Graham Bell, AT&T practically invented all that we knew as telephony. AT&T ran local and long distance services, call centres and copper cables, the Yellow Pages and the fabled Bell Labs. The intellectual properties and physical assets of AT&T were so formidable that they constituted what could only be described as a “natural monopoly”. But what consumers miss from a monopoly, howsoever well managed and regulated, are the fruits that competition alone can bestow, and the US Department of Justice reckoned those fruits were juicy enough to secure a consent decree, which eventually led to the 1984 landmark break-up of AT&T.
But landmark though it was, the 1984 break-up of AT&T alone would not have served the purpose of introducing full-blooded competition. Because Ma Bell, as AT&T was fondly known, owned the bulk of customers and the cream of customers. Ma Bell could and did, with understandable indignation, obstruct access to their customers by competitors. “Ma Bell has you by the Calls”, it was said. So it had required the much earlier 1976 regulatory breakthrough by the Federal Communications Commission (FCC) to both mandate and regulate inter-connect, the giant step that introduced competition within telephony. [Did you know, “Network Effect”, today a much bandied term in the context of the Amazons and the Googles and the Microsofts of our world, actually originated over a hundred years ago, in relation to none other than Ma Bell in the telecom sector. Simply put, Network Effect refers to the positive effect that the acquisition of a new customer adds to the value of the product/service for both existing and prospective customers. It is a strengthening virtual spiral and the deadliest of entry barriers in such sectors. Interestingly, the other oft-bandied term “First Mover Advantage” does not emanate from telephony, but from the game of chess. Be that as it may, in the case of telephony, to enhance competition, the FCC, in 1976, mandated inter-connect. This concept of policy mandated inter-connect, which introduced competition into seemingly natural monopolies. This reconciled the seemingly irreconcilable and represented a leap of policy imagination. A thought springs to mind. The world today witnesses the vertical rise of Network Effect-aided giga corporations like Amazon, Google and Alibaba, to name a few. Corporations so large and so powerful that the East India Company of 200 years ago seems a toddler in comparison. The difference is that the pace of technological change today is so dizzying that who knows if some yet unknown new technology will threaten and overthrow these giga corporations. But should that not happen, would the global policy czars someday contemplate “creating” competition to tame the giga corporations, like the FCC and the US Department of Justice did to AT&T a generation ago! Imponderables. The mind boggles at what lies in store over the next two decades.]
But we are now rambling and must get back to our subject. Of course, there was no public mobile telephony in 1976 or in 1984. So there were no cell sites and no towers. The time for the idea of mobility had not yet come. But it was lurking in the shadows, waiting to leap, and leap it did, a decade later. The fixed line monopolies, usually state owned, added mobile telephony to their range of services and new private competition was introduced. Enhanced competition nourished innovation and efficiencies, the sector charged ahead, and consumers benefited. We all know how mobile telephony has transformed our world.
While the benefits of competition were touted, the downsides of introducing competition in a high-cost physical infrastructure sector like mobile telephony were too many to be wished away. The sub-optimal deployment of spectrum and the duplication of expensive equipment, among others. But the most visible manifestation of waste was the mushrooming of multiple towers to host cell sites, where just one would have done.
In the late 1990s, the Indian mobile sector was reeling under massive losses. Capital was scarce. Putting up a cell site tower guzzled money and time. But for an operator who did put up a tower, the first-mover advantage was immense. There was no rental income valuable enough to trade this first mover advantage by putting up a competitor’s cell site. If at all towers were shared with a competitor, it was on a grudging one-for-one swap. But by the mid-2000s, the equations were shifting. The pace of subscriber acquisition in India was then resembling a hockey stick curve. The number of operators by then were typically three or four. It became harder for the first mover to refuse requests for hosting a competitor, because the competitor had an option. So, bilateral sharing, which was hitherto opportunistic, now became common.
Meanwhile, by the mid-2000s, many other countries had seen the emergence of independent tower companies. That model had compelling advantages; economies of scale, specialisation and access to capital based upon annuity income streams, among them. Tower companies potentially also provided a platform for possibilities beyond cell site sharing into the future. The snag in India was that the few independent tower companies that were around then were very small, while the tower base of the existing operators was very large, and impossible now to supplant. So, India would have remained locked in a sub-optimal tower infrastructure ecosystem.
It took Akhil Gupta of Bharti Airtel and Asim Ghosh of Hutchison to envision what was not visible. If an independent tower company of the required scale and capabilities did not already exist, why not configure one, as if it existed retrospectively. This was achieved by the device of these two companies and Idea Cellular pooling and transferring their towers into a new company, later named Indus Towers, in exchange for shareholding. If this financial configuration was tricky, the mindset and organisational habit changes were trickier. It was counter-intuitive, indeed schizophrenic, for competitors who brawled over every subscriber in every village lane, to be contemporaneously trusting and statesmanlike where Indus Towers was concerned. But necessity is the mother of invention, and the unthinkable did happen. Further, to programme Indus Towers for longevity, it needed the foresight to draw a line between management and shareholding, to define arm’s length commercial principles, and to embed these in the company formation. Founded in 2007, Indus Towers, by the dint of the efforts poured in by its leaders and team members, has shaped and grown with remarkably few hiccups, and is today among the country’s leading and rightfully admired infrastructure companies.
So the wheel has turned half circle. We started with what we believed was a natural monopoly. But then we covet the fruits of competition. So we move from a monopoly into multiple competing units. But now the economic inefficiencies pinch us. So after felling Humpty Dumpty from the wall, some of the king’s horses and men are putting parts of Humpty Dumpty together again, while they leave other parts to face off each other. Disaggregate for competition. Aggregate for efficiency. So long as human ingenuity is around, this wheel will keep spinning.