New Business Model for Addressing the Energy Cost/Quality Issues of Telcos In Rural India

A typical cost of ownership (TCO) percentages for the components of Base Station System (BSS)- comprising of BTS/BSC- for an Indian Telco is shown in the adjoining figure. One could easily make out the 3 big ticket cost items from there-they are telecom equipment, power (16% of BSS TCO), and civil work in that order. As Indian Telcos take the next leap forward in terms of reaching out to rural markets (average rural teledensity being 19%), they are grappling with the challenges of reducing the TCO for the rural operations. Rural markets are low-ARPU market segments and thus the solutions for the rural market need to have a fundamentally different cost structure for the business model to become sustainable. Telco’s passive network (towers, shelter, ac equipment, diesel electric generators, battery and electrical connections) sharing is already in vogue; soon to be followed by the active network (base transceiver station, microwave, radio equipment, antennas etc) sharing, which will further drive down the cost on account of telecom equipment in a 'coverage' rather than 'capacity' driven fragmented rural telecom market.
Another big ticket cost item for Telcos is Power. Power in rural India poses a dual challenge. Apart from the higher consumption costs, Telcos are also grappling with the issue of lack of uninterrupted supply which is affecting their QoS to the customers severely. Various solutions like solar power etc have been talked about but the CAPEX associated with the solar power solution is prohibitive and hence has not been picked up much.
Here is my thought in terms of creating a new solar energy based business model which will directly address the second biggest cost item for the Indian Telcos.
No, it’s not about Telcos installing the solar panels. This would require making a huge capital investments upfront and being able to reap the benefits only after 15-20 years. We all know that selling solar installations to Telcos, though a good clean technology, does not necessarily make a good business case given the ROI imperatives. An Alternate approach is where the Telcos (where vertically integrated) or the Tower Sharing Company (TSC) could form a joint outsourced Solar PowCo (Power Generation/distribution Company), similar to the existing Tower Sharing Companies. This PowCo can then sell Solar Power Purchasing Agreements (SPPAs) to all the participating Telcos/TSC in that circle. This PowCo would then install and manage the solar installations with a committed power uptake from all the participating Telcos/TSC at a fixed price for a pre-defined period (say 10 years).To finance the investment in solar installations, PowCo would re-package the SPPAs and sell them to the investors. Investors then become the legal owners of the installations and thus reap the rebates and tax benefits associated with the green energy. SPPA payments would give the investors the same return on investments as any other energy. What does the PowCo get in return?. The PowCo gets paid fees by the investor for developing, monitoring and servicing the SPPAs.

This has a potential to bring down the TCO for power by almost 30-40% making Telcos so much more competitive in the rural market segment. SunEdisson has been successfully operating similar kind of model for other sectors of US economy. Reliance, Tata being the Power and the Telco Companies could have a head start with this business model.