Third Party Passive Infrastructure sharing is a new concept in the Indian telecom industry and is yet to be successfully proven. Thus achieving scalability could face problems.
Infrastructure sharing in the wireless telecom sector is a new concept in India. The growth phase in the cellular subscriber base in India is expected to continue. With an increasing pressure on average revenue per user and declining usage charges, the thrust among the telecom operators has shifted to cost cutting. The telecom operators are now strongly contemplating sharing telecom infrastructure to save time and cost. Internationally, although passive infrastructure sharing has been successful in the US, it has not yet been proven in Asia.
Current High Demand for Telecom Sites may plateau
Our rollout plan is driven by the projected growth in the Indian cellular subscriber base. The overall tele-density from current level of 26% with a subscriber base of 301 million, as at March 2008, is expected to reach to 500 million subscribers in 2010, a CAGR of 41%. However, over a period of five years, we may face the risk of the Indian wireless market not growing at the projected growth rate as stated above, resulting in stagnant/slowdown of tower demand.
Decrease in demand for telecom sites will affect our operating results
Many of the factors affecting the demand for telecom sites could materially affect our operating results. These factors include:
Consumer demand for wireless services
The financial condition of wireless service providers
The ability and willingness of wireless service providers to maintain or increase their capital expenditures
The growth rate of wireless communications or of a particular wireless segment
Governmental licensing of spectrum
Mergers or consolidations among wireless service providers
Increased use of network sharing arrangements or roaming and resale arrangements by wireless service providers
Delays or changes in the deployment of 3G or other technologies
Zoning, environmental, health and other government regulations and Technological changes
The demand for telecom sites is dependent on the needs of wireless service providers. In the event that there is a significant variation in any of the aforesaid factors, our business, our growth plans and results of operations may be significantly affected.
If our wireless service provider customers consolidate or merge with each other to a significant degree, our growth, revenue and ability to generate positive cash flows could be adversely affected.
Significant consolidation among our wireless service provider customers may result in reduced capital expenditures in the aggregate because the existing networks of many wireless carriers overlap, as do their expansion plans. The Indian wireless telecom market has experienced consolidation during the past couple of years. There are still numerous wireless operators in India with at least 2-3 GSM operators and 1-2 CDMA operators for each circle. There is potential for further consolidation among the operators to realize a larger operating scale and subscriber base. Consolidation among wireless carriers would also increase our risk that the loss of one or more of our major customers could materially decrease revenues and cash flows.
We may not get sufficient number of sites for fresh roll out. We also face risk of selecting site location, constructing & acquiring sites, as well as managing the new portfolio.
We, through our management and promoter company GTL Ltd., possess experience in telecom infrastructure engineering, tower management, and network consultancy including identification of carrier's needs according to its capital expenditure, marketing strategy, network planning, design, drive test and network optimisation, site engineering & documentation, site construction, OEM's equipment installation, testing, commissioning and integration, customer acceptance and training and market expertise from its current coverage in tower portfolio and services. However, we still face risks in selecting the right site location, in constructing and acquiring sites, in managing the new portfolio and in getting sufficient number of sites for fresh roll outs.
Business Concentration Risks
We derive major portion of our revenues from few customers, loss of any customer will have a materially adverse impact on our business and revenue.
The telecom sector presently has a limited number of players. Consequently our business is also dependent on few customers. In the event any one or more customers cease to continue their business with us, our business may be adversely affected.
We derive major portion of our revenues from few geographical regions in India, saturation of demand from these regions will impact our business and revenue.
Currently, GTL Infrastructure has its presence only in India. In addition it has not yet entered all the geographical regions.
Covenants in some of the agreements that we have entered into with wireless carriers could affect our business by limiting our flexibility.
We have currently entered into contracts with leading Operators to provide the Operators passive telecom infrastructure facility and services. We have also executed two letters of intent with National and Regional Cellular Operators and a Term Sheet with one Regional Cellular Operator, the terms of which may undergo certain changes which will be reflected in the contracts that would be executed with such Cellular Operators.
We face the risk of liability from the Service Level Agreements with the Operators
We have Service Level Agreements with operators containing specific key performance parameters. In the event of not meeting these key performance parameters, we are liable to pay fixed penalties to the operators, which may reduce our profitability.
We face competition from other independent tower infrastructure companies
The main competitors for our business are other independent tower infrastructure companies who provide similar services. We also face competition from Telecom Service Providers agreeing on Passive Infrastructure sharing among themselves.
Telecom Regulatory Authority of India (TRAI) allows sharing of infrastructure by telecom operators. This could have an adverse impact on our business. Some of the Telecom Operators have planned to/ already hived off their tower infrastructure/passive infrastructure into separate companies. Some operators have even merged their tower entities. All these may give tough competition to our green field rollouts.
Increasing competition in the tower industry may create pricing pressures that may adversely affect us
Our industry is highly competitive, and our customers have numerous alternatives for leasing antenna space. Some of the wireless carriers who own towers presently may allow co-location on their towers and are larger and have greater financial resources than we do. Competitive pricing pressures for users on towers from these competitors could adversely affect our provisioning fees and services income. In addition, if we lose customers due to pricing, we may not be able to find new customers, leading to an accompanying adverse effect on our profitability. Increasing competition could also make the acquisition of high quality tower assets more costly.
Setting up of towers is subject to receipt of regulatory approvals; absence or delay in receipt of the requisite regulatory approvals could affect our business and results of operations.
Our business is derived from GBT and RTT constructed by us. There are no specific industrial approvals required to be obtained by us for carrying on our business, however, certain approvals of general nature are required by us to setup our GBTs and RTTs. Out of the general approvals, we have received certain regulatory approvals that are required and in other cases we have made applications to the local authorities and are awaiting the approvals from them. We have, wherever required, made applications for conversion of use of the lands (on which our towers are constructed) from agricultural use to non-agricultural use. These applications are made by us from time to time.
We could have liability under environmental laws
Our operations, like those of other companies engaged in similar businesses, are subject to the requirements of various environmental and occupational safety and health laws and regulations, including those relating to the management, use, storage, disposal, emission and remediation of, and exposure to, hazardous and non-hazardous substances, materials and wastes. As owner, lessee or operator of cell sites, we may be liable for substantial costs of remediating soil and groundwater contaminated by hazardous materials without regard to whether we as the owner, lessee or operator, knew of or were responsible for the contamination. We may be subject to potentially significant fines or penalties if we fail to comply with any of these requirements. The current cost of complying with these laws is not material to our financial condition or results of operations. However, the requirements of these laws and regulations are complex, change frequently, and could become more stringent in the future. It is possible that these requirements will change or that liabilities will arise in the future in a manner that could have a adverse effect on our business, financial condition and results of operations.
We rely extensively on our IT systems to provide connectivity across our business functions through our software, hardware and network systems. Any failure in our IT systems or loss of connectivity or any loss of data arising from such failure can impact us adversely.
Our success depends upon our ability to retain the Key Management and other Personnel
Our success will significantly depend on the expertise, experience and continued efforts of our key management and other personnel. Our future performance may be affected by any disruptions in the continued service of these persons. There is a dearth of managerial talent, including key managerial personnel, with related business experience. The loss of one or more of our key managerial personnel may impact our ability to maintain growth in our business.
Due to the long-term expectations of revenue from user leases, the tower industry is sensitive to the creditworthiness of its users
Due to the long-term nature of our user leases, we, like others in the tower industry, are dependent on the continued financial strength of our users. Many wireless service providers operate with substantial leverage. If one or more of our major customers experience financial difficulties, it could result in non-collectible accounts receivable and our loss of significant customers and anticipated lease revenues.
We are subject to risks arising from currency and interest rate fluctuations, which could adversely affect our business, financial condition and results of Operations
The Company has exposure to US Dollar and Euro currency on account of long term overseas funds borrowings. The Company plans to use this money to part finance its import requirements of towers, shelters, other accessories and for Acquisitions/ Joint Ventures / wholly owned subsidiaries overseas.
New technologies could make our tower leasing business less desirable to potential users and result in decreasing revenues
The development and implementation of new technologies designed to enhance the efficiency of wireless networks could reduce the use and need for tower-based wireless services transmission and reception and have the effect of decreasing demand for tower. New technologies may make our site provisioning services less desirable to potential users and result in decreasing revenues. Such new technologies may decrease demand for site provisioning and negatively impact our revenues. In addition, the emergence of new technologies could reduce the need for tower-based broadcast services transmission and reception. The development and implementation of any of these and similar technologies to any significant degree could have an adverse effect on our Operations.
Any business has to be conducted not only in a profitable manner, but also in the right manner with all operational, ethical, legal, financial and other risks being accounted for. In the long run, this could well be the difference between businesses that survive and excels and those that fizzle out despite providing quality services.