CloudExtel has not been in the public eye too much. Tell us a little bit about the company.
So the company’s about eight years old. We been, as they say, sort of building and plugging away under the radar. We have not frankly had a lot of exposure publicly. The primary reason for that is because, when you are trying to build core telecom networks and infrastructure, it requires a very long gestation period.It’s not just a software, it’s not just an app. You have to build out networks across the country. And it’s very important to establish credibility with the telcos because the what are looking to do is mission-critical networks. They are part of how the overall connectivity ecosystem works, not just for telcos, but for ISPs, for content providers, for their end enterprise customers, etc.
We are serving all those aspects of the ecosystem with the infrastructure that we are building. And what we essentially do is provide that infrastructure as a service. That’s why it has taken eight years. Because we have gone from digging the ground and putting fiber underground and making that available to all the telcos, ISPs, enterprise ISPs, to rolling out small cell sites and becoming the largest small cell host in the country today.
We have wired up over almost 80,000 homes in the FTTH space, and now as we have been growing, we are moving from just building the infrastructure side to actually going into the network itself. We are working on a virtualised radio network, and content and ISP delivery network that a telco, ISP or a content provider will be to plug into, to reach their end customers.
Does being part of the Bombay gas company help with laying out the fiber network in the city?
Yeah. The heritage of the company is definitely with the parent Bombay Gas and we sort of created a partnership where they have been now supporting and funding our operations for the last eight years. We started out looking at the available pipelines that are no longer used for gas distribution, and thought, can we really leverage that to build the most robust and reliable underground fiber network in South Bombay? Since then, our footprint has obviously expanded well beyond South Bombay, but that is what really gave us the initial impetus to be able to get started and get going. We were able to go to the telcos, whether its
or at that time, Vodafone and Idea, or Tata and say we are building out this high quality, highly reliable shareable network infrastructure, would you guys like to come onboard?
So now, from just South Bombay, we are now present in over 300 cities and towns across the country.
How many small cell sites are there in the country at present?
Small cells are not just for 5G rollout. There is a substantial 4G component of it today. As per industry standards, there are over about 30,000 odd small cell sites that have already been rolled out. Of that, about one-third to one-half of those sites have been rolled out by
Jio. The balance have been rolled out by Airtel and Vodafone, and of that we have the largest market share. We have done over 4000 sites for these two telcos, and there are all primarily 4G sites.
What’s the demand like for 4G small cells?
Even in the 4G space, month on month, year on year, data consumption has continued to grow pretty substantially. We are at 19 gigs per user, per month today, and if I remember correctly, we were at 12 gigs just a year ago, and much lower than that before. And this is all coming from 4G. 5G is not there yet, and what that really demonstrates is the reliance that users have on wireless connectivity. We have don’t much fixed line infrastructure today in India to really speak of. 25 million fixed line broadband users is nothing compared to the over 500 million 4G subscriptions. This growth in 4G data densification, even with 5G auctions coming up, will continue for the next two years.
Going forward, will these 4G sites be converted to 5G, or that will be part of a separate infrastructure?
If you see what has happened historically, when we went from 2G to 3G, and more relevantly, when we went to 3G to 4G, the 4G sites came up wherever you have very high capacity usage on 3G. 3G was not taken away, but those sites were upgraded to dual technology, by upgrading the equipment and adding an additional 4G radio to bring up 4G traffic from those sites. And I think that’s exactly what we are going to see in the 5G environment. The good thing is a lot of telecom operators learned from the 3G to 4G transition, and started investing very early in hardware that would be upgradeable to 5G.
Obviously the radio band is different, and there’s nothing really you can do in software to make the same radio to radiate multiple bands. So there will be investment. That happens in radio ugprades, but the core base station technology, the back haul, switches and things like that, a lot of that is now software upgradeable, and therefore it is going to be hopefully a much easier transition from 4G to 5G.
So what’s your projection of the number of small cells that will come up with the 5G rollout from August?
Some of the industry projections that we see from a lot of analysts and consulting companies is that India needs somewhere around 2,50000 small cell sites in the next five years across all three of the major operators. What that basically means is over 5-6 lakh unique small cells to be deployed. So that’s a tremendous amount of growth that we are going to see. The first one or two years from now is primarily going to be 4G, but then after that, the huge acceleration, the hockey stick curve is going to come from 5G deployment.
What is the kind of investments you are looking at in the next five years to cater to this demand?
We are talking of hundred of crores, just for us. We are looking at our base growing from 4000 small cells to 40000 small cell sites in the next five years. That’s a conservative projection, obviously, we believe and hope that we can do a lot more than that, but that will require well over 400-500 crores for us to really pull that off, and that’s where the opportunity to scale and build a substantial network. Today, when you compare us to the mainline tower companies, we are still a startup and in the beginning of our first innings, so we have a long way to go.
Your competitors are the mainline tower companies, right?
If you look where the competition sits, you have these very large organisations that have been around for many years –
, American Tower, Ascend, Tower Vision – but their heritage has primarily been from purely the macro tower sharing space. And that’s very much infrastructure and real estate focused perspective. They also do a little bit of in-building solutions, little bit of small cells. But we have come from a heritage of doing the last mile access solutions. Our capabilities in fiber deployment are what made us so good at small cells. When everyone talks about the future of 5G, they talk about the need of high level of fiberization. The two really go hand in hand. You cannot have sites without fiber in the 5G environment. That doesn’t mean 100% fiberization, but what some of the telcos tell us is that they want to get to targets of 70-80% site fiberization today in the sites they have today, not counting the new sites that need to be rolled out. We are at an odd 40% at best in the metros, so there’s almost a doubling of the number of sites that needs to be fiberized. And then if you see what their projections are for 5G, the total number of sites themselves need to grow anywhere from 35% to 50%. As a result, that 80% number will automatically go down to 50-60%. That’s where you need to settle in the mature 5G world. 50-60% of all future 5G sites and of the network, including macro sites and small cells, must be fibered to really get the core benefits of 5G, which is very high bandwidth and very low latency.
The big tower companies are also expanding into small cells and fiberization. Do you see that as a threat to your business?
No. I think it’s an opportunity because the market is large enough. If the market has to go from 25,000 odd sites to 2,50,000 sites, the market is large enough. No single or no two or three operators can necessarily do all of it. As a young, nimble company, very hungry for growth, there are lot of problems that we can track, and we also understand the end-to-end ecosystem. And we have proven we have been able to do that because we have already cracked some of the hardest problems of some of our telco partners. We are only infrastructure providers to provide small cells in the Golden Temple complex. We are in every single ghat in Varanasi. If you look at Mumbai, all the major railway stations, entry and exit points where you have huge amounts of pedestrian traffic, we have been able to acquire and set up small sites in those locations. Even in rural areas, where the cost of installing macro towers is too high, the small cells are being used to help alleviate some of the problems of 4G penetration and drive connectivity deeper into those environments.
These are very difficult problems to solve. For the 4000 plus sites that we have done, we have rolled out more than 2200-2300 kilometres of fiber as well. So, I don’t think there’s any other company out there who has really been able to pull the mix of these two years and bring them together.
With Reliance Jio deploying their own small cells, will be your primary customers, since Vodafone-Idea is not expected to bid for too much spectrum?
has gotten themselves into a much stronger situation today. Some news came up that the government has finally come out with the approach and the process in which they are going to be taking up equity in the company. So from that perspective, we see a lot of free cash flow being opened up and available to them. Also, as we see a lot of bank guarantees now starting to get returned, and the AGR resolutions and all that, there are still a few options left for Vodafone Idea in terms of their fundraising capabiltiies, their promoter contributions and all the rest of that stuff. We have been hearing a lot of positive signs coming out of the company. As one of their partners, we are seeing them being very aggressive in their capex plannings for the current year. So I’m confident they are going to play a major role in continuing to being one of the strong players in the industry.
At the same time, if you see how Jio traditionally worked, they were very intent on figuring the model out end to end, but when it comes to finally scaling, whether it was in the tower space, they do realise that sometimes the partnership models help track some of the hardest problems, it helps to accelerate. We believe for even Jio, we do bring a lot of value add for them as potential partner in the future.
The business models of tower companies rely on tower sharing. Can you do that with small cells?
Absolutely. The unique thing about small cells is that it’s space efficient. It is much lighter than the equipment that goes into a macro tower. Plus, small cells are deployed for a specific purpose. Either, it’s a significant capacity offload in a particular area where there is a lot of density of traffic, or it is trying to enhance the coverage for data connectivity where you have minimal levels of voice and data connectivity. Typically, that’s applicable for more than one operator. The desire to be in those locations will start to converge when 5G will take up the traffic load over the next two years from 4G, and while we don’t have a lot of sharing in small cell sites today, we are starting to see some of the initial green shoots of sharing. Once we get to numbers like 2,50,000 sites deployed across the country, there will certainly be more substantial sharing.
We may not hit the kind of tenancy ratio the tower companies enjoy in the next five years, but as we build up, we may hit a tenancy ratio of maybe 1.2-1.5 potentially, essentially two guys at max sharing one small cell. That’s where our network virtualisation aspect comes in. In 5G, say two years out, we believe the small cell itself can be shared, and the technologies emerging in Open RAN are going to enable that. And we believe with the maturity we will have gotten there as a NaaS provider, we will be able to not only provide the site, but also our own fiber backhaul on an active basis, and serve multiple operators off the same 5G small cells.
What’s your business model like in the small cell space?
A substantial amount of the capex sits with us. Each operator has a slightly different preference for capex versus opex mix, but our model as a provider is to build, operate and maintain the networks and continue to do the optimsations and deliver the type of network SLAs over a very long period of time, with long-term contracts. We are not a turnkey provider where we will hand over the site to the telcos, so that entails a substantial amount of capex to make it happen. Our biggest costs are going to be rent and electricity, and then obviously the capex recovery. But unlike the tower companies, DGs are not a solution for small cells. We have to look at batteries, which are easier to maintain than diesel generators. Presently, we feed off the electricity grid, but as an industry, we have to mature and look at potential alternate sources of energy.