TowerXchange-Issue_12

Tower Xchange

Tower Xchange

Plus: TowerXchange ranks the world’s top 110 towercos by tower count

ISSUE 12 | April 2015 | www.towerxchange.com

Journal of the telecom tower industry in EMEA, CALA and Asia

TowerXchange CALA:< Peru: the next towerco land grab?

< How Telesites and AT&T transform Mexico

< SBA’s Bagwell on international growth

TowerXchange Africa:< Latest on Telkom and MTN’s towers in SA

< Unlocking the potential of Mozambique

< MENA heats up: Zain selling towers

TowerXchange Europe:< NEW! Europe tower counts and deal history

< The unique structure of the UK tower market

< Russian tower market: SLB frozen, BTS hot!

TowerXchange Asia:< India special: Indus, Viom and Infratel

< The third phase of the Myanmar rollout

< Who has the flex to buy next in Indonesia?

“We’re on a mission of operator disarmament”– Akhil Gupta, Chairman, Bharti Infratel

www.towerxchange.com | TowerXchange Meetup | 11| TowerXchange Issue 12 | www.towerxchange.com2

(Chairman) Daniel Lee Managing DirectorIntrepid Advisory Partners

Akhil GuptaChairmanBharti Infratel

Michel FaivreDirecteur Programme Partaged’Infrastructure AMEAOrange

Terry RhodesActing CEOEaton Towers

Marc GanziPresident, Digital Bridge &Mexico Tower Partners

Arun KapurExecutive ChairmanIrrawaddy Green Towers

James Maclaurinformerly CEOedotco

Areef KassamDirector of InfrastructureGSMA Mobile for Development

Ayman Al AdlDirector - TMTStandard Chartered Bank

Chris Gabrielformer CEO, Zain AfricaSenior Adviser, Macquarie Groupand Chairman, Clean Power Systems

Chuck GreenCEOHelios Towers Africa

Suresh SidhuCEOedotco

Hal HessEVP, International Operations andPresident, EMEA and Latin AmericaAmerican Tower

Nobel TanihahaPresident DirectorPT SOLUSI TUNAS PRATAMA (STP)

Umang DasChief MentorViom Networks

Maria ScottiCEOTorrecom

David MeganckFounder and COOAcsys

Gary StauntonCEOLikusasa Group

Laurentius HumanSenior Director Corporate FInanceJabil

Nina TriantisManaging Director, Global, Head of Telecoms & MediaStandard Bank

Kurt BagwellPresident InternationalSBA Communications

Jim EisensteinChairman & CEOGrupo TorreSur

Riana DonaldsonManager: International Network Operations SupportVodacom

Bimal DayalCOOIndus Towers

Inder BajajCEOHelios Towers Nigeria

Tunde TitilayoVice ChairmanSWAP International

Thorsten SchaeferCEOazeti Networks

Jeffrey EldredgePartnerVinson & Elkins

Enda HardimanManaging PartnerHardiman Telecommunications Ltd.

Adeel BajwaSenior GM of Legal Affairs and ContractsWarid Telecom

With special thanks to the TowerXchange “Inner Circle”About TowerXchange

TowerXchange is your independent community for operators, towercos, investors and suppliers interested in EMEA, CALA and Asian towers. We’re a community of practitioners formed to promote and accelerate infrastructure sharing. TowerXchange don’t build, operate or invest in towers; we’re a neutral community host and commentator on telecoms infrastructure.

The TowerXchange Journal is free to qualifying recipients. We also provide webinars and regular meetups. TowerXchange monetizes this community through hosting annual Meetups and the sale of advertising, without compromising editorial integrity.

TowerXchange was founded by Kieron Osmotherly, a TMT community host and events organizer with 16 years’ experience, and is governed with the support and advice of the TowerXchange “Inner Circle” – an informal network of advisors

Our informal network of advisers:

© 2015 Site Seven Media Ltd. All rights reserved. Neither the whole nor any substantial part of this publication may be re-produced, stored in a retrieval system, or transmitted by any means without the prior permission of Site Seven Media Ltd. Short extracts may be quoted if TowerXchange is cited as the source. TowerXchange is a trading name of Site Seven Media Ltd, registered in the UK. Company number 8293930.

Contents

Regular features

5 CALA tower counts, deals and news15 Africa tower counts, deals and news31 Asia tower counts, deals and news38 Europe tower counts, deals and news45 AMT versus SBA (versus everyone else!)52 Top 110 towercos by tower count

70 122 216

154

CALA: Peru, Brazil & Mexico Plus SBA and Innovattel interviews

NEW! Europe: market overviewUK and Russia case studies

Who’s who: innovations in RMS,ESCOs, structures and supply chains

Africa: South Africa, Nigeria,Mozambique and MENA

75 Towerco perspectives: SBA and Innovattel84 Peru: the next towerco land-grab?98 Unique perspectives on Brazil’s towers110 Telesites and AT&T shake up Mexico

123 TowerXchange’s intro to European towers128 Unique structure of the UK tower market129 Arqiva: the broadcast and telecom synch141 Russia: SLB frozen, BTS hot!

216 Our famous directory of RMS and ILM firms228 Towerco or powerco?250 Rooftops, masts and towers

175 Asia: India, Indonesiaand Myanmar

180 India: Infratel, Indus and Viom interviews196 Indonesia: a closer look at the STP-XL deal202 Detecon’s guide to South Asian towers206 The next phase of the Myanmar rollout

27 South African towers for sale?155 BCTEK lease up Nigerian police network158 Unlocking the potential of Mozambique167 MENA heats up: Zain selling towers

www.towerxchange.com | TowerXchange Issue 12 | 3| TowerXchange Issue 6 | www.towerxchange.com3

TowerXchange Meetup calendar

< TowerXchange Meetup Americas, April 28-29, 2015< TowerXchange Meetup Africa, October 1-2, 2015< TowerXchange Meetup Asia, November 24-25, 2015< TowerXchange Meetup Europe, Q1, 2016< TowerXchange Meetup Americas, June 13-14, 2016

Africa’s leading, independent, telecom tower company

HTA acquires, builds and manages wireless telecom infrastructure, leasing it to mobile network operators across Ghana, Tanzania and the Democratic Republic of Congo.

HTA’s model of shared telecoms infrastructure, and its scale, helps to deliver improved efficiency and network quality and reliability for operators, reduced costs for users and increased accessibility.

Find out more about our business www.heliostowersafrica.com

6162_HTA_Ad_355x255mm_AW.indd 1 31/10/2012 16:43

TowerXchange’s analysisof the independent tower market in CALA

2015: a year of consolidation in Brazil, restructuring in Mexico, regulatory turmoil in Chile, growth in Peru and Central America… And what of Argentina?

Q1-3 2014 was relatively quiet for the CALA tower industry if compared to the wave of transactions that took place in 2013. But the Brazilian market swung back into life in Q4 with SBA securing another (the last?) tranche of towers from Oi, and AMT deploying over US$2bn to acquire a large portfolio from TIM and to absorb BR Towers, a portfolio previously acquired through sale and leasebacks (SLBs) with Vivo and Oi and supplemented by BTS. With the majority of operator-captive towers now transferred to towercos, America Movil’s Claro towers notwithstanding, 2015 will be a year of consolidation in Brazil. AMT and SBA will concentrate on the novation of leases, update of asset registers and integration of acquired assets, and the number three towerco GTS refocusing on their own organic growth and international plans after their sale process in 2014 did not attract any satisfactory offers. Further tower deals in Brazil are more likely to come from trade acquisitions, as middle market towercos mature and are acquired, than from SLBs. It will be interesting to see whether the Lei das Antenas has any noticeable effect in 2015 on the notoriously complex and time-consuming permitting regime in Brazil, unlocking huge pent-up demand for build to suit towers in the country.

2015 will be an interesting year for Mexico. In fact, not only we are paying close attention to America Movil’s creation of a carve-out towerco in response

www.towerxchange.com | TowerXchange Issue 12 | 5| TowerXchange Issue 12 | www.towerxchange.comXX

American Tower

SBA Communications

Grupo TorreSur

5,000 10,000 15,000 20,000 25,000 30,000 35,000

18,851

7,000

Telesites 10,800

6,185

3,496 8,412

1,163 457

498

Dominican Republic

American Tower

SBA Communications

Grupo TorreSur

5,000 10,000 15,000 20,000 25,000 30,000 35,000

18,851

7,000

6,185

3,496 8,412

1,163 457

498

Dominican Republic

1000

800

600

400

200

Continen

tal*

Centen

nial

Torres

Unid

as

Mex

ico Tower

Partner

s T4U

NMS*

**

400

860

550 540

350465

146300

180192200209250 175 1305874

4051 40

86

93

350

65

110

220

1k

400

100

QMC ** CSS

Torrec

om

Brazil

Tower

Company IIM

T

Innova

ttel**

**

Highlin

e do B

rasil

Teleto

wer

Domin

icana

Z Sites

Intel

li Sit

e

Solu

tions

Rede S

ul

Tocsa

Phoenix

Tower

Inter

national

Torre O

nline

Skysit

es

Teleco

m Torr

es

American Tower

SBA Communications

Grupo TorreSur

5,000 10,000 15,000 20,000 25,000 30,000 35,000

18,851

7,000

Telesites 10,800

6,185

3,496 8,412

1,163 457

498

Dominican Republic

American Tower

SBA Communications

Grupo TorreSur

5,000 10,000 15,000 20,000 25,000 30,000 35,000

18,851

7,000

6,185

3,496 8,412

1,163 457

498

Dominican Republic

1000

800

600

400

200

Continen

tal*

Centen

nial

Torres

Unid

as

Mex

ico Tower

Partner

s T4U

NMS*

**

400

860

550 540

350465

146300

180192200209250 175 1305874

4051 40

86

93

350

65

110

220

1k

400

100

QMC ** CSS

Torrec

om

Brazil

Tower

Company IIM

T

Innova

ttel**

**

Highlin

e do B

rasil

Teleto

wer

Domin

icana

Z Sites

Intel

li Sit

e

Solu

tions

Rede S

ul

Tocsa

Phoenix

Tower

Inter

national

Torre O

nline

Skysit

es

Teleco

m Torr

es

American Tower

SBA Communications

Grupo TorreSur

5,000 10,000 15,000 20,000 25,000 30,000 35,000

18,851

7,000

Telesites 10,800

6,185

3,496 8,412

1,163 457

498

Dominican Republic

American Tower

SBA Communications

Grupo TorreSur

5,000 10,000 15,000 20,000 25,000 30,000 35,000

18,851

7,000

6,185

3,496 8,412

1,163 457

498

Dominican Republic

1000

800

600

400

200

Continen

tal*

Centen

nial

Torres

Unid

as

Mex

ico Tower

Partner

s T4U

NMS*

**

400

860

550 540

350465

146300

180192200209250 175 1305874

4051 40

86

93

350

65

110

220

1k

400

100

QMC ** CSS

Torrec

om

Brazil

Tower

Company IIM

T

Innova

ttel**

**

Highlin

e do B

rasil

Teleto

wer

Domin

icana

Z Sites

Intel

li Sit

e

Solu

tions

Rede S

ul

Tocsa

Phoenix

Tower

Inter

national

Torre O

nline

Skysit

es

Teleco

m Torr

es

Estimated number of towers owned or managed by towercos in CALASource: TowerXchange research, quarterly filings, site lists

* Continental Towers owns a portfolio of ~1,000 towers across Colombia, Costa Rica, Panama, Nicaragua, Guatemala, El Salvador, Jamaica and Honduras** QMC Telecom owns approximately 500 towers in Brazil, plus an unknown quantity in Mexico and Puerto Rico*** NMS owns 465 towers across Nicaragua, Mexico, Colombia and Peru**** Innovattel (Torresec) owns a portfolio of 209 towers across Puerto Rico, Colombia, Ecuador and Peru

empowering communication

effectivelycost-efficient

energizingcommunities

Empowering tomorrow’s connected world

www.edotcogroup.comConnectivity is at the core of everything we do. Providing first-of-its-kind regional accessibility, our telecoms infrastructure reach enables us to touch communities and expand communication businesses across Southeast Asia.

Enabling connectivity for the future

to regulatory pressure, but we are eager to track AT&T progresses now that it has acquired both Iusacell and Nextel Mexico. The U.S. giant will bring a breath of fresh air and capital to the country and definitely shake things up for Movistar, which could see its position as second Mexican carrier seriously threatened.

In the meantime, all indications are that Telcel’s towers will be kept as close to the America Movil mothership as possible – Telcel has apparently transferred 10,800 towers to new towerco Telesites. Meanwhile, the rest of Mexico’s tower market resembles Brazil’s in that the majority of non-America Movil assets have been transferred to towercos, most the new build will be undertaken by towercos, and a growing layer of middle market towercos have entered the market – although few are mature enough to be subject to trade acquisitions as early as 2015.

The Chilean tower market remains hindered by a regulatory regime that was supposed to help but certainly seems to be hindering the local tower industry and its investment in ICT infrastructure. Enterprising middle market towercos are making good progress in Peru and Central America, SBA Communications’ traditional stronghold. And what of Argentina? The ‘sleeping giant’ of the CALA tower industry is the region’s #2 mobile market, but remains sheathed in macro-economic turbulence and government policy that raises the spectre of nationalisation of assets. As such concerns gradually recede, expect the tower industry to heighten their ‘watching brief’ over Argentina in anticipation of


Major tower transactions in Latin America 2011/2014

Date

Q3 2013

Q4 2013

Q4 2013

Q4 2013

Q3 2014

Q4 2014

Q3 2013

Q2 2014

Q3 2013

Q2 2014

Q3 2013

Q2 2013

Q2 2013

Q3 2012

Q3 2012

Q1 2013

Q1 2013

Q4 2012

Q1 2013

Q4 2012

Q4 2012

Q2 2012

Q1 2012

Q4 2011

Q3 2011

Q3 2011

Q2 20112011Q1 2011

Seller Buyer Country USD/Tower Value in USDTower Sites

Oi

Oi

Z-Sites

Nextel

American Tower

TIM

Nextel

BR Towers*

Nextel

Oi

SBA Communications

SBA Communications

American Tower

American Tower

Phoenix Tower Intl.

American Tower

American Tower

American Tower

American Tower

SBA Communications

Brazil

Brazil

Brazil

Brazil

Panama

Brazil

Brazil

Brazil

Mexico

Brazil

343 million163

645 million

129 million

349 million

N/A

1.2 billion

321

542

180

N/A

185

413 million

978 million

148

212

398 million

527 million

239

321

2,113

2,007

236

1,940

60

6,480

2,790

2,530+ 2,100 excl. rights

1,666

1,641

Global Tower Partners*

Oi

Oi

American Tower

Grupo TorreSur

BR Towers

US/Costa Rica

Brazil

Brazil

4.8 billion306

293 million138

251 million119

15,700

2,113

2,113

Telefonica

Telefonica

BR Towers

American Tower

Brazil

Brazil

252 million

33 million

132

172

1,912

192

Axtel

Telefonica

American Tower

American Tower

Mexico

Brazil

250 million

18 million

283

190

883

93

Telefonica

Sitesharing

Torres Unidas

BR Towers

Chile

Brazil

N/A

N/A

N/A

N/A

400

100+250 BTS

Telefonica SBA Communications Brazil 178 million223 800

Oi Grupo TorreSur Brazil 258 million214 1,208

Telefonica American Tower Brazil 225 million150 1,500

Telefonica

Telefonica

Telefonica

Telefonica

Millicom

Telefonica

Sitesharing

American Tower

American Tower

American Tower

American Tower

American Tower

Grupo TorreSur

American Tower

Chile

Mexico

Mexico

Colombia

Colombia

Brazil

Brazil

96 million

323 million

122 million

18 million

182 million

206 million

585 million

172

208

209

144

85

159

879

558

1,554

584

125

2,126

1,358

666

* company acquisitionSpecial thanks to Jonathan Atkin, Managing Director at RBC Capital Markets for his contribution

www.towerxchange.com | TowerXchange Issue 12 | XX| TowerXchange Issue 12 | www.towerxchange.com8

country risk dropping below the threshold required for tower investment, possibly as soon as 2016/17.

There is plenty of capital flowing into CALA towers - the three major transactions of 2014, AMT-BR Towers, SBA-Oi and AMT-TIM, represented a total of US$2.7bn in deployed capital, compared to just under US$3bn spent in total over eleven transactions we reported in 2013 (not counting the AMT-GTP deal, which was US-centric). We may be entering a period where trade acquisitions will be as common as SLB deals, with several parties seeking assets in Brazil and Mexico.

The premium paid for a buy and leaseback from a CALA carrier shows no sign of abating, average cost per tower having risen from US$128k in 2010, US$148k per tower in 2011, US$169k in 2012, US$188k in 2013 and US$213k per tower in 2014. It is also notable that trade acquisitions come at an even higher premium, which makes sense given that the towers concerned are typically newer, have more wind load capacity, and their lease agreements more suited to co-location. The fact that Brazilian towers are almost “sold out” suggests attention may be diverted to trade acquisitions or diverted outside Brazil for towercos seeking to extend their growth narrative.

TowerXchange is currently tracking potential new market entrants in Colombia, Chile and Peru, especially since SBA Communications has hinted at new markets being on their radar. Although unsure of what SBA’s next move will be, we are confident the U.S. giant will pick among these three countries

LatAm towerco breakdown by country

AMT

Costa Rica

Peru

Chile

Brazil

Mexico

Colombia

Andinas

Ecuador

Peru

Chile

Colombia

Brazil

Continental

Guatemala

El Salvador

Jamaica

Honduras

Nicaragua

Panama

Costa Rica

Colombia Colombia Colombia Colombia Colombia Colombia

Innovattel

Ecuador

Puerto RicoPuertoRico

Peru

QMC

Brazil

Mexico

SBA

Guatemala Guatemala

El Salvador

Nicaragua Nicaragua Nicaragua

Panama Panama Panama

Costa Rica Costa Rica Costa Rica

Brazil Brazil Brazil

Torrecom

Mexico Mexico Mexico

TorresUnidas

Phoenix Tower Int.

Centennial NMS

Peru Peru

Chile

Towercos focusing on a single countryBrazil: GTS, Highline, CSS, T4U, Skysites, Telecom Torres, Z Sites, Rede Sul, Torre OnlineMexico: MTP, IIMT, Intelli Site Solutions, TelesitesPanama: Torres de PanamaDom. Rep: Teletower DominicanaCosta Rica: Catalina Inc., Tocsa

800.487.SITE sbasite.com© 2015 SBA Communications Corporation. All Rights Reserved. The SBA logo, Your Signal Starts Here, Building Better Wireless and SBA Sites are all registered trademarks owned by SBA Telecommunications, Inc. and affiliated SBA companies.

Our clients depend on SBA to provide the wireless infrastructure that allows them to transmit the signal to their customers. As their first choice provider of wireless infrastructure solutions, we are continuously setting the standard for customer satisfaction by “Building Better Wireless”.

IN OUR BUSINESS,IT IS ALL ABOUT THE SIGNAL.

FLORIDA HEADQUARTERED.INTERNATIONALLY CONNECTED.

TOWER OWNERSHIP LEASING SITE MANAGEMENT SITE DEVELOPMENT CONSTRUCTION

which, as of now, have the best growth potential in the region, outside of Brazil and Mexico.

In the meantime, we have speculated on potential market openings in Argentina, especially since Nextel is likely to be sold over the next few weeks. To date, the two likely buyers appear to be private equity firms Optimum Capital and Kingsley Capital but there could be other likely acquirers lined up for the troubled carrier.

Argentina is a troubled country with a risky outlook and an entry into its telecom industry will surely require bold entrepreneurship and a flair for challenges. On the towerco side, we could expect middle market, independent towercos to initiate a market opening process but we doubt organisations such as AMT and SBA will comfortably navigate those waters anytime soon.

In conclusion, the CALA region remains a very diverse region, as clearly shown in the heatmap TowerXchange created. Countries like Bolivia, Venezuela and Paraguay have seen very little or zero towerco activity and we will keep a very close eye and report on any movement towards the creation of new regional towerco markets


Latin America Heatmap

16 different CALA towercos have already confirmed their participation in the 2nd Annual TowerXchange Meetup Americas, taking place in Hollywood, FL, 28-29 April 2015, in co-location with PCIA’s Wireless Infrastructure Show. Contact me for further information at: [email protected]

Towercos have acquired the majority of towers from carriers

Towercos have acquired a significant proportion of towers from carriers, but the majority remain carrier-owned. Significant BTS towerco activity also present

Less SLB activity, but plenty of BTS towerco activity

Early stage market for BTS and/or SLB

Negligible towerco activity

Legend

Source: TowerXchange

América Móvil creates Telesites

On April 1, América Móvil has filed a report with the plan for the creation of its spin off towerco Telesites, to which it will transfer 10,800 towers. Industry news suggest that other Mexican carriers will have access to 91% of the country’s sites, compared to the current 45%. Telcel will of course be the anchor tenant. The restructuring plan is expected to be approved at the company’s shareholders meeting scheduled for April 17 and the spin-off should be concluded before the end of June 2015.

Digicel on the new Bahamian network

Frank O’Carroll, Digicel’s Head of Business Development, has recently stated that the six-month deadline set by the Bahamian government to rollout and launch network services was tough to achieve. Another requirement set by the government refers to the wide ownership, according to which new operators must be majority Bahamian-owned. In the meantime, Digicel is planning to build between 200-300 new towers and invest approximately US$200mn for the new network.

Second Bahamian operator to be partially State-owned

In recent news, Telegeography reported that the new licensee, called NewCo, is 51% owned by the government and it will retain equity until a sale to private Bahamian investors can be organised. The Chairman of the opposition party FNM Michael Pintard stated that “It is conceivable that the government, [which] has a huge stake in the present telecommunications company and…will be the majority shareholder in the new company, can fix prices and disadvantage the consumer…It opens the doors for any number of backdoor deals and the government ought to ensure there is transparency in this entire process.”

Claro Honduras launches 4G LTE

The Comision Nacional de Telecomunicaciones (Conatel) has celebrated the launch of the second 4G LTE network by Claro Honduras. The new network will be available in large cities such as Tegucigalpa, San Pedro Sula and La Ceiba. According to license conditions, the coverage is expected to reach fourteen cities in 2016.


Telefonica not entering Honduras, Paraguay or Bolivia

In a recent conference call with investors, Telefonica’s CEO Cesar Alierta has denied any interest in entering new LatAm markets. The CEO stated that Telefonica is not entering Honduras, Paraguay or Bolivia and that the current focus is on growing the company’s presence in existing markets.

Nokia involved in VoLTE and small cell for Avantel

Avantel has appointed Nokia Solutions to develop VoLTE services with initial rollouts expected in Bogota, Medellin, Cali, Barranquilla and Bucaramanga. Nokia has also developed Avantel’s Flexi Zone LTE small cell solution which is considerably improving the operator’s capacity and coverage.

Une-EPM/Tigo expanding LTE footprint

Une-EPM and Tigo Colombia, which merged a few months ago, have reached LTE coverage of 75 cities in Colombia. According to a recent statement by the CEO, Esteban Iriarte “In 2014 we invested in the improvement, modernisation and expansion of our fixed and mobile telecoms infrastructure … we deployed more than 2,800km of fibre and expanded the capacity of our submarine cables and national transport network.”

Mexico

Bahamas

Bahamas

Honduras

CALA newsA roundup of tower news across Central and Latin America

Honduras

Colombia

Colombia

appealing the decision, according to national news.

US$1.16bn to be invested in fibre-optic

The Minister of Transport and Communications, Mr José Gallardo Ku, recently stated that over five million citizens will benefit from the fibre-optic project currently being developed, which will reach 6,411 locations thanks to 31,716km of fibre. Twenty-one tenders are scheduled over the next two years with an estimated investment of US$1.16bn.

Claro expands footprint to rural areas

Claro is extending its 3G footprint to 181 remote areas in Chile, reaching out to as many as 46,880 people. The move is complying with the minimum requirements set in the LTE license granted to the operator. According to Claro’s General Manager, Mr Mauricio Escobedo, the company is now embarking “on a new phase with the delivery of voice services in rural locations throughout Chile.”

PT transfers millions of Oi shares to new entity

Portugal Telecom SGPS has recently transferred 47.435 million common shares and 94.87 million preferred shares issued by Oi to a company registered in the Netherlands under the name of Portugal Telecom International Finance BV. The transfer was approved by the Board of Directors in March and Oi has released a statement announcing that “PT Finance is an indirect wholly owned subsidiary of Oi and, therefore, the shares transferred by PT SGPS to PT Finance will

Telefonica de-values its Venezuelan assetsTelefonica is writing down the value of its

Venezuelan assets in light of the crisis of the Bolivar Fuerte, the national currency. Profits will be written down for as much as €1.23bn. The assets include considerable profit that the national government isn’t allowing Telefonica to take out of Venezuela, as reported by the Wall Street Journal.

Movistar to invest in 4G LTE

Movistar Ecuador will invest as much as US$150mn to deploy 3G infrastructure as well as its 4G LTE network. The company has recently been awarded extra spectrum which includes frequencies in the 1,900MHz band.

New regulator starts acting

Ecuador has a new telecom regulator which was formed earlier this year, the Agency for Regulation & Control of Telecommunications (Arcotel). Arcotel will combine functions of various existing regulatory bodies and will operate in cooperation with the Ministry of Telecommunications & Information Society. The Agency is responsible for managing, regulating and controlling telecoms and radio spectrum in Ecuador.

Movistar Peru ordered to pay past taxes

Movistar Peru has been ordered to pay US$500.9mn to SUNAT, the national tributary agency, in taxes dated 2000-2001. The operator is looking at


be considered, as the case may be, treasury shares.”

Vivo plans public share offering

After receiving approval to acquire Global Village Telecom (GVT), Vivo is planning to hold a public share offering which will help finance the deal. Telefonica has recently purchased GVT for US$9.83bn and, as requested by Anatel as a condition to approve the acquisition, has waived its voting rights linked to its stake in Telecom Italia.

Telegeography recently reported that Telefonica has lined up nine banks to run its US$3.25bn capital increase. The institutions involved in the deal are UBS, Morgan Stanley, JP Morgan, Bank of America Merrill Lynch, Barclays, HSBC, BBVA, CaixaBank and Santander.

Oi and TIM to share 2G/3G network

A 2G and 3G network sharing agreement between Oi and TIM Brasil has been approved by the Brazilian regulatory authority Conselho Administrativo de Defesa Economica (CADE). The deal will allow the operators to share networks in areas with population of less than 30,000 people.

NII Holdings agrees to sell Nextel ArgentinaPrivate equity firms Kingsley Capital and

Optimum Capital have reportedly reached an agreement with NII Holdings for the acquisition of Nextel Argentina. Details of the deal are yet to be announced

Chile

Ecuador

Ecuador

Venezuela

Peru

Brazil

Brazil

Brazil

Peru

Argentina

TowerXchange’s analysis of the independent tower market in AfricaAfrican towers 2015: deal flow slowing but some significant assets still to be acquired


2014 concluded with independent towercos owning close to 30% (or 47,600) of Africa’s towers. In 2015 the rate of asset transfer will slow but there are still some significant deals to be done across the continent. We anticipate that the balance of the Airtel assets (a further 2,000 towers) will be sold in early 2015. Our research suggests the transactions are pending regulatory approval only, with announcements imminent involving the transfer of Airtel’s towers in Gabon to Helios Towers Africa

Figure 1: Estimated number of towers owned or managed by towercos in Africa

and in Madagascar to Eaton Towers. Airtel are set to retain their towers in Sierra Leone.

In further deals, we anticipate the sale of MobiNil’s ~3,500 towers in Egypt to take place in H1 2015, with Eaton Towers believed to be the successful bidder in the process. Processes involving Sonotel’s assets in Senegal, Mali and the Guineas are also underway and expected to complete in Q4 2015-Q2 2016.Furthermore, Telkom’s RFP for the sale of ~6,000

shareable structures (including around 3,500 GBTs) in South Africa has sparked rumours that MTN’s assets in the country will also come to market in 2015, which could see a further ~10,000 towers, representing 60% of the tower stock in the South African market, transferring to towerco ownership in the next 12 months.

With these new sales, the Airtel deal triggering follow-on deals, and with towercos growing 10-15% per annum organically by building the majority of the continent’s new towers, we’re sticking to our forecast that towercos will own 46.9% of Africa’s towers by year end 2015. That will represent the vast majority of the towers owned by credit worthy anchor tenants – the addressable market for towercos in Africa may be 55-60%. The size of Africa’s tower industry doubled in two quarters, triggered by Airtel’s sale of towers in 16 of their 17 African countries (sales of 4,800 towers to American Tower, 3,500 to Eaton, 3,100 to Helios Towers Africa and 1,113 to IHS have been announced to date). The sale of Airtel’s Nigerian Towers, recently secured by American Tower, stimulated two other deals in Africa’s most lucrative mobile market, both of which were closed before the Airtel deal; Etisalat Nigeria sold 2,136 of their ~2,700 towers to IHS, while MTN sold all 9,151 of their Nigerian towers to the same counterparty, retaining a 51% stake in the joint venture.

Almost US$5bn of PE-backed towerco’s investors and American Tower’s money is now at work in the African tower sector, not including substantial


IHS Africa

5000 10000 15000 20000 25000

Helios Towers Africa

American Tower

Eaton Towers

SWAP Technologies

Helios Towers Nigeria

1900

1500

1400 1600

700

509

250

1300

170

800 500

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500

500

4500

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2038 1918 1256

2230

734

1648 38014222

4800

South Africa

Nigeria

Ghana

Burkina Faso

DRC

Cote d’Ivoire

Cameroon

Niger

Rwanda

Zambia

Congo B

Chad

Unknown Country

Uganda

Tanzania

Malawi

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infrastructure sharing)< Square1 Infrastructure (Nigeria and South Africa)< TASC (targeting MENA)< TowerCo of Madagascar< Tower share (targeting MENA)




equity stakes retained by MTN, Millicom and Vodacom. Sub-Saharan Africa has graduated to a new class of investor, and the price of participation in this maturing asset class is now likely well over US$100mn. Many commentators feel the three PE-backed members of Africa’s ‘Big Four’ towercos have now achieved the necessary diversification of country and counterparty risk to commence the final phase of integration and consolidation in the run up to trade sale or IPO.

While a glance at Africa’s tier one MNO’s remaining tower portfolios suggest a finite amount of investible assets remain operator-captive (see “What’s left?” In issue 11 of TowerXchange), TowerXchange forecast that the Airtel deal will trigger a handful of follow-on deals in 2015

Figure 1a: Count differentiating towers that are owned from those that are managed and marketed by towercos

Unfilled bars = Managed and marketed towers

Filled bars = Owned Towers

Figure 2: Africa's regional and prospective new entrant towercos TowerXchange are tracking several towercos who are active in or targeting Africa (there are a couple more, but we’re not at liberty to disclose them!):

< Atlas Towers (South Africa)

< BCTEK (Nigeria) < Communication Towers Nigeria< Frontier Tower Solutions (targeting Burundi)< Hotspot Network Limited (Nigeria)< Infratel (South Africa)< Pro High Site Communication (South Africa)< Shared Networks Tanzania (active

TowerXchange estimate that these towercos own or operate a total of around 2,000 African towers.

19000 2000

700

5000 10000 15000 20000 25000

700

759

800

700

7800

10012

4370

“ “

the three PE-backed members of Africa’s ‘Big Four’ towercos have now achieved the necessary diversification of country and counterparty risk to commence the final phase of integration and run up to trade sale or IPO

eManager by Flexenclosure

Operation

Property

Site logistics Engineering

Local server Dew Point 0.1 Normal

Local Server Humidity 22.8 Low

Local Server Pressure 991.8 Rather Low

Local Server Humidity 23.1 Low

Local Server Temperature 21.6 Rather low

Local Server Temperature 22 Low

Local Server CPU 1 Load 43 High

Local Server CPU 2 Load 40 Moderate

Local Server Physical Memory 31815

Info=Job execution started Information Discover and Connect Info

Info=Device is online Information Local Server (SNMP) Notice

Status=21, Comment=Online Status Changed Local Server (SNMP) Notice

Info=Device is offline Information Local Server (SNMP) Notice

Status=20, Comment=Offline Status Changed Local Server (SNMP) Notice

Info=Disconnection detected Information Local Server (SNMP) Warning

Temperature 21.8

Humidity 24.4

Computed value 0.6

Temperature Limit low -200.0

Temperature Limit High 300.0

Humidity Limit Low 5.0

Humidity Limit High 100.0

Computed Value Limit Low -50.0

Computed Value Limit High 80.0

Temperature alarm delay 20

Humidity alarm delay 30

Computed value alarm delay 30

Temperature hysteresis 1.0

Humidity hysteresis 1.0

Computed value hysteresis 0.1

Temperature *10 218

Data Event Level

Network Overview

0.25

20.00 00.00 04.00 08.00 12.00 16.00

0.50

0.75

1.00

1.25

1.50Business Control

0.25

20.00 00.00 04.00 08.00 12.00 16.00

0.50

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d Connect Info

rver (SNMP) Notice

Server rver (SNMP) Notice

al Server (SNMP) MP) Notice

ocal Server (SNMP) Notice

LoLocal Server (SNMP) Warning

L lLevelvel

00.00 04.00 08.0008.00 12.00 16.00

in


Jan-2010 Millicom / Tigo Ghana HTA 750 $54mn for 60% Joint venture$120k

$307k*$228k

Oct-2010

Feb-2010

Vodafone

Multilinks

Ghana

Nigeria

Eaton

HTN

750

400

Not applicable

Unknown

Manage with license to lease


Dec-2010 Cell C South Africa American 1,400* $430mn Sale and leaseback

Dec-2010 Starcomms Nigeria SWAP 407 $81m Sale and leaseback

Dec-2010 MTN Ghana American 1,876 $218.5mn for 51% Joint venture

Dec-2010

Dec-2010

Millicom / Tigo

Millicom / Tigo

Tanzania

DRC

HTA

HTA

1,020

729

$80m for 60%**

$45mn for 60%**

Joint venture

Joint venture$103k

$131k

Dec-2011

Aug-2010

MTN

Visafone

Uganda

Nigeria

American

IHS

1,000

800

$89m for 51%

$67mn

Joint venture

Sale and leaseback

$175k

$84k

Mar-2012 Orange Uganda Eaton 300 Unknown Sale and leaseback

Mar-2012

Apr-2013

Warid Telecom

Orange

Uganda

Cameroon & Cote d’Ivoire

Eaton

IHS Africa

400

2,000

Unknown

N/A

Sale and leaseback


Oct-2012 MTN Cameroon IHS Africa 827 $143m Sale and leaseback$173k

Oct-2012

Jul-2013Jun-2013

Jul-2014

Sep-2014

Dec-2014

May-2014

Aug-2014

Sep-2014Nov-2014

MTN

VodacomTelkom Kenya***

Airtel

MTN

Airtel

MTN

Etisalat

AirtelAirtel

Cote d’Ivoire

TanzaniaKenya

Tanzania, DRC, Congo B & Chad tbc

Nigeria

Zambia & Rwanda

Rwanda & Zambia

Nigeria

Ghana, Niger, Burkina Faso, Kenya, Uganda & Malawi tbc

Nigeria

IHS Africa

HTAEaton

HTA

IHS Africa

IHS

IHS

IHS

EatonAmerican

931

1,1491,000

3,100

9,151

1,113

2,136

3,5004,800

1,269

$141m

~$75mn for 75.5%N/A

~$400-500mn

$882mn for 49%

~US$181mn

Unknown

$470-500mn

~$525-700mn$1,050mn

Sale and leaseback$151k

Joint venture


$65k

Sale and leaseback$145k$227k

Joint Venture

Sale and leaseback

$197k

$163k

Sale and leaseback

Sale and leaseback

Sale and leasebackSale and leaseback

$175k$219k

*Cell C deal included 1,400 existing towers plus 1,800 towers to be constructed **Millicom/Tigo’s stake in Helios Towers Tanzania reduced to 24.5% after Helios acquired towers from Vodacom Tanzania in 2013 ***Telkom Kenya-Eaton deal subsequently cancelled

Figure 3: Africa’s biggest tower sharing transactions to date

Year Operator Country TowerCo Est. # of towers Publicly stated purchase price Deal structureCost per tower


$199k

Figure 4: African tower industry achieves launch velocityEnd of Year

Est total # of towers in Africa

Est # of African towers owned or operated by towercos

% of African towers owned by towercos

2009

120,000

100

0.001%

2010

125,000

6,000

4.7%

2011

130,000

9,000

6.9%

2012

140,000

16,661

11.9%

2013

150,000

*25,510

17%

2014

165,000

47,500

29%

2015(f)

180,000

84,500

46.9%

LEBANON

ALGERIA

DR CONGO

MYANMARBURKINA FASO

ETHIOPIA

RWANDA

CONGO

CAMEROON

GHANA

UGANDA

SOUTH SUDAN

Fiber Optics

MV

, HV & EHV Network Managed S

ervi

ces

Net

wor

k Dep

loyment

SERVICES

A leading provider of infrastructure solutions

global picture. local [email protected] | www.ieng-group.com

QualityISO 9001

Health & SafetyOHSAS 18001EMPLOYEES

700 ISO CERTIFIED SITES UNDER

MANAGEMENT

3008

Design, Engineering & Construction

Mast & Tower Solutions

Network Equipment Installation Commissioning & Swap-out

Power Supply

Site Planning, Acquisition & Property Services

Testing & Commissioning

Procurement, Logistics & Warehouse Management

Operations & Maintenance

Telecommunications and Power Services


CameroonCote d’IvoireRwandaZambia

TanzaniaChadCongo BrazzavilleDRC Kenya

NigerBurkina FasoMalawi

South AfricaUganda

Ghana

Nigeria

IHS

American Tower


Eaton Towers

HTN & SWAP


Figure 5: Forecast African towerco footprints

Please feel free to contact the TowerXchange team

Kieron OsmotherlyFounder & CEOE: [email protected]: +44 7771 148001

For editorial & speaking enquiries regarding Americas:Arianna NeriHead of Americas & AsiaE: [email protected]: +39 338 111 2103

For editorial & speaking enquiries regarding Africa or Europe:Frances RoseHead of EMEAE: [email protected]: +44 7793 045718

For editorial & speaking enquiries regarding Asia: Ian FergusonHead of AsiaE: [email protected]: +44 (0)7908175087

For advertising opportunities & event participation:Annabelle mayhewChief Commercial OfficerE: [email protected]: +44 7423 512588

Toya SmithBusiness Development ManagerE: [email protected]: +44 7967 441110

For media partnerships & to request additional subscriptions:Harpreet SohanpalHead of MarketingE: [email protected]

For the designers of the TowerXchange Journal & brand:Jon WhittySenior Designer & Brand DevelopmentE: [email protected]

The TowerXchange Journal is published by Site Seven Media Ltd.


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Botswana – Vodafone Group and Botswana Telecommunications Corporation Limited

(BTC) have signed a new Partner Market agreement. The agreement will allow BTC to access Vodafone’s global data reach and offer customers a competitive cost base and Vodafone will be given access to BTC’s extensive local network.

Ghana – MTN Ghana has unveiled plans to invest GHS460 million (US$122 million)

in network improvement work in 2015, following infrastructure investments of GHS311 million in 2014. MTN Ghana has deployed an additional 112 3G BTS in the last few months. MTN’s tower network in Ghana is managed by a joint venture tower company with American Tower.

Cameroon – State-owned operator CamTel is preparing to deploy a mobile

communications network after being awarded a wireless license in September 2014. In addition MTN and Orange Cameroon have received permission to launch 3G and 4G services which will open up competition with Viettel Cameroon’s high speed data offering.

Zimbabwe – As the row over infrastructure sharing, particularly in relation to

market leader Econet’s network continues, the government’s latest plan is to create an entity to take control of the country’s telecoms infrastructure.


Their aim is to see one independent company setting up infrastructure to end any debates about ownership and to promote competition on service levels rather than network coverage.

Senegal – Ericsson has signed a contract with Tigo Senegal to manage and maintain

Tigo’s network and technical capabilities. Although Ericsson will take over responsibility for operational management, Tigo will retain control over strategic issues such as ownership of equipment, network development and investment strategy.

Nigeria, Ghana and Uganda – A changing of the guard at

American Tower in Africa will see Francois Van Zyl moving from Cell C to become CEO of ATC Ghana. Thomas Sonesson will move from Ghana to take over as CEO of ATC Uganda as the previous Ugandan CEO Gordon Porter will head up the new ATC Nigeria.

South Africa – Cell C has announced a planned investment of ZAR8 billion

(UD$667.2 million) to fund LTE roll-out in targeted areas in South Africa over the next three years. The strategy will be to target highly populated metropolitan areas. Huawei and ZTE have been engaged as primary partners in the rollout which will cover some 4,000 sites.

Africa News South Africa – More detail is emerging of the Telkom tower sale process, incorrectly

rumoured to have been discontinued in one media outlet. It seems Telkom only wants to sell a small proportion of their macro towers, while they are seeking that the same counterpart manage the balance of their tower assets.

South Africa/Africa – TowerXchange believes that Vodacom Group would be

open to sharing network infrastructure with competitors Millicom and Bharti Airtel, in order to reduce costs related to O&M as well as for future network deployments. This represents a new way of approaching infrastructure sharing in Africa, where the towerco-led ‘Sale and Leaseback’ model is more prevalent. This plan would see Bharti Airtel, Millicom and Vodacom sharing infrastructure in the markets they have in common, such as Tanzania and DRC.

Zambia – Huawei has won a contract to build new telecom infrastructure in Zambia,

as part of a US$65 million initiative to increase connectivity. The towers will be used by all three Zambian mobile operators and will be overseen by the Zambia Information and Communication Technology Authority (ZICTA), the country’s telecom regulator.

Nigeria – RIHS has been licensed by the Nigerian Communications Commission

(NCC) to improve broadband services in the northern central states of the country. According to rumours, IHS will focus on urban areas in this

region, where there is currently no broadband provision and very limited mobile internet

Mali – The government is said to be considering the possibility of tendering for

a fourth mobile operator later in 2015. While Alpha Telecom has begun to deploy infrastructure they have hit many roadblocks, to the point where in November 2014 it was revealed that a prosecutor for the Ministre de l’Economie et des Finances had begun an investigation into their license. This delay has led the government to investigate the possibility of issuing a further concession to another company once the block on licensing lifts later this year. Africa – Rumours in TMTfinance that IHS is already gearing up for an IPO are premature. All three private equity backed African towercos, Helios Towers Africa, Eaton Towers and IHS, will ideally need two to three years’ trading history at scale before having a realistic option to list. 2015 and 2016 will be about integrating and consolidating their acquisitions, IPOs or trade sales are unlikely to occur until 2017 given the time lapse between announcing and closing deals


Tower Xchange

Meetup Africa 2015 1-2 October,

Johannesburg

IHS reports 130% EBITDA growth in FY2014

Annual report of lead investors Wendel Group reveals key financial metrics of IHS's meteoric rise

IHS’s recent acquisitions in Rwanda, Zambia and Nigeria have launched the company into the top ten biggest towercos globally. Now managing in excess of 23,000 towers across Africa (pro forma with the acquisition of MTN’s Nigerian towers), the company has grown by 130% (both in terms of EBITDA and number of towers under management) over the last year and has increased the number of towers under management fourfold over the last two years. In 2014 IHS acquired more than 13,000 towers of which 8,000 have already been integrated. This includes 1,300 towers from MTN in Rwanda and Zambia (consolidated in April and May 2014), 2,100 towers from Etisalat Nigeria (consolidated in November 2014), 9,100 towers from NTN in Nigeria (of which 4,150 were consolidated in December 2014 and the remainder will be consolidated in H1 2015), resulting in revenue almost doubling to $312.4 million before pass-through of diesel costs to tenants. IHS was successful in increasing the rate of co-location on existing sites and reducing energy costs and is partnering with key MNOs to improve lease up rate, resulting in EBITDA advancing to $100.8mn in 2014, representing a margin of 32.3%. The acquisition of towers from MTN in Zambia and Rwanda and the Nigerian tower acquisitions were financed by a capital raises including US$550 million in March and April 2014, a premium of 30% on the previous capital raise in July 2013. Then in November 2014 IHS announced it was raising a further US$2.6

billion to support this growth, including US$600 million in the form of a credit facility and US$800 million credit to fund the IHS/MTN joint venture in Nigeria. The debt component of US$600 million was fully under-written and is split between USD and Naira and has a seven year tranche and an eight year tranche. Of this tranche of funds, lead shareholder Wendel has committed to investing an additional US$503 million in additional equity, bringing its total investment in IHS Holding to US$779 million. In addition Wendel has brought together four US and European family investors (including FFP, Sofina and Luxempart) to co-invest in IHS, meaning that Wendel has raised an additional US$181 million through an IHS co-investment vehicle managed by Wendel. Once these two tranches of investment are complete, Wendel will own c. 26% of the share capital directly and will represent 36% of the voting rights. IHS also attracted additional first tier investors in 2014 including the sovereign wealth funds of Singapore and South Korea (GIC and KIC), AIIM (Macquarie and Old Mutual) and Goldman Sachs. IHS has now raised a total of US$4.5 billion since 2012 and has deployed the funds in establishing market-leading positions in Nigeria, Cameroon, The Ivory Coast, Zambia and Rwanda. In addition to IHS’s most recent acquisitions in Rwanda, Zambia and Nigeria, they are also planning new site build programmes across the IHS footprint and to invest in greener, more sustainable power solutions across their portfolio

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Last of the SSA land-grab; reigniting competition for South Africa’s towersFollowing Telkom’s RFP, MTN are rumoured to be again considering bringing their towers to market. Who will succeed in securing Africa’s most profitable market?

The South African towerco market Towercos own just 10% of South Africa’s estimated 22,288 telecom towers, making the country the least penetrated of SSAs attractive tower markets. To date two of Africa’s ‘Big Four’ towercos control assets in the country – Eaton Towers has built over 170 towers with a pipeline of several hundred more and a tenancy ratio north of two, and American Tower markets 1,918 towers, 1,400 of which were acquired from Cell C back in 2010 in a US$430mn deal which at the time was reported to include up to 1,800 towers to be constructed, the majority of which have evidently not been built. In addition several ‘middle market’ towercos operate in the South Africa including Square1 Infrastructure and Atlas Tower. The South African market is one of the most attractive telecom markets in SSA with 148% SIM penetration, of which 35% are 3G and 4G (source: GSMA Intelligence, Q4 2014) and, given wireline penetration stands at just 9%, growth in data consumption is likely to occur mainly in the mobile market. ARPU is around US$8. South African operator landscape Vodacom is the leading operator in South Africa with 31.5mn subscribers, supported by around 7,000 towers across the country. Leading the market in South Africa for many years, their market share has remained fairly stable despite shake ups from new market entrants. Vodacom denied interest in selling their South African towers as recently

Read this article to learn:< The current status of the South African operator market< Which towers will be involved in a potential divestment< Imperatives and drivers in the South African market< How tower assets are currently distributed in South Africa

Now that Telkom have issued an RFP for the sale of some of their 6,000 shareable structures and MTN are rumoured to be considering bringing their passive infrastructure assets to market in late 2015, it seems likely that a substantial opportunity is about to open up in Africa’s most investible tower market. TowerXchange reviews the telecoms and tower landscape and looks at who is likely to make a play for South African towers.

Keywords: Editorial, MNOs, Southern Africa, South Africa, Telkom, MTN, Cell C, Vodacom, Eaton Towers, American Tower, Acquisition, Market Overview, Valuation, Investment, 3G, 4G, LTE, EBITDA, New License, Capex, Transfer Assets, Co-locations, Infrastructure Sharing, ARPU, Anchor Tenant, On-Grid, Operator-Led JV, Sale & Leaseback


By Frances Rose, Head of Europe, TowerXchange

as September 2014, but if MTN or Vodacom did decide the time was right to sell towers, they’d have no shortage of bidders. Vodacom South Africa’s EBITDA margin was 37.4% in Q4 2014.

MTN, South Africa’s second operator, currently has 28mn subscribers, and although intensifying competition in South Africa resulted in MTN’s market share declining by 2.7% over H1 2014, with revenue down 7% and EBITDA down 1.5%, negative subscriber growth has been reversed and MTN remains in a robust position. MTN South Africa’s EBITDA margin was 32.1% in Q4 2014. MTN stepped back from a sale to American Tower in 2013 and until recently have appeared to lack the motivation to divest their South African towers. However Telkom’s RFP may well prove to be a catalyst for MTN reassessing this choice, indeed Airtel’s African tower sale triggered MTN to bring their Nigerian towers to market. Unsourced rumours in the press suggest MTN has again received interest from American Tower in at least part of their network of 9,000 towers, believed to be valued at $1.5-$2bn, and has been holding talks with potential buyers, although a deal is unlikely to happen in 2015. It remains to be seen whether the Group will re-evaluate their timetable to get to market first if the Telkom South Africa process does culminate in the sale of their towers. With around 19.6mn subscribers Cell C is the fastest growing operator in the South African market, growing market share by over 100% since 2013. Their introduction of a flat call-rate of 99c / min,


to any network, and the lowest data rate, of 0.15c/MB has meant rapid growth in terms of market share and has challenged the high-margin stance of the other players in the market. Cell C has already divested around 1,400 towers to American Tower.

Telkom, Africa’s largest fixed-line operator, has just 2mn mobile subscribers in South Africa. The company launched its mobile business in October 2010 and was privatised in 2013. However, despite Telkom’s leading role in the fixed-line market, their mobile offering has laboured to capture market share from leaders Vodacom and MTN. As a result Telkom has launched a restructuring plan to cut R5bn in costs which remains on track which remains on track with their share price better than doubling in the last 12 months. Although rumour has it that Telkom will only divest 500 of their

macro towers rather than the formerly announced 3,500, the full portfolio could be worth as much as $1 billion and could free up significant capital for the operator, who are also believed to have an interest in acquiring competitor Cell C. Telkom has an existing agreement with MTN, signed in March 2014, which outlines intentions to conclude RAN sharing agreements. On 31st December 2014 Telkom stated:“Shareholders are further advised that Telkom and MTN South Africa remain in discussions regarding the potential extension of their existing roaming agreement to include bilateral roaming and outsourcing of the operation of Telkom’s radio access network, which if successfully concluded may have a material effect on the price of Telkom’s securities,”

Vodacom South Africa 38.8

MTN South Africa 34.5%

Cell C 24.2%

Telkom Mobile 2.5%


South Africa mobile market share, Q4 2014

34.5%

38.8%

24.2%

2.5%


These plans to outsource management responsibilities for their radio access network to MTN, with a simultaneous process to divest passive infrastructure, mean Telkom may well be on the path towards backing their mobile offering into an MVNO and need to work out what the realistic return prospects might be on that basis.

TowerXchange’s sources suggest that Telkom’s legacy urban sites are highly desirable on the basis that they were built several years ago, before site permitting rules were tightened up, meaning the portfolio could be extremely interesting to trade buyers.

Tower assets Only 10% of South Africa’s towers are managed by

independent towercos, with three of the top four operators retaining their own networks. There is already widespread bi-lateral tower sharing in the market, particularly between Vodacom and MTN, meaning any tower transaction would face a complicated path to convert so many swaps into commercial leases but on the plus side, it also means tenancy ratios would likely start nearer two than one, which significantly increases the valuation that could potentially be realised from a divested portfolio. Network roll-out According to ITWeb, MTN is investing R10bn in capex in 2015 (US$835mn), closely followed by Vodacom with R8.5bn (US$711mn) and Cell C with R5bn (US$417mn).

Although three of the South African MNOs have commenced roll out of 4G (Vodacom has around 2,000 LTE base stations, Telkom has 1,300 and MTN 1,000), the main factor delaying LTE rollout is not technology or coverage but spectrum allocation.

The South African government has suggested it wants to use the next round of spectrum licensing to introduce more competition in the wireless broadband space, but this translates in the short term into a five year wait (to date) for the Independent Communications Authority of South Africa (ICASA) to assign sought-after spectrum.The result of this is that although 4G is being heavily marketed, availability is limited in most of the country. The two most likely scenarios – releasing spectrum to the existing players or the introduction of a new MNO/MVNO would both be well served by an independent towerco landscape in South Africa which could offer fast and deep penetration of the market. Who will be interested in the South African towers? Although the strong transport and power infrastructure in South Africa make it a much easier market to operate in than any of its SSA neighbours and may well open up this process to towercos with less of a frontiersy appetite, it seems likely that the bidding will be dominated by Africa’s ‘Big Four’ towercos who all have the experience and relationships to deliver in the region.

There’s no doubt American Tower have an interest

Estimated macro tower count in South Africa

MTN

Telkom

Vodacom

*Cell C

American Tower

Eaton

Other middle market and small towercos

*In their Q4 2014 results Cell C announced that they had 4,524 sites on air. It is not clear which of those sites are owned towers, which were sold and leased back from American Tower, built to suit by American Tower or other suppliers, and which are co-locations on towerco or other operators’ towers.

9000

3500

7000

1918

170 200

500


in this opportunity in South Africa. As the biggest independent player in the market to date, they have proven relationships in place and a base from which to grow. Indeed, there are already reports that they are speaking to MTN about acquiring their towers. The 1,400 towers purchased from Cell C are already generating return on capital invested of approximately 20% in local currency and American Tower managed to increase the tenancy ratio from just over one to nearly two ‘tenant equivalents’ per tower within three years of their acquisition – South Africa has proven a successful and profitable market for American Tower.

Of the other ‘Big Four’ players in Africa, Eaton already manages 170 BTS towers in the country, and their imminent acquisition in Egypt and associated capital raise demonstrates that they are still in the market to grow their portfolio in Africa through large scale tower deals. IHS’s control of the independent tower market in nearby Zambia and scale as the largest independent tower owner on the continent will undoubtedly lead them to assess the opportunities in South Africa and it seems likely that Helios, with broad experience of working in African markets, will have an interest in this profitable region.

Towers in South Africa are operated under a simpler ‘steel and grass’ business model – towercos don’t have to get their hands dirty engaging with the energy supply chain as they do elsewhere in SSA. As such, South Africa could attract additional bidders including both International towercos and private equity and institutional funds with an


appetite for this asset class. We would expect the number of bidders, should MTN’s South African towers come to market, to exceed ten.

Historically MTN has favoured retaining substantial equity in joint venture towercos in their most investible markets, retaining 49% equity in joint venture towercos with American Tower in Ghana and Uganda, and an unprecedented 51% equity in their joint venture towerco with IHS in Nigeria.

Conclusion

The Telkom and MTN portfolios together represent ~12,500 macro towers, or around 70% of the South African tower market. If both sale processes are completed within the next year, it would mean a significant shift from a 17% towerco presence to independent toweros controlling almost 90% of the market (factoring in continuing organic growth). With planned LTE rollouts and only 9% of the market served by wireline infrastructure, South African telecoms will see a huge rise in mobile data over the next few years, creating a very attractive market for whichever towerco or towercos manage to secure the assets.

It remains to be seen whether MTN will expedite the sale process in order to be the first to market and whether the South African market will be dominated by one player or split between two or more towercos, as we saw in Nigeria, but there is no doubt that the process will ignite the competition in the African market once again

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Updated Asia tower countsand heatmap


Bangladesh: Market restructuring continues in Bangladesh as edotco Bangladesh has signed an agreement with Qubee, a leading wireless broadband provider in this market, to share passive infrastructure and support their planned nationwide rollout. edotco had previously carved out 5,300 assets from Robi. Bharti Infratel may wish to enter the Bangladesh tower market, if the taxation environment were more favorable.

Cambodia: the good news: Cambodia has

130%+ penetration and a sensibly restructured MNO market. The bad news: challenging grid conditions. edotco active in the market with 1,500 towers. CamGSM and Mobitel believed to have considered tower sales in the last few years.

China: Established in 2014 and with a huge staff and 120,000 site BTS contract already secured, China Tower Company is reportedly set to take on ownership of approximately 950,000 telecom towers from the country’s three mobile network

operators by 15 August 2015. It is estimated that China Mobile, China Unicom and China Telecom have 540,000, 279,000 and 180,000 towers respectively.

India: The latest spectrum auctions have seen intense competition between the country’s mobile network operators over the bands required to continue upgrading 3G services and eventually offer 4G. Speculation continues over the potential sale or IPO of Viom Networks and the launch of a new towerco by BSNL but there have been no major recent developments.

Indonesia: The Telkom-Mitratel-TBIG and XL Axiata STP transactions announced at the end of 2014 drove towerco ownership to 51% of Indonesia’s ~75,000 towers. TBIG and Protelindo’s tenancy ratios (1.7- 1.8), EBITDA and share price performance remain impressive, despite growing rumours of pressure on lease rates. Protelindo (11,216), IBS (2,079) and Re-tower (~450) also own significant portfolios, but our tip for growth in 2015 is KIN, who have set out to “roll up” some of Indonesia’s long tail of regional towercos.

Malaysia: edotco has carved out 3,500 towers from Celcom in Malaysia. A further 3,200 towers are owned and operated by a diverse group of State-backed independent towercos. Malaysian commentators felt that the recent sale of one of the State-backed towercos, KJS, is an isolated incident, and that a substantial rollup of Malaysia’s smaller towercos is unlikely, given the alignment of political and personal interests it would require


Estimated Asian tower count comparisons

China950,000

India450,000

Myanmar6,850

Sri Lanka7,000

Pakistan35,000Malaysia

20,000

Vietnam45,000

Indonesia75,000

Bangladesh26,000

Thailand55,000


across the country.

Myanmar: Phases one and two of the rollout are complete. Telenor (through Apollo and IGT) and Ooredoo (through PAME and MTC) have rolled out the majority of the initial 5,000 towers they contracted - naturally a few locations were eliminated due to permitting issues or duplications. With MPT’s contractors building new

towers too, there were around 6,850 towers lit in Myanmar at the start of Q2 2015. Tenancy ratios remain close to one. An attempt to co-ordinate the third phase of rollout between Telenor and Ooredoo has faltered, and separate contacts have been awarded, Ooredoo dividing around 2,500 phase three towers between MIG, IGT and one other towerco - possibly PAME. Telenor has awarded 800 towers to Young Investment Group’s

Eco-Friendly Towers. It is not clear yet whether a further tranche of phase three towers has been awarded by Telenor. All phase three towers will include provision of power equipment by the respective towercos. Digicel MTC’s assets - around 800 phase 1 and 2 towers build for Ooredoo - are rumoured to be for sale.

Pakistan: Substantial tower portfolios could be coming to market in the near to medium term with speculation increasing about the potential sale of Vimpelcom and Telenor’s assets in Pakistan.

Thailand: CAT is forming a towerco targeting 22,000 towers. TRUEGIF already has 7,000. Yet international operators complain there is no way

“

“

With MPT’s contractors building new towers too, there were around 6,850 towers lit in Myanmar at the start of Q2 2015

Year Country

2012 Indonesia

2011 Indonesia

Seller

Hutchison

Infratel

Buyer

Protelindo

Tower Bersama

US$/Tower

N/A

N/A

Towers/Sites

503

595

Value US$

N/A

N/A

2014 Indonesia

2012 Indonesia

2010 Indonesia

2010 India

PT Telkom

PT Central Investindo

Hutchison

Essar Group

Tower Bersama

Protelindo

Protelindo

American Tower

$230k

N/A

$112k

$97.1

4000

152

1482

4450

$904mn*

N/A

$165.9mn

$432mn

2014 Indonesia

2014 Malaysia

2012 Indonesia

2008 Indonesia

2010 India

2008 Indonesia

2009 India

2008 India

XL Axiata

KJS**

Indosat

Bakrie

Aircel

Hutchison

Viom Networks

Xcel**

STP

YTL Power International

Tower Bersama

STP

GTL Infrastructure

Protelindo

QTIL

American Tower

$131.4k

$48.5

$207.6k

$64.4k

$103k

$135.4k

£134k

$98

3500

309

2500

543

17500

3692

18000

1730

$460mn

$15mn

$519mn

$136mn

$1800mn

$136mn

$2407mn

$170mn

*Structured as a share swap agreement, PT Telkom receiving ~13.7% stake in Tower Bersama over two phases in return for 100% of Mitratel Tower Bersama also acquired Telenet Internusa, Bali Telekom, Prima Media Selaras and SKP between 2004 and 2010, plus 295 towers from Mobile-8 in 2006** Company acquisition Source: TowerXchange

Tower deals in Asia 2008-2014 (excluding carve-outs)


What proportion of the towers are owned by towercos?

Estimated tower count for Malaysia

100

60% y/e 2014

85% y/e 2017

70%

51%

33%

33%

31%

20%

12%

80604020%

Myanmar

Myanmar

India

Indonesia

Malaysia

Cambodia

Sri Lanka

Bangladesh

Vietnam

Early stage markets: China, Pakistan, Thailand, Negligible towerco activity: Bhutan, Japan, Laos, PNG, Nepal, Philippines, Singapore


Sacofa 765

Touch Matrix 460

D’harmoni 346

KJS 309

Common Tower 260

Infra Quest 201

Yikedbina 200

Perak Integrated Networks 150

Asia Space 137

Desabina 118

Melaka ICT Holdings 9 5

Rangkaian Minang 90

PDC Telecommunications 4 3

Perlis Comm 23

edotco 3,500

13,300 Remaining MNO-captive 3,200

ge

State-backed and other independent towercos

for them to share towers in the country. Plans for a 4G spectrum auction in Thailand by September 2014 have been thrown into question due to potential regulatory hurdles and ongoing disputes between national and private network operators.

Sri Lanka: Dialog has transferred 2,150 towers to edotco, and Bharti Infratel again believed to be interested in entering the market. High levels of bi-lateral sharing means tenancy ratios are closer to two than one. 4G driving need for cell site densification.

Vietnam: Restructuring of the telecoms market in Vietnam continues, and interest in infrastructure sharing is increasing. Vinacap has acquired 3 companies and a portfolio of 1,930 towers in the Vietnamese market, and Golden Towers has approximately 600; towercos currently own 10 - 12% of towers in this market.

Further baseline data and infographics on the India and Myanmar tower markets can be found in the India Special Feature and Myanmar Tower Dossier within this edition



Asia heatmap

Note: Russia is covered under Europe; we estimate it to have a 5% towerco penetration and we expect it to be a growth market


TowerXchange research has not revealed any infracos or towercos to date

Towercos or infracos active in the market. No recent transactions have taken place and none rumoured to take

place soon

Towercos or infracos active in the market. No current transactions taking place but an attempted tower sale has

taken place in the last 3 years or there are unconfirmed rumours of a deal in this market.

Towercos or infracos active in the market. Rumours of deals confirmed in the market.

Towercos or infracos active in the market. Deals of significant size have taken place in the last 5 years.

Towercos or infracos active in the market. Deals have taken place in the last year and more imminent deals

rumoured

Legend

Thailand- CAT Telecom will reportedly complete the formation of Telecom Tower

Company by Q3 2015 to optimise the management of its towers. CAT also aims to resolve ownership disputes on said towers with its concession holders Total Access Communication (DTAC) and TrueMove. Telecom Tower Co. should have 22,000 towers; 12,000 of these will be transferred from DTAC, 8,000 from TrueMove. The remaining 2,000 are already in CAT’s possession.

Thailand - The upcoming Thai spectrum auction for technology-neutral (4G)

mobile spectrum (900MHz and 1800MHz) licences expected to take place by September is now in doubt in spite reassurances from the Deputy Prime Minister, Pridiyathorn Devakula. Thai Prime Minister General Prayut Chan-o-cha has stated that it still remains to be seen if these auctions could take place under present law. At the same time Thailand’s ICT Ministry has gone on the record saying that all disputes over state and private network ownership should be resolved before these auctions take place.

India - GTL is planning to sell off most of its assets to repay outstanding debts which

amount to Rs.13,000 crore. GTL has received inquiries from investors in the UK and the US


in the operations and maintenance part of its 28,000 towers, which is separate from its energy venture which is in the final stages of being sold to Intelligent Energy. The company is also looking into the possibility of diluting their promoter stake and entering into a joint venture. GTL’s problems began in 2013 when its acquisition of 17,000 of Aircel’s towers fell through after the regulatory restructuring in 2012.

India - Indus Towers will spend INR2.2 billion (US$35.1 million) to convert 3,000

street lamps in New Delhi into telecom towers over the next three years according to the Economic Times. The aim is to install 2G/3G/4G antennae on 1,000 sites per year across New Delhi. The sites will be upgraded with energy efficient LEDlights, CCTV cameras and Wi-Fi access points and will also be connected to the main fibre-optic networks in the metro area. The is the first initiative of Indus Towers in support of the development of connected cities across India.

Indonesia - Dian Siswarini has taken on the role of CEO of XL Axiata and

is outlining her plans to boost the company’s brand and upgrade its data services. This move is in response to strong increase in demand for data; the company’s data traffic grew rapidly in

2013, increasing 126.7% to 123,824TB. Siswarini announced a combined brand strategy for XL and Axis, with XL focussing on the high bandwidth mobile data segment and Axis on more competitively priced products for lower-volume users. Axiata plans to invest IDR7 trillion (US$537 million) on upgrading its 3G and 4G services in 2015.

Indonesia - Solusi Tunas Pratama (STP) is planning a sale of its shares in Q2 2015

and expects to raise up to US$400 million. STP also sold a US$300 million five-year bond on the international markets earlier this year. The company owns over 6,000 towers in Indonesia after aquiring 3,500 towers from PT XL Axiata in 2014. STP is partly owned by US private equity firm Carlyle Group.

China - China Tower Company, the telecom infrastructure sharing company

owned by China Mobile, China Telecom and China Unicom is reportedly set to take on ownership of nearly one million telecom towers according to analysts at Barclays. According to the report the three operators will receive gains totalling 148 billion yuan (US$23.88 billion). Barclays has estimated that China Mobile, China Unicom and China Telecom had 540,000, 279,000 and 180,000 towers respectively. Barclays also estimate that this joint venture would reduce capex by approximately 6% for a five-year saving of 76 billion yuan

Asia News

Crown Castle entertaining offers for their 1,772 towers in AustraliaPotential buyers are lining up to acquire this profitable tower portfolio, marking a major potential deal in the Australian market

Crown Castle International Corp., the largest provider of shared wireless infrastructure in the US, is considering the sale of its share in Australian subsidiary CCAL. Crown Castle currently owns a 77.6% stake in CCAL which is the largest wireless tower operator in Australia. The CCAL portfolio includes 1,772 towers with an average tenancy believed to be around 2.4, generating roughly US$107bn EBITDA on an LQA basis. According to the Australian Financial Review, the towers are expected to sell for ~US$1.25bn, representing 17x-18x earnings. Crown Castle Australia has been responsible for the vast majority of tower deals in Australia since it was founded in 2000; it built its portfolio with towers acquired from Optus, Hutchison and Vodafone between 2000 and 2008.

In a recent news release, Crown Castle’s President and Chief Executive Officer Ben Moreland stated “In light of recent unsolicited offers we have received for our interest in CCAL, we have determined that fully exploring the options available to us will ensure the best long-term results for our shareholders. Similar to our US business, CCAL has developed into a leading wireless infrastructure provider in the attractive Australian market with a unique portfolio of assets and platform for future growth and expansion.”

The Australian telecoms infrastructure market is highly consolidated; 74% of the estimated 9,000 towers are owned by the top three network operators, Telstra, SingTel (Optus) and Vodafone Hutchison Australia. Telstra owns the lions-share of operator captive sites, but has finite appetite

Read this article to learn:< Background information on Crown Castle International including tower footprint

< An overview of the Australian operator and tower markets

< Understanding the main motivating factors behind the sale

< A look at some of the potential buyers

Telstra subscribers

Optus subscribers

Vodafone subscribers MNOs

Towercos, independents

and government agencies

80

60

40

20

70

50

30

10


Keywords: Australia, MNOs, Towercos, Investors, Asia Pacific, Deal Structure, Acquisition, Market Overview, 3G, 4G, EBITDA, Telstra, Optus, SingTel, Vodafone, Hutchison, Morgan Stanley, Credit Suisse, Brookfield, Macquarie, AMP Capital, Crown Castle


Breakdown of the Australian tower marketTelstra remains the market leader

16 million9.4 million

5 million

76%

24%

for sharing, and no apparent interest or incentive to divest the assets. According to Buddecom, Telstra remains the market leader with more than 16mn subscribers, while Optus has around 9.4mn and Vodafone now has fewer than five million, compared to about 7.6mn in 2010.

The remaining 26% of the tower market is controlled by Crown Castle Australia, Broadcast Australia and other smaller players and government agencies. The continued rollout of LTE after the 700MHz spectrum auctions in 2013, and NBN (National Broadband Network) investment in fixed and wireless infrastructure, suggests that there may be some potential growth in the Australian telecoms infrastructure market. However, Telstra views its superior network coverage as a major competitive advantage and is unlikely to sell its infrastructure or engage in active network sharing anytime soon.It seems that an initial process initiated by a

minority shareholder attracted unsolicited offers for 100% of the equity in CCAL. The Australian states that Morgan Stanley and Credit Suisse have been appointed to lead an auction process, with Brookfield, Macquarie Infrastructure and Real Assets (MIRA) and AMP Capital mentioned as prospective bidders. Crown Castle’s Australian business has been a highly profitable portfolio and is likely to continue being profitable for the foreseeable future. This could ultimately play out similar to Crown Castle’s successful entry into and exit from the UK market.

Given CCI’s status as an REIT in the US as of January 2014 they can’t fully take advantage of registering as a REIT in Australia. The tax regime in Australia would seem to facilitate a mutually beneficial transaction, enabling a local infrastructure, superannuation or pension fund to benefit from a more favorable tax status by putting the CCAL assets into a REIT, and the relatively slow growth and stable revenues seem better suited to this rather than another international towerco pursuing aggressive growth.

Australia is receiving growing recognition as having the world’s largest REITs market outside the United States. More than 12 percent of global listed property trusts can be found on the ASX.

The prospective divestiture of Crown Castle’s assets in Australia would seem to align with the company’s increasing focus on the performance and expansion of their portfolio of 40,000 macro and 14,000 small cell nodes in their US domestic market


“ “In light of recent unsolicited offers we have received for our interest in CCAL, we have determined that fully exploring the options available to us will ensure the best long-term results for our shareholders

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Asset transfer and deal size accelerating in the European market

Unlike the African or Latin American markets, the European independent tower market has achieved significant scale without the need for a ‘land grab’ of tower transactions in the last few years, mainly due to the availability of legacy infrastructure and towerco growth through broadcast and utility


assets. However with over 20 towercos active in the region and an increasing interest from infrastructure funds and strategic investors, there is potential for further deal flow in European towers.

Over the last seven years ten deals of scale have

taken place in the European market, transferring around 18,000 towers from operator-captive to independent ownership. Of this, 11,654 towers (65%) have been bought in the last two years by the highly acquisitive Abertis, at a cost of €1.17 billion.

TowerXchange believes that 2015 will see more deal activity in Southern Europe, in particular the Orange assets in Spain and Telecom Italia’s towers in Italy, although it is as yet unclear whether their proposed IPO will take place or whether Abertis’ rumoured interest in the assets will result in another tower sale. TowerXchange is also tracking the repeated attempts by incumbent Italian towerco EI Towers to acquire a significant stake in Rai Way, who own 2,300 broadcast and transmission sites in the country. TowerXchange has identified over 20 independent towercos who own and manage towers in Europe. Of these, ten are believed to be members of the new European Wireless Industry Association: Abertis (Spain and Italy), Arqiva (UK), Axion (Spain), EI Towers (Italy), FPS Towers (France), Open Tower Company (Netherlands), TowerCom (Ireland), American Tower Germany, Protelindo (Netherlands) and Wireless Infrastructure Group (UK and Netherlands). In addition, a further seven towercos manage in excess of 250 towers across their portfolios; Shere Group (UK and Netherlands), TDF (France and Germany), Russian Tower (Russia), UKRTower (Ukraine), Emitel (Poland), Global Tower (Turkey) and ESB (Ireland). In total these towercos manage over 65,000 towers across Europe, Russia and Turkey

Top ten independent towercos in Europe by telecom tower count (excludes infracos)

5000

Abertis

TDF

Arqiv

a

Global

Tower

EI Towers FPS

Americ

an Tower

Germany

Wire

less

Infr

astru

cture

Group

Russia

n Towers

Shere

Group

10000

15000

20000

15377

11000 10550

7870

2700 2166 2031 2000 1500860



European tower deals since 2008

European tower activity - the headlines

Year

2012

2012

2012

2010

2008

2014

2012

2015

2015

2012

Country Towerco Operator #Towers Deal value Cost per towerDeal terms

France

Germany

Netherlands

Netherlands

Netherlands

Spain

Spain

Italy

Italy

Netherlands

FTP

American Tower

Protelindo

Open Tower Company

Open Tower Company

Abertis

Abertis

Abertis

Abertis

Shere Group

Bougyes Telecom

KPN

KPN

KPN

KPN

Telefonica/Yoigo

Telefonica

TowerCo

Wind

KPN

€185 million €100,400

€393 million €193,500

€75 million €287,000

Unavailable NA

Unavailable NA

2166

2031

261

500

101

€385 million €90,000

€45 million €90,000

4277

500

€94.6 million €309,000 per site

€693 million €104,400

€115 million €250,000

212 (plus 94 points in tunnels)

7377

460

SLB with 15% equity

SLB

SLB

SLB

SLB

SLB

SLB

Trade sale

SLB with 10% equity

SLB


Czech RepublicInfraco formed by PPF and T-MobileDenmarkFalck (towerco) and Hi3G (infraco) have small portfoliosFinlandDigita sold to First State Investments in 2012FranceTowerco FPS active after acquiring towers from Bougyes Telecom. TDF lead the market, ITAS TIM and Towercast also activeGermanyTowercos Deutsche Funkturm and American Tower active in the market, ATC's towers bought from KPNHungaryAntenna Hungaria acquired by the state from TDF in 2014IrelandSeveral middle market towercos, rumoured that Telefonica would divest towers but no movement as yet

ItalyTowerco Abertis have made 2 recent acquisitions. Current activity with Telecom Italia towers and EI/RaiWayLatviaBite Group brought towers to market in 2013 but no agreement reachedNetherlandsProtelindo, Shere Group and Open Tower acquired a total of 1,322 towers from KPNPolandEmitel (towerco) and NetWorkS! (infraco) active in the marketPortugalPortugal Telecom towers rumoured to be brought to market in 2014 although no sale agreedRussiaTowercos Russian Tower and Link Development

active in the market, rumour that Vimpelcom towers may be first to come to marketSpain Towerco Abertis active after acquiring towers from Telefonica/Yoigo. Axion also activeSwedenSeveral infracos including Net4Mobility, 3GiS and SUNABTurkeyTurkcell’s Global Tower manages over 16,000 sites including 7,000 macro towersUKTowercos active in the market include Arqiva, WIG and Shere Group, MBNL and Cornerstone sizable infracosUkraineTowerco UKRTower active in the market

123456


European heatmap

TowerXchange research has not revealed any infracos or

towercos to date

Towercos or infracos active in the market. No recent

transactions have taken place and none rumoured to take

place soon

Towercos or infracos active in the market. No current

transactions taking place but an attempted tower sale has

taken place in the last 3 years or there are unconfirmed

rumours of a deal in this market.

Towercos or infracos active in the market. Rumours of deals

confirmed in the market.

Towercos or infracos active in the market. Deals of significant

size have taken place in the last 5 years.

Towercos or infracos active in the market. Deals have taken

place in the last year and more imminent deals rumoured

Legend

Note: For the purposes of our European coverage, ‘Towerco’ describes an independent company which owns and operates passive infrastructure for commercial profit. ‘Infraco’ incorporates MNO joint venture organisations and carve outs which serve more than one entity or market their towers commercially


Poland – Aero2, owned by Poland’s Midas Group, has announced the launch of LTE

services. The operator will use over 1,000 LTE-800 base stations in addition to its existing 4,170 transmitters. Midas claims its combined LTE networks now reach more than 90% of Poland’s population

UK – Hutchison Whampoa Limited, parent company of UK based operator Three, has

confirmed its intention to buy British operator O2. HWL confirmed that it will acquire O2 UK for £9.25 billion, creating the UK’s largest mobile network operator with over 33 million subscribers. The tower assets of O2 and 3 are currently managed by different infracos (Cornerstone and MBNL) so TowerXchange awaits new of their network plans with interest.

Ukraine - Kyivstar, Ukraine’s largest MNO, has released information on its future-proof

Single RAN network design for new infrastructure, enabling it to upgrade to LTE simply by updating software and meaning they do not need to upgrade hardware on their base stations, which already support 2G GSM, 3G UMTS and 4G LTE.

Romania - The largest MNO in Romania, Orange, has announced it will spend €500

million by 2018 as part of parent company Orange Group’s €15 billion investment in their European


networks in 2015-17. CEO Jean Francois Fallacher also stated that the MNO is asking for changes in Romanian regulations to oblige companies with fixed infrastructure to open access to rivals in the same way mobile networks are required to do.

France - France has called upon its MNOs to address ‘not-spots’ in rural areas within the

next 18 months. Les Echos reported that France’s Prime Minister Manuel Valls called for provision of 3G services in ‘white areas’ in this timeframe. The French government has allocated a total of €1 billion to address public services issues in underserved locations.

Croatia – Tele2 Croatia and Huawei have signed a contract to roll out 3G to all

Tele2’s mobile sites and for additional passive infrastructure to be constructed in order to improve coverage. It is expected that Huawei will use its Single-RAN wireless network solution to allow for future network upgrades without additional hardware.

Italy – EI Towers’ interest in RaiWay continues, with a revised bid for a 49%

stake in the company, which would allow the Italian government to retain a critical 51% stake in RaiWay themselves. EI Towers has submitted more information on the proposed €1.23 billion takeover to market regulator Consob.

Europe News Italy – Telecom Italia may consider selling their towers unit Inwit to Abertis Telecom

(Cellnex) rather than following through on plans to list the company before the summer. Inwit has around 11,500 towers in their portfolio. Abertis have confirmed to TowerXchange that they are monitoring the Italian market closely, however their own plans for an IPO may complicate a potential deal.

Netherlands – Liberty Global, the Dutch operator, is expected to acquire either

Vodafone Netherlands or T-Mobile Netherlands in a deal worth €3-4 billion. It is rumoured that all parties have acknowledged the need for consolidation and Liberty Global is expected to be the acquiring party. Some sources claim the deal may spark wider M&A activity in Europe, with asset swaps in other markets a strong possibility.

Spain – Abertis have formally announced the IPO of their telecoms unit, offering

55% of wholly-owned subsidiary Cellnex Telecom with an over-allotment of an additional 5.5%. Tobias Martinez, CEO of Cellnex Telecom said “Our diversified and highly visible revenue streams, healthy pipeline of growth opportunities and experienced management team place us in an optimal position to continue our rapid growth trajectory. Looking ahead, we are seeing significant potential for growth in telecom site outsourcing in Europe with very favourable underlying market dynamics.”

Abertis agree to buy Wind towers for $774 millionDeal gives Abertis a foothold in the Italian market

The bidders

Abertis’ telecoms business focusses on telecoms, media and public administration, with tower sites to date in Spain and Italy. Currently the most acquisitive of the European towercos, their focus on creating a pipeline of tower acquisition opportunities across the continent in the face of limited competition is moving them quickly into the position of Europe’s largest multi-country towerco. Abertis has also recently confirmed plans to spin out the Abertis Telecom part of the business via IPO to allow them to take advantage of “a market where there are currently many opportunities, particularly in the European mobile telephone towers segment”.

Abertis reportedly beat Italian investment fund F2i’s joint offer with Providence Equity Partners, who also backed Helios Towers Africa in their most recent round of capital raising, coinciding with the acquisition of part of Bharti Airtel’s tower portfolio in Q4 2014. Combining Providence Equity Partners’ experience and appetite for the tower market with F2i’s expertise in Italian infrastructure, particularly in the areas of utilities and transportation, they appeared to be strong contenders. However there is no information in the public domain about how the assets would have been managed if their bid has been successful, raising the possibility that they would have either recruited a management team or made a trade acquisition to obtain the necessary skills and processes wholesale.

Other early contenders for the deal were believed

Read this article to learn:< Which towercos and organisations were interested in the Europe’s largest tower divestment

in recent years

< Why Abertis were successful in securing the deal

< What market factors precipitated the sale of Wind’s Italian towers

< How the deal compares to other large European tower sales

A deal between Abertis and Wind, the Italian mobile network operator controlled by Russian telecoms giant Vimpelcom, closed at the end of March. The deal, for a 90% stake in Wind’s tower subsidiary Galata, which owns 7377 towers, is worth €693 million or US$774 million.

Keywords: News, Editorial, Europe, Italy, Wind, Abertis, American Tower, Telecom Italia, Deal Structure, Acquisition, Market Overview, Valuation, Investment, LTE, Lease Rates, Transfer Assets, Co-locations, Infrastructure Sharing, First Mover Advantage, Debt Finance, Cashflow Finance, Infrastructure Funds


to include Italian native, Mediaset-controlled EI Towers, and American Tower. It is rumoured that American Tower withdrew from the process after successfully agreeing deals to acquire over 22,600 towers in deals with TIM in Brazil, Airtel in Nigeria and most recently with Verizon in their home US market. American Tower are however believed to retain ambitions to expand their footprint in Europe beyond their existing portfolio of just over 2,000 towers in Germany.

Drivers for the deal

As with all significant tower deals, the sale of a tower portfolio allows operators to release cash and stabilise opex. In the case of Wind, this will mean an opportunity to reduce debt, which at group level at Vimpelcom currently stands at €27.7 billion gross, and meet the capital requirements for LTE roll-out in Italy.

The Italian market

Italian mobile market penetration currently stands at around 158%, one of the highest rates of penetration in Europe. Wind is Italy’s third largest operator with 24% of market share behind TIM (35%), Vodafone (31%) and ahead of 3 (10%).The LTE rollout in Italy is currently well underway with TIM rolling out 4G+ in 60 cities and Vodafone in 80 cities nationwide. The network requirement of LTE rollout is currently estimated at around 7,000 towers and there is considerable overlap of existing coverage by several Italian operators. Although TIM and Vodafone did agree to passive infrastructure


sharing in rural areas (populations <35,000) and for new 4G tower builds, their agreement doesn’t extend to the country’s most populated areas and tower sharing in Italy stood at under 20% before the Abertis deal.

In a mature market where network coverage no longer offers significant competitive advantage and efficiencies can be found in co-location for LTE rollout, operators can gain significantly from a substantial towerco presence in order to consolidate their networks and reduce opex.

Current towerco activity in Italy

Until recently, the Italian market was dominated by EI Towers, controlled by Italian media giant Mediaset. EI Towers owns around 2,700 sites across Italy and, like other European towercos such as

Arqiva and TDF, now offers telecoms solutions after originating in the broadcast industry.

Although the Wind deal is the first substantial tower divestment in Italy to date, there has been rumors of aborted processes dating back as far as 2007, when Wind and 3 Italia attempted to divest a joint portfolio of 18,000 towers but failed to find buyers who would meet their valuation. As recently as 2014 TIM proposed the sale of its 12,000 Italian towers and did indeed sell 6,480 of its Brazilian towers to American Tower for $1.2 billion in a bid to reduce the company’s debt and regain an investment-grade rating after being downgraded to ‘junk’ status in November 2013. Current reports suggest that TIM is now considering an IPO for their Italian tower portfolio in 2015.

Abertis already owns tower assets in Italy, having

Albertis

El Towers

Inwit, Telecom Italia’s Towerco

Operator-Captive

Small local tower owners with <30 towers

7683

300

2700

12,000

14,000

Figure 1: Estimated breakdown of tower ownership in Italy

bought TowerCo from Alantia in 2014 for €94.6 million. TowerCo works with all of the country’s major MNOs including Telecom Italia, Vodafone, Wind and 3 Italia. Abertis is believed to have acquired all 306 sites managed by TowerCo, which offer coverage for over 3,000km of toll road in Italy including 212 towers and 94 points in tunnels.Adding the 7,377 Wind towers to their portfolio will increase Abertis’ footprint and make them the largest towerco in Italy by a considerable margin. Taking into account reports of Telecom Italia’s tower portfolio standing at around 12,000, EI Towers’ at 2700, and estimating that the remaining operator-captive towers will number around 14,000, Abertis’ new combined tower portfolio of

7683 will represent around 20% of the total number of towers in Italy. Comparison with the broader European tower market to date

Over the last three years the European tower market has seen several deals of substantial scale involving the transfer of assets from mobile network operators to independent towercos, most notably the Bougyes Telecom deal with FPS in 2012, KPN’s German operator E-Plus and American Tower in 2012 and most recently the transfer of Telefonica’s Spanish tower portfolio to Abertis in 2014.

When viewed as a set, it’s clear that Europe’s largest (1,000+ towers and excluding carve-outs) transactions are increasing in scale, indicating that not only is the market more able to attract and deploy the capital to transfer larger portfolios, but also that operators are willing to commit more established assets and no longer view their networks as a critical competitive advantage.When assessed alongside the cost of each transaction, however, the resulting cost per tower is much more variable, indicating that there is no ‘one size fits all’ approach for the European tower market and that variables such as leaseback rates, tenancy ratios, tower condition and location play an important a role


Europe’s biggest tower deals

Cost of transaction Number of towers in transaction Cost per tower

Contrasting the international acquisition appetites of AMT, SBA and the world’s other major towercosWhat is their digestive capacity and what are the implications for MNOs seeking to divest large portfolios?

Apart from where we are quoting data and anecdotes from AMT and SBA’s site lists, quarterly and annual reports, conference calls and investor conference presentations, the entirety of this editorial is TowerXchange’s own opinions, and is not based on any conversations with AMT or SBA executives. American Tower has invested more aggressively in international markets than any other towerco in the world. At the time of writing, 40.9% (40,066) of American Tower’s sites are in domestic markets, with the majority, 59.1% (57,898) international, inclusive of the pending acquisitions from Verizon (domestic), Airtel in Nigeria and TIM in Brazil. According to analysis provided by RBC Capital Markets, 37% of AMT’s pro forma annualised site rental and management revenues will come from international markets, again inclusive of the aforementioned three pending acquisitions. AMT generated core organic growth of nearly 13% internationally, with Brazil experiencing record levels of lease demand (Brazil delivered core organic growth of over 19%) but with the highest level of organic growth coming in Ghana at 40%. This compares with domestic organic growth of 7%. AMT plans to build 2,600-3,000 new towers internationally in 2015, compared to just 150-250 in the US. While SBA Communications’ has less exposure to international markets than American Tower, the percentage of site leasing revenue SBA brings in from overseas has more than doubled since 2013. 13.5% of SBA’s site leasing revenue came from their

Read this article to learn:< Comparing the current international footprints of AMT and SBA in terms of tower count and US$ vs non-US$ revenue< AMT and SBA’s warchest and acquisition priorities in CALA in 2015< The limited extent to which AMT and SBA are in direct competition – which towercos have the budget to execute tower “mega-deals” worldwide?< Implications for MNOs seeking to divest towers worth >US$500mn< A list of the world’s top 100 towercos, including tower count and countries of operation

With the recent publication of American Tower (AMT) and SBA Communications’ (SBA) quarterly results, I thought it might be timely to contrast their international strategies, comparing where they have an appetite to deploy capital and under what terms. As we consider the implications of AMT and SBA’s acquisitiveness, and consider the handful of other towercos worldwide with the financial and ‘digestive capacity’ to execute US$500mn+ tower transactions, we start to see a distinct map of potential acquirers in tower ‘mega-deals’ on each continent, which itself has implications for MNOs considering the sale of assets.

Keywords: Editorial, Towercos, Investment, 4G , Deal Structure, Valuation, Tenancy Ratios, Market Forecasts, First Mover Advantage, Asset Register, Sale & Leaseback, Infrastructure Funds, South America, North America, Central America, Africa, Asia, Peru, Colombia, South Africa, Saudi Arabia, edotco, Protelindo, Tower Bersama, STP, IHS Africa, Helios Towers Africa, Eaton Towers, Grupo TorreSur, Digital Bridge, Macquarie, Crown Castle, American Tower, SBA Communications


By Kieron Osmotherly, CEO, TowerXchange

international portfolio in 2014 (up from 6.3% in 2013). At 31 December 2014, 62.3% (15,124) of SBA Communications’ sites were in domestic markets and 37.7% (9,168) international, inclusive of the most recent acquisition from Oi in Brazil. US$40bn market cap giant American Tower’s international strategy is more aggressive and expansive than SBA Communications’. AMT is driven by a double digit growth narrative that they probably cannot fulfil in a domestic market with finite remaining acquisition opportunities – while there are smaller tower portfolios that can be rolled up, and AT&T and US Cellular each retain 4-5,000


towers, the US tower market is 70% penetrated by towercos. As they look abroad for growth, American Tower seem comfortable with the scale of their international business exceeding that of their domestic, diversifying their portfolio across five continents. International expansion has brought AMT into less mature markets, offering a longer runway for growth – AMT’s tenancy ratio across their comparatively mature domestic business was 2.5 (preceding the Verizon acquisition), international tenancy ratios average just 1.5. SBA takes a more selective approach to international expansion, focusing to date on Central

and South America. SBA has self-imposed a 25-30% cap on non-US$ denominated revenues, which suggests the relative scale of their international footprint could double in revenue terms in the coming years.

While SBA has no shortage of options to raise supplementary funds should the right opportunity arise, SBA’s 2015 US$1bn warchest may be utilised for share repurchase as much as for acquisitions. SBA has a history of selective, smaller transactions, and may continue to expand internationally a few hundred towers at a time. In comparison, AMT deployed over US$3bn in international acquisitions

Figure one: Graphical representation of American Tower’s international portfolio, Q1 2015 (inc Verizon, TIM and Airtel)

Figure two: Graphical representation of SBA Communications’ international portfolio, Q1 2015

United States 40,066 United States 15,481India 12,977

Mexico 8,716 Brazil 13,373

Brazil 6,927

Colombia 3,589

Germany 2,031

Ghana 2,038 South Africa 1,918 Chile 1,156 Peru 571 Costa Rica 464

Nigeria 4,800

Uganda 1,256

El Salvador 176Nicaragua 183

Guatemala 496

Costa Rica 496

Panama 520

Canada 673

Source: Company Reports, RBC Capital Markets, TowerXchange Research Source: SBA site lists, 10 March 2015


in 2014, headlined by the acquisition of ~4,800 towers from Airtel Nigeria for US$1.05bn, and two mega deals in Brazil with BR Towers (US$978mn) and TIM (US$1.2bn). In the Q4 2014 earnings conference call, AMT President, CEO and Chairman Jim Taiclet stated that AMT’s international business had “been able to deliver strong organic core growth over the last several years significantly above that of the U.S. This reflects the aggressive network deployments of large multinational customers like Telefonica, MTN, Vodafone and many others across our international footprint and has been complemented by average gross margin conversion rates excluding pass-through of about 80% since 2010.”

Taiclet continued: “While we continue to expect solid contributions to organic growth from existing assets, we also expect that under-marketed portfolios like Airtel Nigeria when they’re closed by us will help generate very strong revenue growth going forward. The growth rates indicated on the chart (included in this article as figure three) for BR Towers, TIM and Airtel are the average annual revenue growth rates we expect each portfolio to generate over the next five years” (transcript excerpt courtesy of Seeking Alpha). Where will American Tower and SBA Communications compete in auctions in 2015? First let’s emphasise where AMT and SBA won’t be competing to acquire towers in 2015. There will be competition for tenancies and tower builds as

Brazil gears up for the Olympics and for the 700 MHz 4G auction, but we won’t see the volume and scale of tower transactions in Brazil that we saw in 2014. Towercos already own 71% of Brazil’s towers. Brazil is essentially ‘sold out’ of sale and leaseback opportunities, with the possible exception of a handful of remaining Oi towers. Maturing BTS-centric ‘middle market’ towercos could be selectively acquired, although most remain two to three years away from the scale envisaged in exit strategies. The largest independent player, Grupo TorreSur, seems to have stood down from their rumoured sale and resumed build to suit activities. Similarly, there’s not much left to buy in Mexico,

with Telcel’s towers the last remaining substantial operator-captive portfolio, but destined to be carved out into América Móvil’s own towerco. The entry of AT&T into Mexico will stimulate substantial BTS programmes, and again there are a handful of smaller towercos that could be acquired, although none has a quadruple digit tower count. So if the battle won’t be fought in Brazil and Mexico, where will AMT and SBA seek to deploy acquisition capital in CALA? 2015 may be a year too soon for much activity in the virgin tower markets of Argentina and Uruguay. However, at a recent TMT investor conference, SBA CEO Jeffrey Stoops talked about targeting inorganic international growth

Figure three: AMT’s recent international investments support continued strength in organic core revenue growth

2010

~11% historical average Organic Core Revenue Growth

~8%

~14% ~14% ~14%

~18% ~18%

~13% ~10%

2011 2012 2013 2014 BRT TIM AirtelNigeria

Source: American Tower Q4 2014 Earnings Presentation

along the Pacific Coast side of South America where SBA is not currently active. “We’d like to find an opportunity where we can go in with 200-300 towers so we can be EBITDA positive from day one,” said Stoops. “There are some possibilities in each of those countries where that could happen, but I don’t have anything imminent or concrete yet.” While an unfavourable regulatory environment continues to dissuade investment in the otherwise attractive Chilean tower market, we expect several hundred, potentially thousands of towers to change hands in


Peru and, in particular, Colombia in 2015.

While American Tower (571 towers) and Torres Unidas (~350 towers) are active in Peru, joined at a smaller scale by Torres Andinas, NMS, Torresec Peru and a handful of other local towercos, the market is far from fully penetrated by towercos – TowerXchange estimate that less than 20% of Peru’s ~6,000 towers are owned by towercos. There is tremendous fuel for organic growth in Peru, with Telefónica having launched 4G earlier in 2014,

and Claro doing likewise on a 1,900 MHz band previously used for 2G. Entel’s acquisition of Nextel had already stimulated their investment of capex, farther increased with the launch of their own 4G service. Meanwhile, a regulatory regime that had previously seen many tower permitting processes falter in municipal approvals, is increasingly being driven from the top by a regulator that has acknowledged a need to add 50-100% more towers to densify and extend Peru’s network, and that has even proposed changes to the Telecommunications Act to enable the installation of antennas on public buildings.

However, competition to acquire assets between AMT and SBA may be most intense in Colombia, where again AMT is already present with 3,589 sites, joined by Centennial, Continental, NMS, Torres Andinas and formative portfolios being developed by Phoenix Tower International and Torres Unidas, among others. While Colombia is awash with towercos, only AMT has a quadruple digit tower count in a market where towercos own a little over 4,000 of the ~20,000 towers in the country. Another parallel with Peru is the rollout of 4G in Colombia, with programmes well under way from Claro, Movistar, DirecTV and the newly merged Tigo-UNE. The Avantel rollout is another driver of organic growth for Colombia’s towercos. AMT and SBA may be the favorites to win any tower ‘mega-deal’ processes in CALA, but don’t rule out Jimmy Eisenstein’s GTS, nor should one rule out the formidable combination of Macquarie, Marc Ganzi and his team at Digital Bridge.

Figure four: The biggest non-US tower deals announced in the last three years

Year Continent Country Seller Buyer US$/tower # of sites US$ value

2014 Asia Indonesia PT Telkom Tower Bersama $230k 4,000 $0.90bn*

2014 CALA Brazil Oi SBA Communications $321k 1,641 $0.53bn

2014 Africa Nigeria Airtel American Tower $219k 4,800 $1.05bn

2015 Europe Italy Wind Abertis Telecom $95k 7,377 $0.77bn***

2014 Africa Nigeria Etisalat IHS Africa $227k 2,136 $0.47-0.5bn

2014 CALA Brazil TIM American Tower $185k 6,480 $1.2bn

2014 Africa Nigeria MTN IHS Africa $197k 9,151 $0.88bn**

2012 Asia Indonesia Indosat Tower Bersama $208k 2,500 $0.52bn

2014 CALA Brazil BR Towers American Tower $212k 2,530+2,100 $0.98bn

2014 Africa Multiple Airtel Eaton Towers $175k 3,500 $0.52-0.7bn

2013 CALA Brazil Oi SBA Communications $321k 2,007 $0.64bn

2014 Africa Multiple Airtel Helios Towers Africa $145k 3,100 $0.4-0.5bn

*structured as a share swap agreement **IHS acquired 49% stake in JV with MTN ***Abertis acquired 90% equity


Tower ‘mega-deals’ beyond CALA While American Tower are unique in having towers on every continent except Australia (and Antarctica!), to paraphrase Jeffery Stoops at a recent conference, it would take something quite dramatic to persuade SBA Communications to invest outside the Western hemisphere in 2015. So if AMT’s main rival for towers in the Americas isn’t a recurring rival in tower auctions, who is? In Africa, only IHS has been able to go toe-to-toe with American Tower to win mega-deals, although Helios Towers Africa and Eaton Towers are driving to scale and are highly investible platforms in their own right, which might be able to raise the capital to bid alongside AMT and IHS should another US$bn portfolio become available in SSA (MTN South Africa?). American Tower had ample opportunity to

diversify their African footprint during the recent Airtel tower sale, but were content to focus solely on Nigeria, so TowerXchange don’t expect to see the American Tower flag planted in the maps of too many more SSA countries in 2015.

In Europe, Abertis recently announced a US$0.77bn deal with Wind in Italy, a portfolio AMT reportedly also bid on. Abertis is set to become an even more formidable rival if the IPO of their tower business enhances and separates their acquisition warchest from the broader Abertis infrastructure business. With TDF retrenching into their domestic market, Abertis and AMT seem like the most obvious tower mega-dealers in Europe. The pipeline of European tower opportunities may move slower than in emerging markets, but a different pool of large private equity, institutional and pension fund investors has an appetite for the asset class, adding

further bidders to any processes.

Asia is a more complex landscape. AMT may be the only buyers with mega-deal digestive capacity in the seller-rich Indian market, where the owners of operator-led competitors such as Indus Towers, Bharti Infratel and Reliance Infratel need cash to bid in forthcoming spectrum auctions where reserve prices total US$10.2bn. India’s independent towercos Viom Networks (42,000 towers), GTL Infrastructure (29,432), Tower Vision (8,600) and Ascend Telecom (4,000) might all be open to offers, each for different reasons. In October 2014, AMT’s President of Asian Operations Amit Sharma told the Economic Times of India that the company were open to consider M&A opportunities, and that he expected the number of towers in India to double to 800,000 in the next five years. AMT might face more competition for mega-deals elsewhere in Asia. edotco has to date focused on carving out assets from the Axiata empire, but they could make a run for a tower mega-deal in Southern or Southeast Asia. Perhaps the only market that might already be too mature for AMT or edotco is Indonesia, where Tower Bersama, Protelindo and STP compete for the assets. STP and Tower Bersama seem content to remain focused on their domestic market, where Tower Bersama’s partnership with Telkom could force Protelindo, which has a lot of AMT wisdom in its management DNA, to look farther afield. So auctions for tower mega-deals anywhere outside of Indonesia in Asia could include any combination of AMT, edotco and Protelindo among the favorites.

“ “Abertis and AMT seem like the most obvious tower mega-dealers in Europe. The pipeline of European tower opportunities may move slower than in emerging markets, but a different pool of large private-equity, institutional and pension fund investors has an appetite for the asset class, adding further bidders to any processes

And what of Myanmar? Consolidation among the six towercos engaged in the “last greenfield rollout” may create an opportunity to enter the market at its formative stage, should American Tower have appetite for the country risk and operational complexity that accompanies the opportunity to participate in this increasingly co-ordinated, shared rollout. However, the fragmented way in which the tower build was shared among Myanmar’s towercos means there will be no portfolios of a scale sufficient to be classified as a mega-deal until 2017. Alongside South Africa, another market which


might be a long-shot for SBA Communications to join American Tower at the bidding table would be Saudi Arabia, where one tower sale process is under way and a second may follow. Tower transactions have failed to be consummated in the Middle East on many occasions in the past of course, but if the Saudi towers do come to market, winners probably need not look beyond the steel and grass business model.

Beyond ‘steel and grass’ American tower has shown themselves to be increasingly prepared to engage with the

complexity of emerging market towers, having started out with energy costs as a pass through in SSA, AMT now offers a full DC service in Uganda and Ghana, and will do so from the get-go in Nigeria once the Airtel assets are transferred. Quoting AMT President, CEO and Chairman Jim Taiclet in his most recent Quarterly investor call, “in our African markets and in India, we’ve developed market leading fuel and power management solutions to improve the reliability and operating efficiency of electrical power, increasing the attractiveness of American Tower sites to both existing and prospective tenants.” A reluctance to engage with energy logistics is one of the principle reasons for SBA’s relatively conservative international expansion, restricted to date to markets where power is a pass through and where electrification is all but complete. Implications for MNOs seeking to divest large portfolios of towers Divesting towers to specialist towercos can release substantial capital while improving operational efficiency. But if you’re a stakeholder in an MNO that is considering selling a portfolio of towers with a valuation over US$500mn, bear in mind that you’re selling into a distinct and shallow pool of prospective buyers on each continent, with the aforementioned towercos occasionally joined by a handful infrastructure funds with an appetite for this asset class. With a finite market of buyers, timing can be

What about Crown Castle?

Eagle eyed readers will have noted the exclusion of the third of the ‘Big three’ publicly listed US towercos, Crown Castle International (CCI), from this analysis. CCI has the most cautious attitude toward international markets of the three US towercos. While CCI have successfully entered and exited the UK market, they appear poised to do likewise in Australia. CCI have been tempted to consider unsolicited offers for 100% of the equity in their portfolio of 1,772 Australian towers. However, readers shouldn’t put two and two together and assume AMT would be in pole position to acquire the assets – the tax regime in Australia would enable a local infrastructure or pension fund to put the CCI assets into a REIT, and the relatively slow growth, stable revenues seem better suited to such a counterparty than they do American Tower’s more aggressive growth narrative. CCI has not yet put capital to work in emerging markets, nor have they joined the battle for Brazil. Despite oft-voiced rumours of negotiation to buy their way into Brazil via the acquisition of GTS in 2014, CCI ultimately held fire on the deal and remain content to invest capital into domestic opportunities, including a substantial DAS and small cells business, and stock repurchase. That said, TowerXchange consider CCI to be a potential MVP currently ‘on the bench’ of the international tower market – we don’t rule out the possibility they could enter the game at some point in the next 12-36 months


critical. Less attractive tower opportunities can queue up behind more readily digestible portfolios. For example, the sale and leaseback of 15,000+ Airtel towers in SSA drew a lot of towerco management bandwidth away from other opportunities, particularly those made available on a less attractive ‘manage with license to lease’ basis. Timing is even more critical when it comes to avoiding ‘last mover disadvantage’; while the premium paid for first movers’ towers is moderated if fast followers follow fast, any market has a finite number of prospective tower tenants, and most tower markets mature with towerco penetration of 70-80% – last movers risk their assets being devalued or stranded on balance sheets. Tower sale processes are in competition with share repurchase programmes, which represent an attractive alternate use of SBA and AMT’s warchests, as well as being in competition for a finite amount of acquisition capital from a finite number of buyers. While most of the world’s leading towercos are focused on one or perhaps two continents (meaning a process in CALA isn’t effectively in competition for capital with one in Africa) this does not apply to American Tower, which is active worldwide. It’s almost axiomatic to say that if you want to divest US$500mn+ worth of towers, you probably want AMT bidding to maximise your valuation. MNOs considering divesting towers to raise capital must be mindful of the time it takes to execute these transactions, should endeavour to bring asset registers and site documentation up to date, and should seek proven advisors to help them navigate the process.

Conclusion American Tower and SBA Communications are driven by different investment criteria as they diversify into international markets. American Tower is voracious in the pursuit of growth, and is building a global portfolio across over 13 countries (so far) which meet their investment thesis. American Tower’s low cost of capital, willingness to deploy billions of US$ per year on the right international assets, willingness to push beyond the geographical limits of the ‘steel and grass’ towerco model to provide AC and DC energy service, and willingness to dilute their domestic market focus to a greater extent contrasts with SBA Communications. SBA Communications has finite appetite to engage with the complexity of the

towerco business model in emerging markets, and has placed a nominal cap of 25-30% on the scale of their non-US$ revenues. While it might be amusing to setup this editorial as a face-off between American Tower and SBA Communications in International markets, the reality is that they may seldom find themselves bidding on the same auctions, at least outside of CALA

Meet senior executives from AMT, SBA and the other leading towercos in CALA at the TowerXchange Meetup Americas, April 28-29, Hollywood, FL. Visit:www.towerxchange.com/meetups/americas

“ “American Tower is voracious in the pursuit of growth, and is building a global portfolio across over 13 countries (so far) which meet their investment thesis... SBA Communications has finite appetite to engage with the complexity of the towerco business model in emerging markets, and has placed a nominal cap of 25-30% on the scale of their non-US$ revenues

21

19

Tower Vision

Telesites (Telcel’s new towerco)

8,600

10,800

India

Mexico

23

26

28

30

Deutsche Funkturm

TRUEGIF

Grupo TorreSur

US Cellular Towers

8,500

7,000

6,185

4,281

Germany

Thailand

Brazil

USA

16 edotco 13,000 Malaysia, Sri Lanka, Bangladesh, Cambodia, Pakistan

22

25

Eaton Towers


8,570

7,800

Ghana, Kenya, Uganda, South Africa, Niger, Burkina Faso, Malawi (includes one further transaction, closing soon)

Tanzania, DRC, Congo B, Ghana, Chad

17 Protelindo 11,477 Indonesia, Netherlands

24 Global Tower 7,870 Turkey, Ukraine

18 TDF 11,000 France, Germany, Poland, Spain, Estonia

20

27

29

Arqiva

STP

AT&T Towers

10,550

6,625

5,059

UK

Indonesia

USA

6 Crown Castle 41,469 USA, Australia

2 Indus Towers 114,101 India

8

12

14

GTL Infrastructure

MBNL

Abertis Telecom

29,432

18,000

15,377

India

UK

Spain, Portugal, Italy

1 China Tower Company 120,000 BTS China

7

11

Bharti Infratel

CTIL

36,861

18,000

India

UK

3 American Tower 97,964 USA, Brazil, Chile, Colombia, Peru, Mexico, Costa Rica, Germany, India, Ghana, South Africa, Uganda, Nigeria

5

10

Viom Networks

IHS Towers

42,000

21,000

India

Nigeria, Cameroon, Ivory Coast, Rwanda, Zambia

4 Reliance Infratel 50,000 India

9

13

15

SBA Communications

KGI Wireless

Tower Bersama*

24,292

18,000

15,199

USA, Panama, Costa Rica, Nicaragua, Guatemala, El Salvador

USA

Indonesia


Top 110 towercos and infracos worldwide, by estimated tower countWhere possible, the tower counts that follow have been verified through site lists and direct conversation with management between Q4 2014 and Q1 2015. In some cases, counts represent our best estimate. We cannot provide even an estimate for some towercos and infracos, which are listed at the foot of this table. If you would like to suggest an amendment to any of these figures, please email [email protected].

Rank RankTowerco TowercoCount CountCountries Countries

* Mitratel towers included in Tower Bersama count

53 Tower Ventures 894 USA

55

70

59

63

61

Digicel MTC

CTI Towers

SWAP Telecoms and Technologies

Komet Infra Nusantara

Open Tower Company

800

457

700

600

684

Myanmar

USA

Nigeria

Indonesia

Netherlands

54

57

Shere Group

Sacofa

860

765

UK, Netherlands

Malaysia

52 Centennial 895 Brazil, Mexico, Costa Rica, Panama, Colombia

56 České Radiokomunikace 800 Czech Republic

58

62

65

64

60

Torres Unidas

Industrial Communications

QMC Telecom

Axion

BCTEK

750

635

550

580

700

Chile, Peru, Colombia

USA

Brazil, Mexico and Puerto Rico

Spain

Nigeria

73 Towercom 400 Ireland

67 T4U 500 Brazil

66 Towershare 500 Pakistan

72 Sprint Sites USA 435 USA

71

69

68

Retower

Touch Matrix

NMS

450

460

465

Indonesia

Malaysia

Colombia, Peru, Mexico, Nicaragua

35 T-Mobile Towers 2,157 USA

32 Digital Bridge / Vertical Bridge / MTP

3,423 USA, Mexico

37

49

50

Wireless Infrastructure Group

Message Centre Management / Torrecom

Central States Tower

2,000

995

921

UK

USA, Mexico, Guatemala, Nicaragua

USA

31

51

Ascend Telecom

Q Towers

4,000

900

India

China

36

48

47

45

44

43

IBS Tower

Continental Towers

TriStar Investors

InSite Wireless Group

Pan Asia Majestic Eagle

Varsity Wireless

2,079

1,000

1,000

1,200

1,250

1,288

Indonesia

Undisclosed countries in South and Central America

USA

USA

Myanmar

USA

34

41

42

40

39

FPS

Frontier Tower Solutions

Helios Towers Nigeria

Russian Towers

ASEAN Towers (IGT + Golden Towers)

2,166

1,500

1,300

1,500

1,900

France

Afghanistan

Nigeria

Russia

Myanmar, Vietnam

33 EI Towers 2,700 Italy

38

46

VinaCapital / VNI

Apollo Towers

1,930

1,100

Vietnam

Myanmar



99 Asia Space 137 Malaysia

102

101

106

109

108

113

111

Hi3G

Collite

Melaka ICT Holdings

Phoenix Tower International

Intelli Site Solutions

Stout & Company

Skysites

125

130

95

58

74

38

40

Denmark

Ireland

Malaysia

Panama, Brazil

Mexico

USA

Brazil

100

105

Tocsa

Hotspot Network

130

100

Costa Rica

Nigeria

104 Desabina 118 Malaysia

103

107

112

114

110

Communication Enhancement

Falck

Telecom Torres

Pro High Site Communication

Torre Online

124

75

40

10

51

USA

Denmark

Brazil

South Africa

Brazil

75 Emitel 377 Poland

74 ESB Telecos 400 Ireland

82

84

88

90

94

92

96

Subcarrier Communications

Skyway Towers

Balitowers

Link Development

Teletower Dominicana

Highline do Brasil

Pegasus Tower

300

250

208

200

192

200

173

USA

USA

Indonesia

Russia

Dominican Republic

Brazil

USA

97 Perak Integrated Networks 150 Malaysia

83

81

80

Common Tower

Square1 Infrastructure / MIG

TowerCo of Madagascar

260

300

300

Malaysia

Nigeria, South Africa, Myanmar

Madagascar

78

79

77

KJS

Brazil Tower Company

D’harmoni

309

300

346

Malaysia

Brazil

Malaysia

86

89

93

91

95

85

87

Branch Communication

Infra Quest

Eco-Friendly Towers

Yikedbina

Grain Management

IIMT

Innovattel (Torresec)

226

201

200 BTS

200

188

250

209

USA

Malaysia

Myanmar

Malaysia

USA

Mexico

Peru, Ecuador, Colombia, Puerto Rico

76 Cell Site Solutions 350 Brazil



Other towercos or infracos of interest – tower count unknown

3GIS, SwedenAntenna Hungaria, HungaryAtlas Tower, USA, South AfricaAWAL Telecom, PakistanAzerconnect, AzerbaijanCatalina Inc., Costa RicaCommunication Towers Nigeria, NigeriaDiamond Communications, USADigita, FinlandInfratel, South AfricaITAS TIM, France

Net4Mobility, SwedenSecured Towers, NigeriaShared Networks Tanzania, TanzaniaStaghorn Infrastructure, USASummit LatAm, South AmericaSUNAB, SwedenTarpon Towers, USATASC Towers, JordanTorres Andinas, Brazil, Colombia, Chile and PeruTowercast, FranceTowerCo, USA98 HIGHPOINT (obelisk) 150 Ireland

See you at our future events!


Meetup Africa2015

Meetup Asia 2015


Meetup Europe & Global Award Ceremony 2016

1-2 October, Johannesburg 24-25 November, Singapore

14-15 June, São PauloQ1 2016, London

Silver Sponsor:

Exhibitors:

Gold Sponsor: Bronze Sponsors:

A unique networking experience with 250 leaders of the CALA telecom tower industry

Co-located with the PCIA Wireless Infrastructure Show


Register online at www.towerxchange.com/meetups/americas. Questions? Call Annabelle on +44 7423 512588

28-29 April,Diplomat Resort & Spa, Hollywood, Florida

Co-located with:Supporting Partners:

The unique experience of a TowerXchange Meetup

< CALA market forecasts< Q&A with the CEOs< Round tables add insight< Structured introductions< Select your own agenda< Local market knowledge

< Market transformation< Next sale & leasebacks< BTS opportunities< Site upgrades< Energy opex reduction< Country specific round tables

Insights

Infrastructure focused

Personal development

Connections

Experience

Learning

< Top 250 decision makers< Towerco CXOs< MNO tower strategists< Investors< Strategic advisors< Proven suppliers

< Networking< Selective audience< Curated exhibition< Relax and enjoy< Professionally hosted

< Undiluted focus on passive infrastructure< Real estate< Power< Construction< Monitoring< O&M

< Learn from 250 peers, the leaders of the CALA tower industry< Align your role and strategy with the needs of the ecosystem

For more information visit www.towerxchange.com/meetups/americas

Day One | Tuesday 28 April

8:00 Registration and coffee

9:00 Welcome and opening remarks

9:05 TowerXchange analysis of the CALA tower industrySpeakers: Arianna Neri, Head of Americas and Kieron Osmotherly, CEO, TowerXchange

9:50 One to One on the Brazilian MNO industryTowerXchange interviews Steven Roberts, Expert - Cellular Rollouts and former Director, ON Telecom

10:20 Morning coffee and networking

10:45 First structured networking roundtables< Country focus: Brazil I - David Porte, VP - International, SBA Communications< Country focus: Costa Rica - José Escobar, President, Catalina Inc.< Impact of spectrum regulation and technology policy on towerco tenancies - Marco Cordoni, Senior Partner, Analysys Mason< Internet of things and ROI at cell towers - Christopher “Che” Mott, VP Strategic Partners, North America, azeti< Applying North American know-how and business planning South of the border - Eric Zachs, Co- chairman, MCM, Inc.< How to reduce energy waste and improve OPEX by RMS - Bartek Candell, Global Key Account

Manager, HMS Industrial Networks< The Value of Data: how to utilise new technology to maximise revenue from your tenants - David Meganck, Founder and COO, Acsys< Contractual terms that create and destroy value when negotiating sale and leaseback and BTS programmes - Francois Feuillat, Partner, Vinson & Elkins

12:00 Networking lunch in co-location with PCIA Wireless Infrastructure Show

1:15 Second structured networking roundtables< Country focus: Mexico - Ariel Rubin, VP Operations, Mexico Tower Partners< Country focus: Peru - Eric Ensor, COO, Torres Andinas< Regional focus: Central America - Ricardo Ruiz, Director - International Operations, SBA Communications< How to manage growing portfolios - Laith Dahiyat, Director of Global Telecom Strategy, Accruent< How to create a successful BTS towerco - Chahram Zolfaghari, CEO, Brazil Tower Company< Listed towercos: what do equity investors focus on - Mark Johnson, Founder and CEO, Astra Capital Management< Vodafone best practice sharing: Sites infrastructure harmonisation to maximise energy efficiency - Bruno Ponzonetto, Infrastructure/Energy Principal Specialist, Vodafone

< Improving profitability by implementing “Discipline of Action” - Ankur Lal, CEO, Infozech Software

2:30 Afternoon coffee and networking

3:00 Towerco panel part I< Moderator: Jon Atkin, Managing Director, RBC Capital Markets< Manuel Aviles, President and Founder, Innovattel / Torresec< Eric Ensor, COO, Torres Andinas< José Escobar, President, Catalina Inc.< William G. Ritchey, Executive Vice-President, IIMT Mexico< Daniel Ryan, CEO, Square1 Infrastructure< Maria Scotti, CEO, Torrecom< Luiz Silva, CEO – South America, Skysites Americas< Chahram Zolfaghari, CEO, Brazil Tower Company

4:30 Strategic partners panel part I: the importance of partner selection for ROI optimisation and opex reductionRepresentatives from azeti Networks, Cummins Power Generation, GS Yuasa, HMS Industrial Networks, Infozech and Telemisis

4:50 Closing remarks from day one

7:00 Drinks reception and networking dinner

TowerXchange Meetup AmericasWestin Diplomat, Hollywood, Florida | 28-29 April 2015


TowerXchange Meetup AmericasWestin Diplomat, Hollywood, Florida | 28-29 April 2015

Day Two | Wednesday 29 April

8:00 Morning coffee

9:00 One to One with Trilogy International PartnersCarlos Tilac, COO, Torrecom interviews Edgar Geidans, Group CTO, Trilogy International Partners

9:40 Third structured networking roundtables< Country focus: Guatemala and Nicaragua - Maria Scotti, CEO, Torrecom< Country focus: Chile - Daniel Ryan, CEO, Square1 Infrastructure < Country focus: Brazil II - Jose Augusto Varela, VP Operations LatAm, Grupo TorreSur< Country focus: Colombia - Juan Cueria, Vice President and COO, Innovattel< Country focus - Argentina - Guillermo Mulville, Principle Investment Officer, TMT Latin America, IFC< International country focus: Myanmar and Vietnam - Patrick Tangney, Partner, Alcazar Capital< Opportunities for towercos to expand beyond the macro networks into DAS and small cells - Luiz Silva, CEO – South America, Skysites Americas< How to achieve scale in a “small country” - Federico Lorenzana, Country Manager, Continental Towers Corp.

11:00 Morning coffee and networking

11:30 Towerco panel part II< Moderator: Jon Atkin, Managing Director, RBC Capital Markets< Kurt Bagwell, President - International, SBA Communications< Jim Eisenstein, CEO and President, Grupo TorreSur< Marc Ganzi, CEO, Digital Bridge Management< Alejandro Messmacher, CFO LatAm, American Tower

1:00 Networking lunch sponsored by SBA Communications

2:30 Strategic partners panel part II: the importance of partner selection for ROI optimisation and opex reductionRepresentatives from Acsys, Assa Abloy, Karam and Leadcom

2:50 Investor keynote panel< Moderator: Marco Cordoni, Senior Partner, Analysys Mason< Zaid Alsikafi, Managing Director, Madison Dearborn Partners< Eric Crabtree, Chief Investment Officer, International Finance Corporation (IFC)< Mandar Donde, Managing Director - Media and

Telecom Investment Banking, Merrill Lynch, Pierce, Fenner & Smith, Inc.< Mark Johnson, Managing Partner, Astra Capital Management< Ryan D. Lepene, Managing Director, Peppertree Capital

4:05 Closing remarks and end of day two

4:15 Networking coffee


Delegate listABLOY International, Area Manager, Latin America

ABLOY Colombia, Managing Director

Accruent, Director, Global Wireless Strategy

Accruent, Account Executive

Accruent, Industry Managing Director

ACSYS, COO

ACSYS, VP Sales Americas

ACSYS, Senior representative

Agence, Partner

AIO Systems, VP Sales

Alcazar Capital, Partner

Ambor Structures, Sales Executive

Ambor Structures, Sales Executive

American Tower Corp, Senior Strategic

Implementation Lead

American Tower Corp, CEO - LatAm

American Tower Corp, CFO - LatAm

Analysys Mason, Senior Partner

Astra Capital Management, Founder and CEO

AT&T Towers & DAS, DAS/Towers Regional Manager

azeti Networks, Partner Development Manager

azeti Networks, VP Strategic Partners North

America

Ballard Power Systems, Vice President and Chief

Commercial Officer

Bank of America Merrill Lynch, Managing Director

Berkshire Partners, Managing Director

Bladon Jets, VP Market Development

Brazil Tower Company, CEO

Cable & Wireless Communications/LIME, CEO

Cambridge Clean Energy Ltd, CEO

Catalina Inc., Director

CJSC Russian Towers, Co-founder

Continental Towers Corp, General Manager - Costa

Rica

Crown Castle, SVP Corporate Development &

Strategy

Crown Castle, Director of Tower Acquisitions

Cummins Power Generation, Director - Telecom

Cummins Power Generation, Marketing Manager

Cummins Power Generation, Sales Director

Deltanode, Business Advisor

Digital Bridge Holdings, CEO

Entel Chile, Business Development Assistant

Manager

Entel Chile, Manager

Ericsson, Director Energy Solutions

Everest Engenharia, Strategies Vice President

Flash Technology, Director International Sales

FPS Towers, CFO

General Communication, Director

GoGo, Manager Network Deployment

GoGo, Senior Development Project Manager

Goldman Sachs Specialty Lending Group, Associate

Grupo TorreSur, Chairman and CEO

GS Battery (USA) Inc., Senior Director, Telecom and

UPS

GS Yuasa International Ltd., Regional Sales

Manager for Industrial Lithium ion Battery

(Telecom)

HIGHLINE DO BRASIL, CEO

HIGHLINE DO BRASIL, Director

HMS Industrial Networks, Global Key Account

Manager

HMS Industrial Networks, Business Development

Manger

ICondor Telecom Group, CEO

IFC, Principle Investment Officer, TMT Latin America

IFC, Investment Officer - TMT

IFC, Chief Investment Officer

IIMT, Executive Vice President

Indus Towers, General Manager - Technology

Indus Towers, Chief of Regulatory and Sustainability

Indus Towers, Regional Director

Infozech, CEO

Infozech, COO

Innovattel, LLC, Regional VP of Operations

Innovattel, LLC, VP Business Development

Innovattel, LLC, VP Compliance

Innovattel, LLC, Vice President

Innovattel, LLC, President

Invus Group, Partner

IP Capital, Analyst

Kaiser Associates, Manager

Kaiser Associates, Manager

Karam PN International, General Manager –

International Marketing


Delegate listKaram PN International, Sales Manager

KGP Logistics, Director, International Markets

KGP Logistics, Marketing Communications Specialist

KPR/Intelli Towers Ltd., Chairman

Leadcom, CALA Territory Manager

Leadcom, Central America & Caribbean Region

Manager

Leadcom, Senior representative

Leadcom, Senior representative

Macquarie, Senior Vice President

Madison Dearborn Partners, Managing Director

MCM, Inc, Co-Chairman

Mecc Alte, Managing Director

Mecc Alte, General Manager

Metalogalva, Business Unit Manager

Mexico Tower Partners, M&A Specialist

Mexico Tower Partners, Director of operations

Mexico Tower Partners, Director of Legal Affairs

Nanhua Electronics, General Manager

Nanhua Electronics, Vice-Director of Sales

Nanhua Electronics, Sales Representative

Narada, Overseas Market Director

Narada, Director - LatAm

Neptuno, Executive Vice President

Network Management Services, CEO

NorthStar, Vice President – Americas

ORION, Commercial Manager

Phillips Lytle LLP, Special Counsel

Phillips Lytle LLP, Associate

Phillips Lytle LLP, Partner

Phoenix Tower International, Corporate

Development

Phoenix Tower International, CEO

Phoenix Tower International, VP Sales &

Development, South America

Planetary Power, CEO

Qowisio, Sales Director

Qowisio, Pre Sales Manager

RBC Capital Markets, Managing Director

SBA Communications, General Manager - Costa Rica

SBA Communications, VP, Mergers & Acquisitions

SBA Communications, Director Senior de

Desenvolvimento

SBA Communications, CEO

SBA Communications, Senior representative

SBA Communications, General Manager Brazil

SBA Communications, President, International

SBA Communications, VP Business Development

SBA Communications, Director - International

Operations

SBA Communications, VP International

Seccional Brasil, CEO

Sierra Tower Partners, CEO

SPO Partners, Associate

Staghorn Landlease Holdings, Managing Director

Summit Wireless Infrastructure, CEO

Sylvander Trading, CEO

T-Mobile, Manager of Field Operations

Tarantula, CEO

Telemisis, Commercial Director

Telemisis, Marketing Manager

TOCSA, Director

Torrecom, CEO

Torrecom, COO

Torres Andinas, COO

Torres Unidas/Berkshire Partners, Country

Manager

Torres Unidas/Berkshire Partners, CEO

Torres Unidas/Berkshire Partners, Director of

Corporate

Tower Alliance, Managing Director

Tower Alliance, Managing Director

TowerPoint Capital, CEO

Trilogy International Partners, Group CTO

Turkcell Global Tower, GM

Unimar, Business Development

Unison Site Management, Managing Director

Vinson & Elkins, Partner

Vinson & Elkins, Associate

Vodafone Group, Senior category manager, Network

Site Infrastructure

Vodafone Group, Infrastructure/Energy Principal

Specialist

Vodafone Procurement Company, Network Supply

Chain

ZNV, Solutions Manager

ZNV, Chairman


Tower Industry Value Chain

Backhaul, FTTT, Core Network Active equipment

Tier 1 OEMs

Mobile Network Operators

Investors: private equity, debt finance, infrastructure funds

Law firms

Group level strategistsC-suite & network planners at local OpCos

Outsourceto

Strategic consultancyDue diligenceDemand forecastsValuations

Independent TowercosSell co-locationsUpgrade capacityBuild-to-suitMaximise uptimeReduce opexInvest in network

Transfer assets to

Construction servicesTurnkey infrastructure rolloutManufacture of steelworkImport, customs & deliveryLeasing & permittingInstallation of towersUpgrades for capacityO&M services

Dynamic assets

Energy equipmentDiesel gensetSolarWindFuel cell

BatteriesRectifiersInvertersLine conditioningPIUs

Air conditioning Lightning protectionControllerVoltage regulator

Managed service providers

ESCOs

Static assetsTowers & mastsSheltersBracketsEnclosuresLightingFencing

O&M servicesMaintenanceStaffingSpare partsVMI?Refueling

Energy as a service

Monitoring & managementRMSIntelligence/analysisSite managementJob ticketingAsset lifecycle platform

Access control

Subcontract

MicrogenerationCommunity power

Subcontract or in-house

Outsourceto

Som

e be

com

e to

wer

co

Investment management advisors

TowerXchange serves the Latin American tower community along two intersecting axes. On a horizontal axis we facilitate relationships between MNOs, towercos, investors and their advisers, aiding the structuring of deals and the transfer of assets. On a vertical axis, we examine the impact on, and opportunities for, the passive infrastructure supply chain, whether they sell to MNOs, towercos or through OEMs.

How TowerXchange ensure an audience of decision makers

TowerXchange successfully launched its first live event for the LatAm telecom tower industry in 2014 gathering over 250 executives from the CALA region in Orlando, Florida. Since then, we have further reinforced our strong reputation for delivering a high quality, meaningful platform for our selected audience of tower professionals.

The TowerXchange Meetup is exclusively for Director, VP and C-level decision makers. If registrants are substituted,we will only accept replacement registrants of equal or greater seniority than those pre-approved.

Through our passive infrastructure focused journal publication and research, TowerXchange have cultivated relationships with 9000 (at time of press) decision makers active in the Latin American tower industry, 85% of whom are at Director, VP or C-level.

By once more co-locating our event with the highly successful North American PCIA’s 2015 Wireless Infrastructure Show, we will offer our audience a unique chance of exposure to the most mature tower industry in the world and its poll of top telecom professionals.

Who will you meet


SBA Communications

SBA Communications Corporation is a first choice provider and leading owner and operator of

wireless communications infrastructure in North, Central and South America. By “Building Better

Wireless,” SBA generates revenue from two primary businesses - site leasing and site development

services.

In our site leasing business, SBA leases antenna space on our multi-tenant towers to a variety of

wireless service providers under long-term lease contracts. SBA owns and operates over 24,000 towers

across North, Central and South America. We build our towers at the request of wireless carriers,

leveraging our in-house experience in site acquisition, zoning and construction. Our ability to offer

carriers a comprehensive portfolio of communication sites is complementary to our tower ownership

business. Currently, SBA manages approximately 5,000 communication site locations on behalf of

third-party landlords.

Through our site development services, SBA offers wireless service providers assistance in developing

their own networks. Our services include site identification and acquisition as well as obtaining

zoning approvals and permitting for networks representing all technologies. SBA also provides a

broad range of cell site equipment installation, optimization and integration services. Our extensive

site development experience includes participation in the development of more than 45,000

communication sites.

www.sbasite.com or call 800.487.SITE

Our sponsors

Acsys

Acsys is a solution provider and industry leader

in cell tower access control and workforce

management. Our patented, military-grade

mechatronic solutions fill the gap that existed

for secure, remote site access control. Acsys

specializes in wire-free solutions that allow for easy

deployment in any environment.

European-rooted with an innovative team from

around the globe, and the advantages of China-

based production, Acsys stays at the forefront in

designing cutting edge security and productivity

solutions at a competitive price. Our programmable

locks and keys, apps, code system, and software

have earned acclaim from many of the globe’s

leading MNOs, tower companies, and vendors.

www.acsys.com

SILVER SPONSOR:

GOLD SPONSOR:


Our sponsors & exhibitors

Vinson & Elkins RLLP

Vinson & Elkins is one of the oldest and largest

international law firms, with approximately 700

lawyers located in 15 offices around the world.

Our global telecommunications team has extensive

experience advising on international telecoms

and telecoms infrastructure transactions. We

have extensive industry experience, advising on

telecoms transactions in numerous countries. Our

telecommunications advice includes acquisitions and

disposals, debt and equity financing, infrastructure

development, operational arrangements, regulatory

matters and dispute resolution.

We also have significant experience in the negotiation

and drafting of sale and purchase, debt and equity

financing, master lease, build-to-suit, site management

and service level arrangements; and have played a

prominent role in complex fibre transactions.

www.velaw.com

Cummins Power Generation

Cummins Power Generation, a subsidiary of Cummins Inc. (NYSE: CMI), is a global leader dedicated to increasing the availability and reliability of electric power around the world. A trusted name for its market leading diesel generators, Cummins is also a global provider of state-of-the-art hybrid power solution to telecom cell sites. Our wide range of products for the telecommunications industry serves global telecom operators with access to energy efficient and reliable power solutions.

Cummins employs approximately 46,000 people worldwide and serves customers in approximately 190 countries and territories through a network of more than 600 company-owned and independent distributor locations and approximately 6,500 dealer locations. Cummins revenues were $17.3 billion in 2013.

www.cumminspower.com

Telemisis

Telemisis manufacture the highly reliable SitePro® system for remote monitoring and control

for all business sectors, since 2000; our specialisation being mobile operators, tower companies and mobile plant, including the world’s largest generator leasing and rental company. We deliver full site management solutions providing fuel management, electricity metering, environmental management and machine/equipment control in harsh and demanding locations that enable asset owners to increase uptime and reduce operating costs.

The in-house designed SiteNode®, the industry’s smallest, most flexible and cost-effective remote telemetry node, coupled with Telemisis’ flexible and scalable back-end server systems, enable us to offer standard or bespoke solutions that grow as monitoring needs evolve.

www.telemisis.com/products

Karam

KARAM specializes in field of Fall Protection & manufactures the highest quality equipment, leading the way with innovative products & solutions for safe working at height.

Our complete vertically integrated manufacturing set-up is spread over a span of around 325,000 square feet area with work force of above 1500 highly skilled people.

BRONZE SPONSOR: BRONZE SPONSOR:

Exhibitor:

Exhibitor:


Our ExhibitorsKARAM provides a range of Solution to the user working at Height on variety of towers, masts, monopoles and lattice structures that are used in Telecom industry.

Our commitment to quality is reaffirmed by our ISO 9001-2008 certification. All our products are certified as per EN also meets American & other International standards.

www.karam.in

Mecc Alte

Mecc Alte is proud to be the world’s largest independent producer of synchronous alternators. A specialised manufacturer of rotating machines, within the electromechanical sector. Quite simple we manufacture the widest range of low voltage alternators. We are a totally independent company focused on one product sector, making us specialists within our field. We operate in many diverse applications working closely within the independent power generation market offering a versatile range from 1-3000kVA.

We are pleased to support TowerXchange where we will be introducing the new innovative Mercurio Telecom system, a cost effective simple DC power solution for remote telecom stations.

www.meccalte.com

Metalogalva

Metalogalva is a Portuguese steel manufacturing company with more than 43 years of activity in fields of Energy, Communication, Transport, Lighting, Renewables and Steel protection (hot dip galvanizing and painting). Has three industrial units (total area of 44000m² and a total gross area of 160000m²), with a galvanizing capacity (per year) of 100000 tons.

Metalogalva exports 70% of its own manufacturing for more than 40 different countries. Has invested (6.6M€) on new equipment to face the requirements/delivery times of the international markets.Metalogalva promote the excellence of its services, investing in the researching, development and innovation of its products.

www.metalogalva.pt

GS Yuasa

GS Yuasa is a Japanese company formed in 2004 by the merger of two large 100 year old battery manufacturers, Japan Storage Battery and Yuasa. At US$3.2B in sales, GS Yuasa is one of the worlds largest battery manufacturers.

GS Yuasa manufactures a full line of technologies

including lithium, lead acid, nickel metal hydride, and nickel cadmium for the automotive, industrial, and specialty battery markets. Especially for Telecom market, we have developed a 48V lithium ion battery module that has outstanding cyclic life and charge acceptance that can reduce the runtime of generators and the total cost of ownership of telecom base stations. With 36 affiliates in 16 countries, GS Yuasa has a worldwide presence operating under the GS Yuasa, GS,

and Yuasa brands.

www.gs-yuasa.com (GS YUASA) www.gsbattery.com (GS Battery USA)

Abloy

ABLOY secures business operations on land, at sea, and in the air – in all circumstances. Abloy has a proven history of telecommunication business for decades. Along with the new technology in telecom business Abloy has introduced new methods and systems to create value and fast pay-back time to telecom customers. Abloy provides a complete solution including project management. Combining mechanical and electromechanical features ABLOY PROTEC2 CLIQ offers double security with wide internationally tested and approved product range. Remotely controlled PROTEC2 CLIQ system enables to control sub-contractors activities on sites reducing management costs and providing traceability. Several telecom customers have chosen ABLOY solutions to be leaders in fast developing telecommunication world.

www.abloy.sg

Exhibitor:

Exhibitor:

Exhibitor:

Exhibitor:


Our exhibitors

Nanhua

For more than 24 years, Shanghai NANHUA Electronics has been focused on the designing, manufacturing and marketing of industrial application products. NANHUA has begun the promotion and application of Aviation obstruction light system for telecom towers in the year 2007. NANHUA has full experience in manufacturing of the complete line of cost-effective obstruction lighting and control solutions for the telecom towers, chimneys, high buildings, port machinery and any other high structures that could threaten the aircrafts. NANHUA products have been proven to be professionally designed and highly reliable.NANHUA Electronics is located in Shanghai, China, with a factory of 6000 square meters, 310 staffs till June of 2014, including 37 members in R&D center and ISO 9001 quality authentication certification.

www.nanhua.com

HMS Industrial Networks

HMS Industrial Networks is the leading independent supplier of products for industrial communication and remote management. Products are marketed under the brands Anybus®, IXXAT and Netbiter®. Headquartered in Halmstad, Sweden, HMS is represented by branch offices in 10 countries plus distributors in more than 50.

HMS employs over 350 people and reported sales of 60+ million EUR 2013.

Telco site support equipment has become smart, which offers the opportunity to have full remote control of all support equipment on Radio and Core sites and benefit from reducing the OPEX without major investments. With the Netbiter® concept we have developed a vendor independent solution that fits into all kind of systems and takes care of all hassles with different communication protocols, different sizes of diesel tanks, tampering etc.

www.hms.se

SonarWise by azeti Networks

azeti SonarWise is the IoE enabled Remote Site Management Solution for Cisco Routers integrating Cisco Cameras and Cisco EnergyWise. It enables cell site operators to monitor and manage the operations of remotely distributed sites 24/7. SonarWise offers a multitude of features including Energy Management, Access and Security Management, Environmental Control or HVAC Management. It can connect to everything onsite from generators and batteries over fuel tanks to the HVAC or Doors, helping to detect critical events like theft or malfunction of equipment. SonarWise uses azeti’s Intelligence@the edge technology, reducing the data traffic to the NOC by over 90%.

www.azeti.net

Infozech

IInfozech is a leading provider of technology-led and data analytical solutions to Telecom – infrastructure, operators and communication service providers. Infozech has been delivering cost optimization and revenue management solutions, over the past 10 years to 80 customers across 25 countries. Infozech’s innovative offering iTower (Infozech Tower Product Suite) provides an end to end solution for managing and reducing operating costs through tracking real time tower operations, prediction and analytics.

Its iETS product manages energy costs worth about 837.5 million US$ across 150,000 towers in India. iETS was adjudged the most innovative product at The Economic Times Telecom Award 2014.

www.infozech.com

Leadcom

We are now part of the larger Tech Mahindra Network Services business, which specializes in global network services delivery, in conjunction with LCC and

Exhibitor:Exhibitor:

Exhibitor:

Exhibitor:

Exhibitor:


Our ExhibitorsLeadcom’s network engineering and telecom services, with operations spanning across 60 countries in 4 continents with over 85,000 employees globally.

This acquisition places Tech Mahindra in the unique position of being the largest independent, technology agnostic services company that offers comprehensive services spanning the entire lifecycle of a Service Provider.

Tech Mahindra’s leadership position in the Telecom Software market and its pioneering engagements on IT and Networks Managed Services gives us the opportunity to deepen our relationships with our strategic customers.

www.leadcom-is.com

Qowisio

Qowisio develops and manufactures the most innovative Remote Monitoring Solution (RMS) on the market. Its solution is fully wireless, easy to install and designed to work in the hardest environment.

We are one of the first player of the new IOT market. Our strategy is dedicated to the telecom market with a strong footprint in Europe, Middle East and Africa.

Our solution includes a wide range of features: Power monitoring, Environmental alarms monitoring, Security

control, Hybrid management, Green power monitoring, Multi-tenants monitoring, RFID inventories… And there is even more coming up…

www.qowisio.com

Ambor Structures

Ambor Structures, headquartered in St. Paul, Minnesota, USA, is a trusted provider of monopoles and other related steel products for the telecommunications, renewable energy, utilities, and lighting industries worldwide.

Within the telecommunications industry, Ambor provides standard and tilt-up monopoles, pole and tree concealment structures, small cell poles, tower components, and our revolutionary QuikBaseTM non-penetrating steel foundations.

As a global company, Ambor manufactures and ships from its state-of-the-art production facility in Shanghai, China, using ASTM-grade steel, AWS-certified welders, and strict quality control procedures to deliver the highest quality products on the market today. With our solution-focused engineering and customer-oriented service approach, Ambor is the one-stop global supplier for your monopoles and related structural steel needs.

www.amborstructures.com

KGP Logistics

KGP Logistics has served the communications industry for more than 41 years. Certified as a Woman-Owned business, KGP serves as one of the largest single-source, value-added diversity supplier of wireless and wireline equipment and integrated solutions. Our network of distribution center locations provides advanced logistics services including distribution, communication equipment integration services, kitting of materials, and product fulfillment services for several of the industry’s largest operators and manufacturers with a strong history of partnership and performance. Our full range of customizable solutions is designed to solve critical business needs by continually exceeding customer expectations.

www.kgptel.com

Exhibitor:

Exhibitor:

Exhibitor:

Exhibitor:

Contact Annabelle Mayhew at +44 7423

512588 or at [email protected]

Apply to attend


TowerXchange – The CXO Dinner


The TowerXchange CXO dinner was an informal meeting with no set agenda, designed to facilitate high level networking and help our members to develop and strengthen relationships with their peers from all over the world. Based on the glowing feedback we received from our dinner guests, we are committed to fostering this kind of networking going forward and will be planning more CXO dinners on a region-by-region basis later in 2015. If you’re a CXO within a towerco then we will be in touch with an invitation to the relevant event once we have the dates confirmed. These events are closed to all supplier participants except for TowerXchange’s top sponsors

TowerXchange was delighted to debut a towerco CXO dinner in Barcelona this March. This exclusive, invitation-only dinner brought together over 30 senior executives from the world’s most influential towercos, representing over US$40 billion of towers.


DBDM PCJAASADJAZSSJPKKAKKDHKMRDNAPBBKBAKNTCHORKFKAMAKFHFFUDSKSC

Abertis TelecomACSYSAmerican TowerAmerican TowerApollo TowersConnect AfricaCumminsedotco GroupEYHelios Towers AfricaIGTIGT / Alcazar CapitalKPR ConsultKPR ConsultRussian TowersRussian TowersSBA CommunicationsSBA CommunicationsSREI Infrastructure FinanceSTPSTPTarantulaVimpelcomVimpelcomVimpelcomVimpelcomVinson & ElkinsViom NetworksViom NetworksWireless Infrastructure Group

M&A ManagerCOOVP Technology and New Products - LatAmCEO ColombiaChairmanCEODirectorCEODirectorGroup COODeputy ChairmanCFOCo-founder & ChairmanCo-founder & CEODirector GeneralCommercial DirectorVice President-Business DevelopmentPresident, InternationalManagerPresident DirectorDirectorGlobal Sales DirectorBusiness DevelopmentBusiness Development DirectorChief Strategy and Portfolio OfficerGroup Director Mergers & AcquisitionsPartnerChief MentorVice Chairman & Managing DirectorCEO

Initials Company Job title

Meetup Africa 2015

See you at our next event

Meetup Asia 2015



Meetup Europe & Global Award Ceremony 2016




Q1 2016, London

Who attended the inaugural TowerXchange CXO dinner

Regional coverage:

We open this edition’s coverage of the tower market in Central and

Latin America with a unique comparative study conducted by Mott

MacDonald, who modeled a towerco acquiring 20% of the inventory of

towers in each of nine different Latin American countries to determine

which markets looked the most attractive to towercos.

We follow this with exclusive interviews with Kurt Bagwell, President,

International at SBA Communications, one of the giants of the CALA

tower industry, and contrast this with the perspective of Juan Cueria,

COO at Innovattel/Torresec, an enterprising independent towerco

building towers in Puerto Rico, Ecuador, Peru and Colombia.

We also have in depth special features on the tower markets of Peru,

Brazil and Mexico.

CALA special features

Read our coverage of the CALA tower market here:5 CALA tower market overview

11 CALA tower news

71 Mott MacDonald contrast nine different South American tower

markets

76 Kurt Bagwell, President, International, SBA Communications

81 Juan Cueria, COO at Innovattel/Torresec

84 Peru special feature

98 Brazil special feature

110 Mexico special feature


Mott MacDonald’s hypothetical model compares ‘like for like’ in the search to identify which LatAm countries look most attractive to towercos

TowerXchange: Please re-introduce Mott MacDonald and the Digital Infrastructure team for any readers not familiar with your work on towers. Michel Grech, Principal Consultant, Mott MacDonald: Mott MacDonald is a world-class employee-owned management, engineering and development consultancy with global experience, local insight, and a multi-sector perspective. Our 14,000 staff operate in 140 countries through our global network of offices – with various in Africa including Johannesburg, Durban, Cape Town, Gabarone, Kampala, Lagos and Lusaka. In 2014 we were named overall Global Technical Advisor of the Year for the fifth time in six years by the Infrastructure Journal. Our Digital Infrastructure team offers a unique blend of business and technology expertise; providing an independent perspective on many markets and technologies and successfully delivering projects to leading financial advisors, lenders, operators, equipment vendors, governments and regulators. Our towerco expertise spans, in particular, strategy development, due diligence (commercial and technical) and operational assessment – and we have recently delivered various assignments in these areas. As an example, we have been engaged as commercial and technical due diligence providers for tower asset transactions involving a total of over 25,000 towers across more than 20 countries in Africa, Latin America and South East

Read this article to learn:< Mott MacDonald’s methodology for conducting due diligence on tower opportunities

< The key financial and technical metrics they model

< The results of a hypothetical exercise to compare the tower markets in Argentina, Bolivia,

Chile, Colombia, Ecuador, Paraguay, Peru, Uruguay and Venezuela

Mott MacDonald’s Digital Infrastructure team have tried and tested models for evaluating tower investments in existing and greenfield markets. Michel Grech and colleague Frederico Oliveira created hypothetical scenario in which a new entrant towerco acquired 20% of the assets in each of nine different South American markets, ran those scenarios through their model, and came up with tower and LUR forecasts, plus financial KPIs like NPV, return on asset, EBITDA and enterprise value. TowerXchange persuaded Michel and Frederico to share a few hints from this unique comparative study.

Keywords: Strategic Consultancy, Research, Third Party Research, Deal Structure, Acquisition, Market Overview, Valuation, 3G, 4G, EBITDA, Deal Structure, Lease Rates, Valuation, Due Diligence, Tenancy Ratios, Market Forecasts, Bankability, New Market Entrant, Country Risk, Infrastructure Sharing, South America, Argentina, Bolivia, Chile, Colombia, Ecuador, Paraguay, Peru, Uruguay, Venezuela, Mott MacDonaldMichel Grech, Principal Consultant,

Mott MacDonald


Modelling a new entrant towerco acquiring 20% of the towers in each of nine South American tower markets

Asia, working with most of the major towercos and operators – providing us with unrivalled knowledge and experience. TowerXchange: What is the methodology behind your evaluation of any given tower opportunity? Michel Grech, Principal Consultant, Mott MacDonald: There are three major components to our methodology. 1. Extrapolating subscriber forecasts and projections per technology to a ten year horizon. Industry sources are readily available which quantify and forecast subscriber growth over the next two to three years. Given tower transactions are effectively investments in long-term, ten plus year contracts, a longer forecast is required both in terms of subscriber numbers and substitution of 2G by 3G and eventually LTE. 2. Next we need to divide those current and forecast subscriber numbers by the number of BTS, NodeB and eNodeB deployed in a market to establish the current and future industry benchmarks. For the purposes of the model we’re about to speak about we used an aggregate of BTS at a country level, but we can drill down to an operator level. BTS growth in terms of 2G tends to be driven by coverage, at 3G and 4G by capacity, which gives us an estimated total number of base stations required by technology. 3. Finally we evaluate the degree of sharing already taking place – are there a lot of bi-lateral swaps

between operators? Is the regulator promoting or mandating infrastructure sharing? By comparing the distribution of BTSs across existing and future sharing, we can arrive at a forecast lease up rate (LUR, or tenancy ratio). We leverage these data points and our tried and tested models to generate a pessimistic forecast for the number of Points of Service (PoSs) required in any given tower market across three categories; anchor tenant upgrades, supplemental tenancies and build-to-suit. TowerXchange: What are the key financial metrics you are modelling? Michel Grech, Principal Consultant, Mott MacDonald: The aforementioned modelling gives us a starting point for the key financial metrics; revenue as a function of lease rates and tenancy

ratios, opex costs (ground lease, maintenance, insurance et cetera), and the investment required to acquire towers. Note that the investment required to acquire towers, and the average price per tower, is not just defined by market factors but also by the structure of the deal, for example the leaseback rate the seller is prepared to take on. Our models are adaptable to evaluate tower transactions using multiple different business models – sale and leaseback, joint ventures where the seller retains equity, manage with license to lease deals – and can also be adapted according to whether the towerco provides space only or if they provide a full power service. For the purposes of the model we’re about to talk about, we’re assuming the towercos are using a space only business model, which is most prevalent in South America. We bring all these technical and financial metrics


Figure 1: Overall methodology

Countries analysed

Argentina

Sensitivity analysis

Bolivia

Chile

Columbia

Ecuador

Paraguay

Peru

Uruguay

Venezuela

Operational model

Subscribers Forecast BTS Forecast

Operational Output Financial model

P&L

Financial KPIs

GSM GSMRevenue

Cost of sales

Operating costs

Profit and loss

Tax calculation

NPV

Return on asset

EBITDA

Enterprisevalue

TowerForecast

LUR

UMTS UMTS

LTE LTE

together in a full P&L model looking at NPV, NPV per tower and payback periods. Once we have the full model, we can test the influence of modifying individual starting parameters, financial or technical, and see how that affects overall NPV. TowerXchange: Moving on to look at the hypothetical model you’ve built to compare tower markets in South America, what assumptions did you have to make to run the model? Michel Grech, Principal Consultant, Mott MacDonald: We’ve modelled a scenario in which a new market entrant acquires 20% of the towers

in each market. We’ve estimated how many acquired sites would typically be shareable, and the proportion that might not be shareable for structural reasons. Our models have some baseline data on 2G-3G and, where applicable 4G substitution, but we’ve often had to make an informed approximation of the starting point in terms of the number of towers in the market. We’ve modelled ground lease, maintenance and insurance costs based on benchmarks from our work on tower transactions worldwide and in the South American region, but these costs vary significantly according to local market conditions. We’ve modelled a prospective lease up rate (tenancy

ratio) – there’s a delta between the starting point and end point of the lease up rate (tenancy ratio), so we haven’t always used the same starting point. For example, the prevailing tenancy ratio in a market like Brazil, where infrastructure sharing is relatively widespread, might be 1.3-1.4, whereas in a greenfield tower market it is likely to be nearer 1.1. We’ve used a standard lease rate from the outset, taking revenue per tower at a mid-point to reflect anchor tenants, incremental tenants, non-traditional operator tenants who might require less space, and in cases where the anchor tenant has negotiated a discount if other tenants are added. Finally, we’ve taken into account inflation and discount rates to reflect country risk in markets such as Argentina. TowerXchange: Please summarise your key findings from this hypothetical model. Michel Grech, Principal Consultant, Mott MacDonald: Colombia, Chile and Peru offer rich pickings but require the highest investment given the sheer size of the markets. The tower forecast for Argentina is the highest if it is able to reach the full potential, however NPV is significantly reduced as a result of the perceived country risk and accounted for through the discount rate applied. Of the greenfield markets, Bolivia appears to offer a


Figure 2: Ten year NPV by country

NP

V(s

cale

del

iber

atel

y re

mov

ed)

PeruChile

Bolivia

Greenfield markets

Brownfield markets

UruguayParaguay

EcuadorVenezuela

Argentina

Colombia

Acquired portfolio of towers

500 1,000 2,0001,500 2,500 3,000


very good return based on the calculated NPV as the investment required is much smaller than other big opportunities. Revenue per tenant, initial lease up rate (LUR, or tenancy ratio) and acquisition costs are, unsurprisingly the highest sensitivities to the overall NPV and are the top three key sensitivities for all the countries. The other sensitivities depend on the characteristics of the country, which are mostly the forecasted growth in 3G/UMTS subscribers, the sharing profile evolution of BTS on towercos over time, and the cell radii of the various radio technologies. TowerXchange: If readers want to learn more about the model, how can they contact you? Michel Grech, Principal Consultant, Mott MacDonald: For further information please contact me at [email protected]

Figure 4: Return on the investment

“ “Colombia, Chile and Peru offer rich, pickings but require the highest investment given the sheer size of the markets. The tower forecast for Argentina is the highest if it is able to reach the full potential, however NPV is significantly reduced as a result of the peceived country risk

Monthly revenue per anchor tenant

Initial LUR

Average acquisition cost per tower

Inflation

4G cell area - Urban

Time to reach target UMTS sharing profile

Proportion of sharable towers

WACC

High

Base

Low

$ ‘000

Greenfield markets

Brownfield markets

Inve

stm

ent

req

uir

ed (

$m)

NPV (scale deliberately removed)

Return on investment for the hypothetical market entry(Bubble size is the current cumulative revenue)

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

Peru

Chile

Bolivia

UruguayParaguay

Ecuador

Venezuela

Argentina

Colombia

Figure 3: Key sensitivities to the NPV results based on a +/- 5% on the input assumptions, example shown here for Colombia

Special feature:

In this issue, TowerXchange continues its in-depth

analysis of the CALA towerco industry with two

brand new interviews that compare different and yet

complementary sides of the industry.

On one hand, TowerXchange had the pleasure to once

more interview Kurt Bagwell, President - International

of SBA Communications. Since we last spoke with Kurt

in December 2013, SBA has increased its Brazilian

tower count from 5,100 to 7,000 and is consolidating

its position as a long term player both in Brazil and in

Central America. On the other side, Juan Cueria, VP and

COO of Innovattel/Torresec, which is active in Puerto

Rico, Colombia, Ecuador and Peru, shared with us

insights on what are the keys competencies to succeed

in the highly competitive build to suit market.

CALA towerco perspectives

Don’t miss:76 How SBA continues to find double digit growth in international markets81 Innovattel/Torresec: The core competencies key to success in BTS


How SBA continues to find double digit growth in International marketsSBA’s International President Kurt Bagwell contrasts the tower markets in Central America with Brazil

TowerXchange: Kurt, you joined SBA back in 2001… Please could you share a history of how the company, and the tower industry, developed from humble origins and a period in 2002-3 when SBAC, AMT and CCI shares were valued at around a hundredth of their value today – it must have been a helluva ride for management teams and shareholders!

Kurt Bagwell, President, International, SBA Communications: I can definitely say it’s been quite a journey! SBA is now in its twenty-sixth year of operation and a lot has changed since 1989, when it started as a site acquisition company. In the nineties, the company entered the tower ownership business and went public. At that time, the towerco model came of age and the industry began to blossom.

I joined SBA in 2001 after eleven years with Sprint and immediately we hit the 2001-2003 timeframe which represented a time of reset for the global economy as a whole. The tower industry was affected as well and a realignment of the market proved necessary. SBA made necessary changes, but we stayed very focused on our core assets and business model.

As the economy recovered, our business model proved to be a successful choice and since then, we’ve seen tremendous growth and have been able to provide great returns to our shareholders.

TowerXchange: What motivated SBA to diversify from North America to the CALA region?

Read this article to learn:< Investing methodically and at fast pace in Central America and Brazil

< Remaining opportunities for organic and inorganic growth in Brazil

< SBA’s appetite for opportunities in Western Latin America

< Comparing tower cash flow, opex and management of ground rent in Central America and Brazil

< The advantages of acquiring third party developers’ vs carriers towers

SBA Communications is a company that needs no introduction. TowerXchange constantly reports on their international acquisitions and speculates on potential future deals but today, we had the pleasure of talking once more with Kurt Bagwell, President of SBA’s International business. Kurt shared with us some in-depth insights into the rationale behind the company’s initial move South of the border, the company’s financial model as well as some hints on their possible next steps in Latin America.

Keywords: SBA Communications, Towerco, North America, Central America, South America, Brazil, United States, Chile, Market Overview, Co-locations, Infrastructure Sharing, Market Forecasts, Build-to-Suit, Business Model, Pass-Through, Regulation, Country Risk, Debt Finance


Kurt Bagwell, President, International, SBA Communications

Kurt Bagwell, President, International, SBA Communications: About five years ago, we were still experiencing a good level of growth in the U.S., but we realized that we needed to look around and open new markets if we wanted to achieve even greater results and extend our high growth rates

In 2009, we launched in Central America with the goal to achieve both organic revenue as well as portfolio growth. And now, we can say we are right on track with over two thousand sites in five Central American countries and a successful business model.

Our drivers were to grow methodically and at a fast pace, and the following move to Brazil has further contributed to our expansion.

TowerXchange: What is left to buy in terms of towers in Brazil in terms of carriers’ portfolios and how is SBA planning to keep growing in the market?

Kurt Bagwell, President, International, SBA Communications: Over the past two years, we’ve been extremely busy putting together a very strong portfolio of nearly seven thousand Brazilian sites which provided the critical mass we needed to be relevant among Brazil’s MNOs as well as to achieve economy of scale.

To date, we are looking at reinvesting local cashflow into greenfield projects via build-to-suit activities and we will look at complementing that with some small acquisitions.


I would say there is still plenty of space for long term growth in Brazil. In fact, the ratio of users per tower is still extremely high at approximately four times the level of the U.S. – there are still plenty of opportunities for geographic expansion and enhanced network density in both urban and rural areas, especially since the volume of usage keeps expanding.

SBA Communications is a long term player in Brazil and we’re constantly exploring opportunities to

build and buy sites. We really don’t see Brazil as a market near saturation as there are various open channels to us both in terms of organic and M&A growth.

A few years ago, everyone was referring to the U.S. tower market as a slowing industry but we haven’t experienced any major slowdown and, if anything, the market keeps offering new opportunities. Brazil, with its roughly two hundred million inhabitants, is definitely not close to a standstill.

Juscelino Kubitschek Bridge in Brasilia

a transitional phase but I can see things playing out positively for towercos.

TowerXchange: How do the tower market dynamics in Central America compare to those in South America? Is tower cash flow comparable?

Kurt Bagwell, President, International, SBA Communications: Central America presents a similar business model to the U.S. but with a faster growth in demand for mobile data, which has been driving these investments.

From our perspective, the experience in Central America has been very positive. The cost of doing business in the region has been very low and we’ve been able to maintain most expenses in U.S. dollars, hence reducing if not eliminating foreign exchange risk. The growth profile is excellent and Central America is definitely an area where we will remain deeply involved.

Although the scale of the geography and population aren’t as great as those of South America, Central American countries present very vibrant economies which for us is a very important factor to consider.

There isn’t much difference between the tower cash flow in Brazil and Central America. In fact, the spread between the ground rent and the tenant rent is the biggest driver and pretty similar in both areas. Opex isn’t significantly different either. But Brazil definitely presents higher labour costs in

The country is currently experiencing change and tougher economic times than it has in the recent past, but there is still a lot happening. Now is the time companies like SBA can really add value to the local industry.

TowerXchange: Beyond Brazil, where is the company considering adding to its footprint over the next 12-18 months?

Kurt Bagwell, President, International, SBA Communications: At the moment, we are very focused on the Western hemisphere and we are looking at launching in a few other countries which will allow us to leverage our knowledge of the local market and culture as well as our long standing relationship with carriers.

Primarily, we are looking at Western Latin America, a move which is made possible thanks to our Spanish and Portuguese-speaking team based in our LatAm offices, and our South Florida headquarters. Our local teams will allow us to penetrate new regional markets very effectively.

We aren’t ready yet to divulge the details of our next moves but we will do so in due course. I can say there are a few options in the pipeline.

TowerXchange: What is your view of Chile? Have the regulatory changes around permitting affected the growth of the country’s telecom tower sector?

Kurt Bagwell, President, International, SBA

Communications: We aren’t experts on Chile but we’ve been following the regulatory changes that have affected the tower business over the past couple of years. I would say that it’s definitely been a tumultuous start and the new zoning rules resulted in some sites being decommissioned.

However, I believe things will rationalise themselves over time. For tower owners, the presence of strict zoning rules is actually a positive thing long term as having a good site in such a country provides a strong competitive edge! This is


“

“There isn’t much difference between the tower cash flow in Brazil and Central America. In fact, the spread between the ground rent and the tenant rent is the biggest driver and pretty similar in both areas. Opex isn’t significantly different either

light of a stringent legal framework, so scale is important to balance out the higher SG&A expenseThe main difference between Central America and Brazil is represented by the ground rent which in Brazil is passed through to our tenants pro-rata. In theory, we always prefer for the ground rent to be included in the total tenant rental rate but in this specific case, the market operates under a pro-rata cost sharing method. In fact, it was a critical factor which allowed us to comfortably buy large carrier portfolios that had pre-existing terms on the underlying ground leases. Additionally, while the carriers share in the success of multi-tenancy due to this, SBA also gains from the lack of inflation-related increases in this part of the expense base, historically the largest for a towerco.

TowerXchange: In a recent editorial, TowerXchange noted how SBA’s international leasing revenue has more than doubled since 2013 (6.3% vs 13.5%), but that you have self-imposed a nominal limit of 25-30% non USD denominated revenue – what was the thinking behind that limit?

Kurt Bagwell, President, International, SBA Communications: To be honest, this is quite a straight-forward business decision. SBA doesn’t grow for the simple sake of growing. We develop a careful, long term growth plan as required by our shareholders and in line with our business thinking.

Because of the strength of the U.S. dollar at the moment, our nominal limit has been at the centre


of an exaggerated discussion. In reality, we see it as very simple math hence we’ve spoken about it publicly.

The limit was put in place as we keep financing non U.S. dollar revenues in the U.S. debt market, where the current cost of capital is considerably lower. This isn’t anything special but simple risk management. By balancing this we know we can support our debt and are very comfortable with it,

since we don’t have to worry as much about forex volatility.

TowerXchange: And do you see SBA remaining a Western hemisphere-only player for the foreseeable future?

Kurt Bagwell, President, International, SBA Communications: As previously mentioned, this is the strategy for the foreseeable future. That said,

A view of Granada, Nicaragua

a long term approach. Carriers tend to deal with shorter term leases which aren’t favourable for us.

Another important factor is that when buying a carrier portfolio, the towerco acquires the bulk of it, inevitably including a small proportion of sites that aren’t fit for our purposes. We prefer sites without many other towers around them and built with a “sharing mindset”. When buying from a carrier, you acquire a variety of assets.

That said, we simply have to take all these factors into consideration when we model the growth profile of a given portfolio and that results in the price we are able to offer being higher or lower

we have been researching internationally and will continue to do so. If and when the right occasion presents itself, we will consider opportunities on a global scale.

TowerXchange: What’s your opinion to be found on the relative merits of acquiring tower portfolios built by carriers compared to those build by independent developers? Are independent developer towers typically more valuable because they are more frequently built in unique locations with demand for at least a second tenant, because they are typically built with structural capacity for multiple tenants, or does the fact that they have typically been more effectively marketed mean there is less growth potential?

Kurt Bagwell, President, International, SBA Communications: SBA has been involved in over eight-hundred M&A transactions and the vast majority of them has been with third party developers rather than carriers. This is particularly true within the U.S. In LatAm most of our deals to date have been with carriers, simply because of the fact that most independent developers are not yet ready to sell in LatAm, and there are fewer of them to start with.

In our experience, we favour deals with developers. A “developer” is a third party tower operator that creates sites, just like us. They usually pick locations with multi-tenancy in mind and consider ground lease conditions very carefully, with a long term mindset and trying to

push for preferable rights for the tower business. Most developers are able to sign good long term contracts with carriers and perform extensive due diligence when they develop sites - hence the quality of their documentation and compliance with regulations tends to be great. Generally speaking, developer portfolios achieve higher standards and are built with infrastructure sharing in mind, which is obviously what we are after.

Carrier portfolios can be as good but usually present different characteristics. Towers tend to be lighter as they aren’t built with multiple tenants in mind, and ground leases aren’t always set up with


“

“

SBA has been involved in over eight-hundred M&A transactions and the vast majority of them has been with third party developers rather than carriers. This is particularly true within the U.S. In LatAm most of our deals to date have been with carriers, simply because of the fact that most independent developers are not yet ready to sell in LatAm, and there are fewer of them to start with

The core competencies key to success in BTSInnovattel/Torresec on its expansion from Puerto Rico to the Andinas region

TowerXchange: Please tell us about Innovattel brands and their activities.

Juan Cueria, VP and COO, Innovattel/Torresec: Innovattel is best known as Torresec in most of the CALA region and acts as a BTS firm involved in the construction of sites for all the main carriers. Thanks to our highly specialised competency and local presence, we have been able to acquire considerable business from carriers who recognise the importance of picking expert partners for their BTS projects.

To date, the company has a total tower count of 209 sites with an additional 700 under contract split between the countries where we operate.

TowerXchange: Innovattel/Torresec is a company in expansion. How do you evaluate new markets?

Juan Cueria, VP and COO, Innovattel/Torresec: The political and economic stability of the country is of primary importance for us. Investing in stable countries is at the top of our list.

Once we assess that element, we look at the regulatory environment and its future outlook. This includes the licensing process, spectrum auctions and anything that can affect not only our operations as a towerco but also the carriers’ business.

Another factor to take into consideration is the competitive landscape in terms of other towercos

Read this article to learn:< Innovattel/Torresec’s footprint and activities in the region< Snapshots of Peru and its easy licensing environment< How many towers are still operator-captive in Colombia, Ecuador and Peru?< What it takes to succeed as a BTS firm in the CALA region< How do towercos compete?

Innovattel/Torresec is a build-to-suit (BTS) towerco with operations in Puerto Rico (Innovattel Properties), Ecuador (Torresec Ecuador), Peru (Torresec Peru), and Colombia (Torresec Colombia). The company was created by Manuel A. Aviles, an entrepreneur with a passion for telecom infrastructure, with the goal to plan, develop and administer tower sites in the CALA region. After a career in telecoms, Manuel launched Wireless Infrastructure Group back in 2001. The company grew to become leader in the Caribbean region and its 100+ portfolio was then sold to Crown Castle International in 2010. Manuel then entered various ventures in Panama (Topsa), the Dominican Republic (Teletower) and is currently the Founder and CEO of Innovattel. Juan Cueria joined the team as VP and COO and in this interview, shares with us insights into the company’s footprint and regional ambitions.

Keywords: Interview, Central America, South America, Tower People, Market Overview, Innovattel, Torresec, Topsa, Teletower, Crown Castle International, Peru, Ecuador, Puerto Rico, Colombia, C-Level Perspective, Regulation, Market Entry, Build-to-Suit, Market Forecasts, Business Model, Country Risk, Skilled Workforces


Juan Pablo Sanchez, Gerente General, Torresec Colombia, Manuel A. Aviles, CEO, Innovattel/Torresec and Juan L. Cueria, COO, Innovattel/Torresec

and the state of play among carriers. We believe competition is necessary but we try and avoid entering saturated markets. Mature markets are tricky and so far, we are active in countries that still present considerable growth opportunities.

TowerXchange: Tell us about the permitting process in the countries where you operate and how you manage to overcome licensing challenges.

Juan Cueria, VP and COO, Innovattel/Torresec: Each country presents different permitting conditions. For instance, in Peru we have virtually no difficulties. In fact, it can take as little as one month to obtain a response once a request for permits is presented.

Peru is a peculiar case because the Government has recognised the need for cell site densification and identified that the country needs at least 14,000 new sites. When you work in a country with such a forward-thinking and involved Government, which aims at expanding mobile coverage in untapped communities by speeding up the licensing process, our work becomes much smoother.

TowerXchange: Can you share some information about the BTS projects that Innovattel/Torresec is developing?

Juan Cueria, VP and COO, Innovattel/Torresec: Right now, we are working to deploy more than seven hundred sites across Colombia, Ecuador and Peru. BTS projects present specific challenges in terms of


accessibility, logistics et cetera. However, working with local teams helps make things simpler.

On the other hand, we face delays mostly because of the concern of local communities living in the surrounding of a new site. The whole issue around radiation has to be explained carefully and once people understand that sites aren’t harmful for them, we tend to work quite smoothly. The support and buy-in of local communities is key in this region.

TowerXchange: What is the ideal scale for Innovattel/Torresec as a group?

Juan Cueria, VP and COO, Innovattel/Torresec: Our goal is to build 5,000-7,000 towers within five years while expanding our footprint in two additional countries. To date, we are blessed with a strong, capable and committed team and we are confident about the future of the company.

TowerXchange: Tell us about what towercos are doing to achieve optimal coverage in Peru.

Juan Cueria, VP and COO, Innovattel/Torresec: There are several strong towercos in Peru, including American Tower, Torres Unidas, NMS, QMC Telecom and Torres Andinas. In addition to us

One of Innovattel/Torresec rooftop sites


towercos, there are a number of construction, O&M subcontractors that are now starting to build their own sites with aspirations to become towercos. There are several companies with portfolios of one hundred sites or less across the country. And this trend is popular not only in Peru but also in Colombia and Brazil.

These service providers turned towercos don’t really follow the traditional towerco business model and we are not really threatened by them in terms of competition.

TowerXchange: Does Innovattel/Torresec outsource any of its operations?

Juan Cueria, VP and COO, Innovattel/Torresec: We outsource the construction of sites while everything else is developed in-house, from engineering to contracting. Moreover, we are committed to developing local workforces and are sourcing and training local individuals within each operation.

TowerXchange: How do towercos compete in the region?

Juan Cueria, VP and COO, Innovattel/Torresec: You see, I believe there is an unwritten code of conduct among towercos that pushes us to try and maximise the value of our markets, in addition to our own return. We are committed to the local territory where we operate.

Obviously the level of competition is extremely high when it comes to winning a BTS contract and

the same can be said about sale and leaseback transactions. But generally towercos work quite fairly.

TowerXchange: Which factors can help a towerco winning a BTS project? What are carriers searching for?

Juan Cueria, VP and COO, Innovattel/Torresec: One key element is your past performance in a given country. Because of the peculiar conditions of each territory - mountains, roads, logistics, weather, et cetera - carriers take past experience into consideration. They would also take into account similar projects in different country.

I would say price is not the only factor and your core competencies and knowledge can really make the difference when trying to secure a deal.

TowerXchange: How many towers do you believe are still operator-captive in Colombia, Peru and Ecuador? And how many towers are owned by towercos?

Juan Cueria, VP and COO, Innovattel/Torresec: I would say - and these are just my best guesses - that in Colombia there are around 10,000-15,000 still owned by operators. In Peru probably 5,000 and in Ecuador 3,000-4,000.

Towercos own around 4,000 towers in Colombia, approximately 1,200 towers in Peru,and just a few hundred in Ecuador.

TowerXchange: Which country do you believe is the most competitive that you have worked in?

Juan Cueria, VP and COO, Innovattel/Torresec: Puerto Rico is definitely the most competitive country we operate in due to high presence of towercos with five very active operators.

Colombia is quite competitive as well, with plenty of active towercos such as American Tower, Torres Andinas, Continental Towers, Torres Unidas, Centennial and PTI. There are four active carriers and a number of MVNOs as well, making it a very diverse market and a fast growing one

“ “I would say - and these are just my best guesses - that in Colombia there are around 10,000-15,000 still owned by operators. In Peru probably 5,000 and in Ecuador 3,000-4,000

Juan Cueria and Manuel Aviles will join us at the TowerXchange Meetup Americas, in Hollywood, Florida, 28-29 April 2015. To find out how you can get involved, please contact:[email protected]

Special feature:

Peru is definitely a rising star in the telecom arena and its tower industry is shaping up to host the latest towerco land-grab in the CALA region. In fact, thanks to its business-friendly environment, relatively low country risk as well as a forward-thinking telecom regulator, Peru has already attracted a variety of towercos such as American Tower, Torres Unidas, Torres Andinas, Torresec and NMS. And TowerXchange believes there are more to come…

In this issue, TowerXchange offers a comprehensive set of data and insights on the country’s telecom tower industry with the support of regular contributors such as BMI and Mott MacDonald as well as Consiliumo Group, a start up towerco now entering the Peruvian market.

Peru case study

Don’t miss:85 Editorial: CALA tower land-grab moves to Peru

87 Mott MacDonald: Share Square Peru

91 BMI: 2015 A huge year for Peru towers growth

95 Building a green towerco for Peru – a startup story


CALA tower land-grab moves to PeruMore than double the current number of towers needed, progressive regulator seeks to encourage investment

“In Peru […] the government created formally by law an independent regulatory entity - Osiptel - which participated in the privatization decision and negotiations for the sale of the state-owned telephony monopoly Entel. Through two separate sales in 1994 and 1996, the government received US$3.2 billion in a highly competitive bidding process, which made Entel relative to its size the most successful telecom privatization of the region. The relationship between Osiptel and all operators is judged as highly professional and amicable, without any major friction emerging. After negotiations with the new private operator of the previous Entel, the five-year exclusivity period originally agreed upon was officially terminated in August 1998, allowing for the entry of private competitors one year earlier then expected.”

Although referring to the very early stages of the Peruvian telecom industry, these words clearly outline a few important characteristics of the national regulatory system which still seem quite valid nowadays: progressive, open and enthusiastic to promote competition.

Rewriting regulations to speed up growth

Back in June 2014, Peruvian Congress approved a law which is expected to become official over the next few months which creates a single administrative process for the deployment of telecom infrastructure, including aerials, poles and telecom cables. Thanks to the new law, towercos and MNOs will encounter fewer obstacles when seeking permits to develop greenfield projects.

Read this article to learn:< The Peruvian TMT sector’s first international investors

< What is being done to speed up deployments at a regulatory and legal level

< Which players are active in the country and how many towers they should build

< The Peruvian National Fibre Backbone project

Back in 2000, Frank Sader published a book for the IFC and the World Bank titled “Attracting Foreign Direct Investment into Infrastructure - Why is it so difficult?” At one point, the author references experiences of raising foreign investments in Argentina and Peru in the TMT sector, and stresses the importance of a strong regulator to succeed. The Argentinian example seems anachronistic especially in light of the many social and financial events that hit the country over the past fifteen years. However, I have decided to start this editorial which the paragraph on Peru, which seemed relevant today despite being written 15 years ago.

Keywords: Peru, Editorial, South America, Osiptel, American Tower, Torres Andinas, Innovattel, Torres Unidas, NMS Towers, Nextel, VIettel, Entel Chile, Bitel, Ministry of Transport and Communications, Market Overview, Regulation, World Economic Forum, Fitel, Gilat Satellite Networks, IFC, World Bank, Investment, Universal Access, Country Risk, Infrastructure Funds


By Arianna Neri, Head of Americas, TowerXchange

So far, the country’s attempts to modernise its TMT sector have succeeded in attracting several key towercos such as American Tower, Torres Andinas, Innovattel, Torres Unidas and NMS. Additionally, there are rumours suggesting that SBA Communications might be seeking to enter in the country. On the MNO side, the landscape is still very dynamic since the entrance of Entel Chile, which acquired Nextel, and Viettel (Bitel).

A variety of competing MNO and towerco players can only be a positive factor in Peru since the need for infrastructure is still quite urgent. In fact, in a recent statement, the Ministry of Transport and Communications (MTC) said that Peru needs as many as 22,000 new sites over the next few years to meet demand and coverage needs… Quite an increase compared to the nearly 9,000 sites currently existing in the country, but the outlook for the TMT sector is positive and TowerXchange aren’t the only ones thinking so.


Taking leaps forward in IT

Every year, the World Economic Forum publishes an annual ranking on Information Technology and in 2014, Peru moved from 103 to 90 out of 144 countries analysed. According to experts, this progress is mainly due to a few steps forward in infrastructure development and broadband access but, quoting law firm Montezuma & Porto and their recent analysis on this topic, “the country has an obvious lag in the following fields: educational sector (134/144), ICT infrastructure (95/144), digital innovation (93/144) and political and regulatory environment (119/144) among others. The latter highlights the importance of having a national governing body promoting consistent ICT policies.”

Over the past couple of years, Osiptel has been heavily involved in the promotion of modern regulatory frameworks and 2015 is expected to be an important year also thanks to the planned

construction of an optic fibre backbone network.

For this purpose, Fitel, the national telecom investment fund, has recently awarded a US$285mn contract to Gilat Satellite Networks to bring connectivity to rural villages via the Peruvian National Fibre Backbone project. As per the contract, Gilat has acquired the rights to build the fibre network and will operate it for one year to then transfer it to the government. Additionally, the company could generate revenue by allowing MNOs to gain much needed extra network capacity.

Fitel was created with the goal to grant universal access throughout the Peruvian territory and operates within the Ministry of Transport and Communications.

Creating a business friendly, low risk environment

Peru still has a long way to go to achieve its full potential and reach the rural coverage goals it has set for itself. However, the country has so far shown a positive attitude towards the promotion of infrastructure deployment and has succeeded in attracting foreign investment.

In a region where international companies are playing a fundamental role in the development of the TMT sector, it can only be a plus to streamline the regulatory framework while easing bureaucracy and reducing perceived country risk. Peru is right on track to succeed, and thus Peru may host the next competitive land grab among CALA’s towercos

San Martin Square in Lima, Peru

Share Square: PeruKey Mobile Developments

Whilst Peru has a relatively low level of mobile

penetration for the region – certainly when

compared to markets such as Argentina and

Uruguay which have over 150% penetration – it is

showing a healthy level of growth. There were over

1.2 million new mobile subscriptions in Q4 2014

alone.

In terms of mobile technologies, Claro launched

3G services back in 2008, followed by Movistar

and Entel the following year – and by the end of

2014 there were 10.7m 3G subscribers (34% of

subscribers).

The advent of 4G

2013 saw the auction and sale of two twenty

years 40MHz (2×20MHz) spectrum licences in the

1700MHz and 2100MHz paired bands (also known

as Advanced Wireless Services [AWS] spectrum) for

4G services – following a process run by the Agency

for Promotion of Private Investment (ProInversion).

Movistar secured the ‘A’ block of 1700MHz/2100MHz

frequencies for US$152.2m – more than twice the

reserve price. Americatel Peru (owned by Chile’s

Entel), won the ‘B’ block of AWS spectrum for

US$105.5m. There had been four bidders for the

spectrum – the other two companies being Claro

and Viettel.

The fact that Claro did not secure spectrum is

significant – although it has subsequently found


Peru had a population of 31.0 million people and 31.4 million mobile subscriptions at the end of 2014, giving mobile penetration of 101% - the second lowest level of penetration of the major countries of South America (Bolivia being lowest at 94%). Around 68% of subscribers had a pre-paid account. There are four Mobile Network Operators (MNOs) serving the Peru market (See figure 1), with two companies dominating the market – Movistar (Telefónica) with 16.8m subscribers and Claro (América Móvil) with 12.5m.

Opportunity for TowerCo entry with focus on high Lease Up Rate (LUR)

Opportunity for Outsourcing by MNO to TowerCo

Limited opportunity for new entrant TowerCo

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Technology Deployment

Mobile subscriptions- market share

Peru

4 MNOs, with two players clear market leaders: Movistar with 16.8m subscribers (58% share) and Claro with 12.5m (40%)

Entel has only 5% market share at present, but has stated plans to grow this to 30% over the next 5 years

31.4 million mobile subscriptions by the end of 2014, giving a penetration rate of 101%. 3G penetration sits at around 34% of subscrip4ons

2013 4G auction means Movistar and Entel have 4G spectrum, and Claro has also reused 2G spectrum for LTE, meaning 3 players active

New auction for 3 lots of 4G spectrum around 700MHz currently in motion

All main players plan to invest in mobile network expansion for 4G, 3G and rural coverage –which stands to stimulate a need for tower infrastructure

A number of towercos already ac4ve – both international players like AMT and Torres Unidas and local companies

Regulator aiming to reduce red tape

Only a fifth of towers currently in towerco hands

Tower market therefore has the potential for new player entry and consolidation

Movistar

Claro

Entel

Bitel

Mobile subscriptions- market share

53%40%

5%

2%

it was obliged to launch services within a year,

covering 114 district capitals, under the terms of its

concession.

Movistar duly launched LTE services in seven

districts of Lima in January 2014, expanding

coverage to twelve new areas of the city by the

middle of the year. This was followed by expansion

to Trujillo and Arequipa. By late 2014 its 4G

network was reported by La Republica to cover 52

districts across Peru – 36 of them in Lima. GSMA

estimates that by the end of 2014 Movistar has

secured just under 500,000 4G subscribers.

At the same time in 2014 the company announced

plans to expand its mobile service coverage to

2,327 rural locations – part of a rural roll-out

programme mandated as a condition of its license

renewal in 2013. According to Telecompaper, by

December 2014 it had extended its services to 1,432

new locations. At the end of 2014 Movistar also

announced plans to roll out fixed wireless internet

access in the Amazon region of Peru, in conjunction

with Ericssson.

According to newspaper Gestion, Claro is also

planning to invest significantly in the Peruvian

market – with close to US$1bn earmarked over

the next three years to expand coverage and boost

capacity. It plans to invest over US$300m in its

4G network. Claro has also claimed that its 4G

customer reached 600,000 users by the end of 2014

- although GSMA puts the figure at just over 500,000

– having launched services in May 2014.

Entel likewise announced plans to invest heavily in

its Peruvian operation, with c. US$1.2bn pledged for

the period 2015-2020 and the ambitious objective

of boosting its market share from 5% to 30%.

Following its successful acquisition of 4G spectrum

in 2013, the company announced that its subsidiary

Americatel Peru would spend over US$400m rolling

out 4G coverage to around 200 districts.

Entel launched 4G services in the Q4 2014 although

GSM estimates that it had only a few thousand

subscribers by the end of the year.

2014 also finally saw the launch of Bitel – which

according to the Telecoms Regulator Osiptel had

struggled to secure permissions from municipal

authorities for the installation of towers. Its owner,

Viettel, was awarded 25MHz of 1900MHz spectrum

in January 2011 and went on to win frequencies in

the 900MHz range. Viettel pledged to provide free

broadband services to more than 4,500 educational

and healthcare institutions for ten years, and

is obliged to provide mobile services to 48

underserved rural districts within the first 5 years.

Whilst Bitel had stated a target of securing 500,000

subscribers by the end of the 2014, GSMA estimates

that it had just over 100,000 subscribers by that

time.


a work-around by employing a 1900 MHz band

previously used to deliver 2G services, which had

become largely redundant. Claro has thus far been

able to justify this move by arguing that regulation

does not specifically forbid the delivery of 4G via

other frequency bands – and indeed 4G networks

have been successfully implemented via 1900 MHz

bands in other markets. Claro has thus been able to

launch 4G services despite losing out in the initial

auction.

As a result of these developments GSMA estimates

that there were just over 1 million 4G subscribers at

the end of 2014.

A second 4G spectrum auction is currently being

run by ProInversion – this time for three blocks of

spectrum in the 698MHz-806MHz band – a process

which is scheduled for completion in Q2 2015. The

three lots on offer are as follows: Block A, 703MHz-

718MHz, 758MHz-773MHz; Block B, 718MHz-

733MHz, 773MHz-788MHz; and Block C, 733MHz-

748MHz, 788MHz-803MHz.

Operator Activity

Market leader Movistar has announced a series

of investments in mobile infrastructure over the

last few years – including plans to spend US$400m

on LTE over the five years following its launch.

Following its acquisition of 4G spectrum, Movistar

announced the intention to roll-out LTE services

across 234 towns and district capitals – and indeed

noises about facilitating the roll out of more tower infrastructure – something imperative if all the investment plans above are to come to fruition. In mid-2014 MTC urged local authorities to cooperate with providers regarding the deployment of telecoms infrastructure, noting that a number of operators had encountered difficulties in obtaining municipal permits to install aerials.

In early 2015 Regulator Osiptel proposed changes to the Telecommunications Act that would enable mobile operators to apply for permission to install antennas on public buildings. According to TeleSemana, the amendment is intended to assist operators struggling to increase coverage and service quality due to the aforementioned difficulties in acquiring the necessary permissions from municipal authorities. Claro Peru’s regulatory affairs director Juan Rivadeneira was quoted as saying that as a result of these issues, Peru has one of the lowest antenna per capita ratios in the world.

Nevertheless, Peru already has a number of active tower companies, including key International players – such as American Tower (AMT), which entered the market back in 2010, and Torres Unidas – as well as Torres Andinas, NMS, Torresec Peru and a number of other local towercos. SBA has been reported to be looking for opportunities in this part of South America. The market appears to be a fertile one for towercos – and

indeed Torresec Peru has been quoted in the past in TowerXchange saying that it has experienced relatively few difficulties securing permits in Peru – with is sometimes taking as little as one month to obtain a response once a request for permits is presented.

There are estimated to be around 9,000 towers in Peru in total, with around a fifth in towerco hands. AMT has the largest number – 571 – and Torres Unidas around 350 towers. There is believed to be a need for at least another 14,000 towers.

ConclusionsThe Peruvian market has many positive characteristics with regard to its potential for towercos. With 30 million inhabitants and only 101% mobile penetration, there is significant potential for subscriber growth. 4G services have been launched, new 4G spectrum is on the point of being released, and all the MNOs have announced significant investment in network expansion – both for 4G, 3G and to meet coverage targets for rural areas. At the same time the market is underserved with tower infrastructure, has an active towerco market, and has regulatory authorities well disposed towards reducing red tape. Mott MacDonald believes the market is therefore likely to see both the entry of new players as well as consolidation amongst existing parties, as the full potential of the market is realised over the next few years


In addition to the four Mobile Network Operators,

a number of other communications providers have

announced plans to roll out infrastructure and

services.

In late 2014, WiMAX provider Olo stated plans to

invest US$88m over the next five years rolling out

1,000 LTE BTS, starting in mid-2015 – subject to

gaining the required permissions from the Ministry

of Transport and Communication (MTC). Olo

envisages providing its full suite of services through

the network, to more than 80 cities in the provinces,

in an effort to increase the brand’s adoption outside

of Lima, which currently accounts for 99% of its

sales. At the time its WiMAX service was available

in 24 districts of Lima and 12 other cities.

According to Comercio, DirecTV also announced

plans in late 2014 to launch LTE services in Q1 2015

using 2300MHz frequencies previously allocated

to Digital Way. DirecTV was reportedly planning to

use this platform to offer fixed-wireless residential

services, but the operator has apparently not ruled

out entering the mobile market in the future.

In February 2015, Venezuelan-backed ISP Movilmax

launched in Peru, with a 2.5GHz WiMAX network

covering San Isidro, Miraflores and Surco (in the

Lima province).

The Tower Sharing market

The authorities in Peru have been making positive


Ed Siegle is a Principal Consultant in Mott MacDonald’s Technology & Communications Division. He has 20 years of experience as a consultant, primarily focused on the telecommunications industry, working for operators, vendors, investors, regulators and public sector organisations. His particular expertise lies in market analysis, commercial due diligence, product and market strategy development, demand forecasting and business case production. In the course of his career he has worked for clients in the UK, Europe, the USA, Africa and Latin America. He has spent over 2 years living and working in Latin America, including 18 months in Brazil where he helped establish new offices for two consultancies. Over the past 3 years he has been part of a Mott MacDonald team commissioned to execute a series of advisory projects for towercos looking to invest in developing markets

Guest columnist Ed Siegle

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Tower Xchange

2015 A huge year for Peru towers growth

Jake Grant, ICT Analyst, BMI

Competition and capacity benefit from antenna regulation

The Peruvian government is preparing to implement a new regulatory framework to better facilitate the deployment of telecoms infrastructure across the country. The law will create a single administrative process to rollout aerials, poles, masts and cables, with fewer obstacles for acquiring permits to deploy infrastructure. The Transport and Communications Ministry (MTC) estimates that the country needs the total number of mobile aerials to increase from 8,000 to 22,000 within the next three years, in order to meet increasing demand for mobile and data services. This need for towers capacity has resulted in the government playing an important role in facilitating towers growth through relaxed regulation, introduction of a fourth player and the auction of 700MHz spectrum. Market forces are also playing a role in increased tower deployments and this will result in Peru being one of the top towers markets in the region during 2015-2016.

The need for expanded telecoms infrastructure and an increased number of communication towers stems from the country’s mobile market dynamics. Movistar has led the market with roughly a 55% share of subscribers, facing strong competition only from Claro, which held a 40.3% share at the end of 2014. With only two major players in the market and the dominant position held by Movistar means that investment into rural regions has been limited. Alternative operator Nextel (now Entel) previously restricted

Read this article to learn:< The current structure of the Peruvian telecom industry

< Positive outlook for the country’s telecom sector

< What are MNOs and towercos doing in Peru: huge investments, network rollout and BTS

< A favourable regulatory environment will push the market forward

< Rural expansion and tower rollout: two keywords for the years to come

BMI View: Peru will become one of Latin America’s top markets for towers growth in 2015-2016, as market trends and government support are leading to large investment outlays from the major mobile operators. The improving telecoms regulatory environment will help to spur major investment in towers infrastructure during 2015-2016. This bodes well for the new entrants into the market Entel and Viettel, as well as for the projected demand for mobile data services.

Keywords: Peru, South America, Entel, Viettel, Market Forecasts, Market Overview, Research, BMI Analysis, BMI, Business Monitor International, MNOs, Towercos, Transport and Communications Ministry, Claro, Movistar, 3G, 4G, Telefonica, Urban vs Rural, American Tower, Torres Unidas, NMS, QMC Telecom, Torres Andinas, Infrastructure Sharing, Network Rollout, Build-to-Suit, New Market Entrant, Regulation


itself to major Peruvian cities but under new ownership from Entel Chile, it will look to become a national operator. Similarly, the entrance of Viettel (branded as Bitel) into the mobile market in October 2014, should also help to drive competition and expand mobile coverage. Mobile penetration only just reached 100% at the end of 2014 but we believe a number of these subscriptions will be one person using multiple SIM cards and does not reflect the true level of uptake in rural areas.

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Movistar

Claro

Entel

Bitel (Viettel)

Q314Q414

0

Prior to the announcement from the government, leading operators in Peru had already announced significant investment budgets over the coming years, as they look to expand and upgrade their networks. Claro Perú announced in January 2015 that it plans to invest PEN3bn (US$987.1mn) to extend coverage, increase network capacity and develop new value added services over the next three years. Claro’s chief rival Telefónica announced its own layout in February 2014, undertaking investment of


US$1.8bn during the 2014-2016 period, of which at least PEN1bn (US$324.94mn) will be used for the development of its 4G network. Furthermore, Entel Chile has pledged spending of US$1.2bn over the period from 2014-2019, as it looks to turn its Nextel assets into a national operator. Finally, new market entrant Viettel is spending US$400mn for the installation of 2,000 towers and laying 15,000km of fibre to ensure national coverage of 80% for its 3G services. With competition heating up between the four operators, Viettel will likely look to expand this budget in order to make a mark in the race for subscribers.

3G Growth will define market to 2019

In addition to helping with competition dynamics through improved coverage, we also cite the need to improve capacity, as the country sees strong uptake in mobile data services. Since the launch of 4G, Movistar had gained 500,000 LTE customers and Claro 600,000 by the end of 2014, already accounting for nearly 4% of the total market. Although 4G has been launched by Movistar, Claro and Entel, with encouraging early returns, we believe that 3G will continue to be the driving force of investment strategies and customer growth over our five-year forecast period.

BMI believes that 3G/4G subscriptions accounted for 17.7% of the mobile market at the end of 2014, around 5.4mn connections. We forecast this to rise to 11.8mn in 2019, representing 31.7% of mobile subscribers, more than doubling in size. Aside from the operator network investments, the

Competition dynamics curbing infrastructure investmentMarket Share (%), 2011-2014

Source: BMI, Operators, Osiptel

(formerly Nextel)


entrance of Entel and Viettel into the market will spur price competition, driving down the cost of 3G tariffs, as well as smartphones. The auction of 700MHz spectrum, which is expected later in 2015, as well as the prospective launch of three MVNOs, provide upside risk to our forecast. The move to streamline the deployment of telecoms infrastructure will be welcomed by operators as they look to meet increased 3G/4G demand.

Rural expansion offers organic returns

Additionally, investment will be used for expansion into rural areas of Peru, which remain underserved as a result of the strong positions of Movistar and Claro in the mobile market. The government is encouraging investment in these areas, with subsidies to operators, and as conditions of licence renewals. However, it is also worth noting that Peru’s rural population accounted for 21.8% of its total population in 2014, higher than all other major markets in Latin America, except Colombia. This amounted to 6.694mn people and therefore represents an attractive growth opportunity for a still developing mobile sector. We see the urbanisation rate rising over the next five years, but this will not be a rapid transition, with rural citizens still representing 20% of the population by 2020.

As part of its licence agreements, Viettel is required to provide mobile services to 48 unserved or underserved rural districts within its first five years of operation. In order to facilitate these infrastructure deployment requirements and

the expansion projects of Entel, the moves by the government to reduce the obstacles for permits should help provide the necessary enhanced coverage. Claro claimed that barriers at the municipal level prevented it from investing US$100mn in infrastructure in 2014. The company claimed that as a result of these difficulties, Peru has one of the lowest antenna per capita ratios in the world.

Rollouts to rural areas and expansion of 3G/4G networks will drive increased investment in new towers across Peru. We may not see a large number of towers outsourced to third-party towercos in the coming years, due to the need to increase overall coverage among all four

operators. Build-to-suit may instead become more common and this is reflected in the most recent Q414 results for American Tower. The towerco reported that it had constructed 43 new towers in Peru during the Q414 period, bringing its total to 571. While this may seem like a fairly small amount, this represented the largest percentage increase across all of its operational markets, at 8.1%. We expect this momentum to carry over into 2015 and a large number of other towercos such as Torres Unidas, NMS, QMC Telecom and Torres Andinas all stand to benefit.

Macroeconomic investment climate improving

Trends in the telecoms towers market reflect those

40k 150

Mobile Subscribers (‘000), LHS

Mobile Penetration (%), RHS

3G & 4G Subscribers (‘000), LHS

3G & 4G As % Mobile, RHS

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3G The main mobile market driver 2013-2019

e/f=BMI estimate/forecast. Source: National Sources/BMI

in the broader construction sector, which we see as having a major impact on Peruvian economic growth in 2015. In large part thanks to the stronger construction activity, private consumption growth in Peru will be among the highest in the region. We forecast real private consumption growth of 4.3% in 2015, up from 4.1% in 2014. The construction sector is the key employment generator in the country and unemployment will drop to a record low of 5.8% this year from 6.0% in 2014. In tandem with lower oil prices as a result of muted inflation,

this will support consumer confidence increasing spending on ‘big-ticket’ items such as smartphones and tablets. Finally, loose monetary policy by the Banco Central de Reserva del Perú will support credit growth. Low interest rates and recently implemented lower reserve requirements for the commercial banks will stimulate consumer lending activity, leading to a faster economic recovery

www.businessmonitor.com/bmo


High rural population in Peru Rural population (%), 2010-2020

Source: National Sources/BMI

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Tower Xchange

Building a green towerco forPeru – a startup storyOpportunities as Peru progresses from 9,000 to 12,000 towers and from 2G to 3G and 4G

TowerXchange: Please introduce us to Consiliumo Group - where do you fit in the telecoms infrastructure ecosystems, what is your geographic footprint and how is the business financed? Dana Pendley, CEO, Consiliumo Group: Consiliumo Group is a Canadian corporation with international ventures in diverse growing markets. Leveraging various partnerships and joint ventures, we have interests in several for-profit ecologically-friendly emerging market ventures including in telecoms and mining in Peru, and real estate in Ghana and Nigeria, as well as commercial property in Canada. Our partnership with local communities and professionals in Peru gives us a good platform to create local businesses in mining and telecom; specifically building green towers for remote, difficult to access areas of Peru. We are financed through various government programmes, banks, high net worth and angel investors. We hope to attract further joint venture partners and larger capital in the near future. TowerXchange: Let’s focus on the tower company you are building in Peru. What’s the current scale of the business and what scale are you seeking to achieve in Peru? Is there a particular niche you are seeking to fulfill? Dana Pendley, CEO, Consiliumo Group: We currently have four teams of four people, plus management and administration, undertaking maintenance

Read this article to learn:< Financing Consiliumo Group to progress from maintaining to building green towers

< How many towers are in Peru and how many are needed to achieve coverage objectives?

< Which towercos are active in Peru? And what proportion of the towers do they own?

< Are there tensions between local municipalities’ reluctance to permit new sites and the

Ministry’s enthusiasm for nationwide coverage?

Partners Jermaine and Dana Pendley decided to leverage their mutual contacts and friendships to commence multiple international ventures, including investing in mining and telecommunications in Peru. They’ve started with four teams maintaining towers and upgrading for 3G, but aspire to start building their own green towers for the thriving Peruvian tower industry.

Keywords: Who’s Who, Towercos, Managed Services, Construction, Investment, 3G, 4G, Urban vs Rural, Build-to-Suit, New Market Entrant, Leasing & Permitting, Regulation, Hybrid Power, Renewables, Project Finance, Masts & Towers, Infrastructure Sharing, South America, Peru, Consiliumo Group


Dana Pendley, CEO, Consiliumo Group

of existing towers; general troubleshooting and upgrading to 3G and 4G. Depending on investment, we’d like to scale up operations and start constructing and purchasing our own towers as soon as possible. We would like to explore opportunities to deploy green towers in unserved and underserved areas of Peru – extending network coverage while protecting Peru’s beautiful landscape by keeping it in its most original state as much as possible. TowerXchange: Let’s put that into context - what’s your view of the current size of the tower market in Peru? Our sources tell us there are ~9,000 towers, with a little over 12% of Peru’s owned by active towercos; American Tower, Torres Unidas, Torres Andinas, NMS Towers and Torresec, a subsidiary of Innovattel. Are we about right in our estimates?


Dana Pendley, CEO, Consiliumo Group: Our research also suggests there are around 9,000 towers in Peru, with perhaps nearer to 15% of them owned by towercos. A further 3,000 are needed to drive geographical coverage to 80%. The Peruvian government is interested in covering the whole population even in less dense, remote areas, because of the positive impact of ICT on the economy and on society. The political agenda around communications is motivated by increasing literacy and reducing poverty in rural areas. For example, the government has negotiated with Movistar allowing them to access more remote areas if they provide free internet access to the schools in those areas. The fact that Peru’s mobile penetration is approximately 100% is not representative of the country as a whole – in the capital city Lima for

example, many people have two or more mobile devices. So there is still the potential to connect millions of people without phones – and in turn possibly increase the agriculture, mining and tourism activity in rural areas. Take Cusco for example, a tiny town with 3,000 inhabitants that generates substantial tourism revenue and mobile minutes as the jumping off point for visitors to heading to Machu Picchu – there are other similar sites further into the Amazonia that might be worth developing from a tourism and communications point of view. The telecommunications industry already contributes 3-4% to Peruvian GDP. In a country of 30mn inhabitants, the impact of full coverage is obvious. TowerXchange: How has the entry of Entel in 2013 and more recently Bitel (Viettel) into the market

Towers on the hillside on the Lima coastline

affected demand for new sites in Peru both from Entel and Viettel and from incumbents Telefonica and Claro? Dana Pendley, CEO, Consiliumo Group: Virgin Mobile are entering the market during 2015 too. Entel, a Chilean company, came in with a lot of capital, and invested heavily in the formerly urban-centric network of Nextel to achieve a similar level of coverage to Claro and Movistar. Viettel won a government contract under slightly different terms, but there is no doubt that competition is increasing among Peru’s operators. And competition means more pressure to lease one site rather than build parallel infrastructure. With the operators investing to increase coverage and capacity, the chances of attracting multiple tenants to a tower are increasing. TowerXchange: What’s the penetration of 3G and is the 3G overlay complete? What is the current

state of 4G in Peru? Dana Pendley, CEO, Consiliumo Group: 3G coverage is around 80%, 4G 35%. All the operators are already working on 5G – full 4G might not be achieved before 5G rolls out. However, there are a lot of feature phones still in Peru with 2G to 3G substitutions still ongoing. We have a healthy pipeline of work upgrading 2G to 3G and 4G, and it’s less capitally intensive and less risky than constructing from scratch. We’re patient enough to wait to find the right locations and the right investors to start building our own sites. TowerXchange: Do local municipalities’ reluctance to permit new sites contradict the Ministry’s enthusiasm for nationwide broadband coverage? How would you characterise the regulatory environment around infrastructure sharing in Peru? Dana Pendley, CEO, Consiliumo Group: Permitting regulations are pretty strict, and it seems the government is torn between covering the entirely country and not wanting towers to destroy the landscape. And it’s difficult to make a business case for coverage in many areas of Amazonia and the mountains. As ever, the ease of permitting varies from region to region and project to project. Proposing green towers helps, but it’s often a matter of knowing the right people to get things done.

TowerXchange: What does “green tower” mean to you? Dana Pendley, CEO, Consiliumo Group: Especially for the off-grid base stations in unserved and underserved areas throughout Peru, but also to change the existing tower image, Consiliumo Group will – depending on the location and its individual research – be moving closer to renewable energy based solutions. Either fully autonomous or still grid-connected to avoid downtime. Developments over the past years in both renewable energy like wind, solar power, biomass or fuel cells and also the more efficient and cost effective energy storage systems have made big steps and can today be considered economically viable alternatives. TowerXchange: Please sum up your vision for the future of the telecom tower industry in Peru. Dana Pendley, CEO, Consiliumo Group: Peru still lags Chile and Argentina with regards to technological development. The Peruvian economy will grow steadily over the next three years creating tremendous opportunities for local businesses and committed international investors. There are also tremendous opportunities for rural economies to profit from extension of wireless services. Large demand for new sites, as well as upgrading existing sites to 3G, 4G and eventually 5G should fuel excellent growth in the Peruvian tower market for at least five to ten years


Peru landscape

Special feature:

We have two unique perspectives from the Brazilian tower market to share this month. We speak to Steve Roberts, veteran of many turnkey rollouts in Brazil and most recently co-founder and rollout lead for 4G fixed wireless network ON Telecom. Steve led the deployment of 300 sites in São Paulo State, the majority of which were initially co-locations on independent towercos’ sites. Steve’s in-depth interview gives a real sense of network planning in the age of shared infrastructure, and the real costs of co-location compared to acquiring rooftops or having towers built to suit. Steve also provides a unique insight into how flexible the different towercos can be, and why the towercos need to embrace metro cells and small cells. Meanwhile, Steve’s friend Tiago Albino has been building a telecom real estate portal to connect landowners willing to lease or sell property to carriers and towercos. Just three months after launching MyTower, Tiago has already indexed over 2,000 sites in Brazil.

Brazil case study, part two

In this special feature:99 A tenant’s perspective on Brazil’s towercos: the need to diversify services for 4G107 Introducing MyTower: connecting landowners with carriers and towercos


A tenant’s perspective onBrazil’s towercos: the need to diversify services for 4G

Steven Roberts

TowerXchange: Please introduce yourself Steve, what’s your background and what brought you to Brazil? Steven Roberts, Expert – Cellular Rollouts and former Director, ON Telecom: I’ve been in telecoms for 30 years, starting out in the UK when everything was being privatised – I was involved in the first installations of the Orange network. I came to Brazil in 1997 and found Brazil going through the same process the UK had done 10-15 years earlier – the deployment of large cellular networks had to be done by tomorrow. We started by rolling out TDMA – here known as Banda B – which grew into GSM, 3G and now 4G rollouts. Nortel Networks first brought me over to Brazil, then I ran turnkey projects for Alcatel, Huawei (activating 1,000 GSM sites in São Paulo in six months!) and Nokia Solutions Networks. I took all that turnkey deployment project experience to become one of six founders of ON Telecom, a 4G fixed wireless network startup with a specific coverage objective; we had the rights to install sites in 133 cities in the state of São Paulo, a high income region with lots of class A and class C customers. We started up in April 2012 in a small office in São Paulo with a concept to design and implement 4G networks with the minimum of manpower and cost, and the maximum coverage and QoS – QoS can be, and still is, a big differentiator in Brazil! It took us eight months to make our first 4G

Read this article to learn:< How 4G startup ON Telecom prioritised site selections while deploying 300 sites in two years without equipment vendor services such as network planning and implementation< What did a GBT cost, how did it compare to a rooftop and a BTS site, and how flexible were the towercos’ terms?< How the build to suit market works in Brazil< Why Brazilian towers still rely on microwave backhaul outside of ‘The Triangle’< The gap in the market for an innovator focused on small cells and DAS

How has 4G network planning and rollout programme management evolved in the age of shared infrastructure? How much flexibility can towercos offer a 4G rollout in Brazil, and what does it really cost? TowerXchange secured rare insights from the front lines by speaking to Steve Roberts, who until recently, was heading up the rollout of 300 sites for 4G startup ON Telecom.

Keywords: Interview, MNOs, 4G, LTE, Lease Rates, Co-locations, Network Rollout, QoS, Build-to-Suit, Tenant’s Perspective, New Market Entrant, Pass-Through, Leasing & Permitting, Tax, Rooftop, DAS, Small Cells, RF Design, Infrastructure Sharing, South America, Brazil, American Tower, SBA Communications, Grupo TorreSur, Brazil Tower Company, QMC, ANATEL, ON Telecom


Comparing time to market and cost of co-location on GBTs versus rooftops versus BTS

connection from São Paulo to New York – a Skype call to the office of our sponsor George Soros – then we deployed four fibre rings and almost 300 sites over the next two years – the majority of which were through co-locations on shared towers. TowerXchange: Tell us about network planning at ON Telecom – how did you prioritise sites within the rollout? Steven Roberts, Expert – Cellular Rollouts and former Director, ON Telecom: From my experience with the vendors I learned that when operators ask for full turnkey solutions, it never quite works out as easy as you hoped. So we decided to do all our network planning, design and implementation in-house. Engineering capability and products in 2012/13 for TDD-LTE weren’t common, it was FDD that was being driven. Much depended on China

Mobile who were the benchmark at the time, so we decided that we would retain control of design to avoid vendors selling us more equipment than we needed – we felt we could do the same job as the vendors for 30% of the cost, while maintaining quality. This was a massive cost saving. When it came to tower infrastructure and equipment deployment, we planned everything and did it by ourselves, and used the same subcontractors as the vendors, negotiating a big discount if we paid on time – paying on time can also be a big differentiator in Brazil!This methodology is still be used to date. When deploying sites, we moved through a hierarchy of five deployment scenarios, in declining order of preference:


1. We preferred to share rather than build towers wherever possible. It almost always made more sense to rent than build, even where we were exposed to high ground rent, or where the height our equipment was to be mounted on the tower was not ideal. So we established an LPU with each towerco with an agreed rent for two, three of four square meters. 2. If we couldn’t co-locate on a shared tower, our second alternative was using a rooftop site. But rooftop sharing is always problematic in Brazil. Many rooftop sites are not properly licensed, and it can be difficult to deal with other operators, so we often built our own rooftops to ensure flexible access and to secure a significant reduction in rent (opex). 3. If no existing shared tower nor convenient and

“ “We preferred to share rather than build towers wherever possible. It almost always made more sense to rent than build, even where we were exposed to high ground rent, or where the height our equipment was to be mounted on the tower was not idea


properly licensed rooftop location was available, our third alternative was to commission a build to suit site. The opex was a lot higher than sharing an existing site. But the cost was only part of the problem; time to market was the other. Site hunting takes as long as it takes, but the real drawback is the pain of licensing – permitting new sites is notoriously slow in Brazil, but necessary (it’s too risky to build and sort out permitting afterwards – I’ve seen illegal sites having to be torn down at great expense and significantly impacting subscribers). 4. Option four was to build our own greenfield sites. We built two and actually tested the waters to see if we wanted to become a towerco. But with the enormous capex involved, we felt we should devote the company’s limited capex and sales resources into our core business; selling modems had to take priority over selling space on towers. 5. The option of last resort was to share with an operator. Even though infrastructure sharing is mandated in Brazil, the operators make it very difficult, and we often found that their towers were in a poor state of repair. It would take six months to a year to use their site down to internal “Red-Tape” and the cost to strengthen their tower meant our site would no longer be profitable. TowerXchange: How flexible were the towercos able to be given the unique requirements of a 4G fixed wireless network?

Steven Roberts, Expert – Cellular Rollouts and

former Director, ON Telecom: We were able to secure special rates from some of the towercos based on our LPU and the relatively small amount of space our equipment needed on the tower. We often had to be able to be very flexible about heights because we did not want to lose the location – our equipment could be mounted almost anywhere on the tower. However ON Telecom is a fixed wireless network so we always had to work closely with our RF Engineering team so as to maintain maximum coverage. The concept is very different from a “Mobile Network”. Some of the smaller build-to-suit towercos would offer six months “free” tower space rental so as to accelerate their portfolio. Others would invoice towers based on fixed quotas per month, if we passed the forecast the additional towers would only be invoiced at the end of the year. Delaying rental costs for six months certainly helped with cash flow for a startup! Note: all contracts are based on ten years rental. At a few marginal sites representing cities and towns where our forecasts suggested we couldn’t be certain we would generate adequate revenue to justify the lease, a couple of the big Brazilian towercos granted us a “sale or return” six month cancellation clause, a gentleman’s agreement which gave us the flexibility to enter new markets. At all our sites, all the infrastructure and installation was taken care of by the towerco. And in most cases any tower strengthening costs were borne by the towerco too.

TowerXchange: What proportion of your initial sites were leased from towercos? Steven Roberts, Expert – Cellular Rollouts and former Director, ON Telecom: In our first year of rollout, approximately 70% of our sites were on shared sites leased from towercos, the rest were all rooftops, so all our sites came from our preferred deployment scenarios one and two as mentioned previously. Using towerco sites and rooftops minimised up front capex and maximised speed to market. In many cases we used desktop software to plan transmission, but it was mandatory that we had to visit the site to conduct line of site surveys. We surveyed every site as we could never be sure there was actually structural capacity available for our equipment, even if the towerco stated there was space; sometimes we would find the site was more loaded than the towerco realized. We’d present such surveys to the towerco who could then have illegally installed equipment removed. This helped them to rent more space and saved on tower strengthening. In year two, we moved into the interior of the state of São Paulo and had no option but to deploy more build to suit, and in some cases had to share some existing operator sites, which slowed us down. TowerXchange: Give us a rough comparison of time to market, build to suit site compared to co-location on an existing site?

Steven Roberts, Expert – Cellular Rollouts and former Director, ON Telecom: A greenfield build to suit site could take anything from five to twelve months to get on-air, after we had gotten through the complex and extremely bureaucratic licensing process. While a towerco existing site open to being shared might take two to three months – and most of that time was taken up by the internal towerco process once the site was qualified, and by transmission planning. RF coverage is of course the focus of a project like this, but full respect must be given to Tx, in our case mainly microwave. No transmission = no site! There could be plenty of sites out there, but factors such as tower height, space (larger microwave antennas were used the further we progressed into the “interior”), unavailable frequencies or channels meant topology redesigns. However in general the existing “shared” site had a much quicker time to market compared to build to suit. Operators’ sales forecasts are based on coverage, they don’t take into account the time it takes to get on air and how the competitive landscape might have shifted in the meantime. So time to market is critical. We tended to use build to suit in cities where the big operators were not yet present, hence there were no existing towers! This was good for the towercos because where we went meant that the other operators could consider new areas, therefore giving the towerco the opportunity to lease up more tower space.

TowerXchange: How did the spectrum ON Telecom were using for 4G affect network planning? Steven Roberts, Expert – Cellular Rollouts and former Director, ON Telecom: Since ON Telecom were running 4G on 2.6 GHz, our sites were limited to coverage of 500m. With 10MB/s plans, we had to concentrate the signal, and distances greater than 500m would limit speed. This meant our sites had no room for maneuver. Limited distance and a fixed service meant planning had very little flexibility to reposition a site. In the second phase of the project we lost a lot of existing towerco sites due to inadequate coverage that we could get out of them. Our calculations were based on “Households” as a rule, amongst other calculations thrown in, such as competition and infrastructure costs, so covering partially an estate of 1,000 houses for example meant “GO/

NOGO” decisions had to made per site. Out of the 300 sites activated we probably had a database of over 1,000 sites that were worked upon or looked at. ON Telecom is one of several 4G players in Brazil, the biggest of which, Sky Brasil, uses TDD-LTE, achieved 100,000 customers in 2014 and is reportedly targeting 500,000 clients. TowerXchange: How does network planning change in an environment like Brazil where 71% of the towers are owned and marketed by towercos? Steven Roberts, Expert – Cellular Rollouts and former Director, ON Telecom: In order to plan fixed cell site topography, we made extensive use of the databases from ANATEL, and asked the towercos for fresh databases every month. Planning a rollout where there are shared towers


“ “RF Planners and Engineers might moan about having to use sub-optimum sites, but you have to look at households first and RF planning second. Every site had to be evaluated in terms of the total business case; opex, capex, number of households divided by number of competitors et cetera – all these factors were evaluated in our GO/NOGO


available means there are time to market and opex cost considerations as well as RF planning considerations – you have to take a more pragmatic view. RF Planners and Engineers might moan about having to use sub-optimum sites, but you have to look at households first and RF planning second. Every site had to be evaluated in terms of the total business case; opex, capex, number of households divided by number of competitors et cetera – all these factors were evaluated in our GO/NOGO. TowerXchange: Were there any noticeable differences between co-locating on an American Tower (ATC), SBA or Grupo TorreSur (GTS) site compared to co-locating on one of Brazil’s independent developers’ sites? Steven Roberts, Expert – Cellular Rollouts and

former Director, ON Telecom: The big three towercos were often cheaper than the smaller towercos’ sites, but the smaller towercos were more hungry, flexible and proactive such as Brazil Tower Company (BTC) and QMC. However, one of the larger towercos in Brazil were generally our preferred partners both because they were fantastic to work with, and because they had bought a lot of sites from Telefónica in São Paulo State where the land was still owned by Telefónica, so there was no ground rent pass through, which would reduce the cost of such sites by as much as half. Their sites were always given priority in the engineering planning just because of the saving on the Ground Rent, critical for a new operator of our size. TowerXchange: How do the costs compare; leasing a ground based tower versus a rooftop

versus build to suit? Steven Roberts, Expert – Cellular Rollouts and former Director, ON Telecom: 2sqm on a ground based tower would cost us an average of R$2,000-2,500 (~US$700). Rooftop rents were higher, so the site cost around R$3,000-4,000 (~$1,000). About half of that was ground rent. If we built the rooftop ourselves then we would halve our opex costs. If we commissioned a build to suit, 100% of the rental cost was borne by us until additional tenants were added. So build to suit is comparatively expensive, hence our preference to install our own rooftops when geographically possible. If you are in an area with no high buildings then you have no choice. We would encounter situations where the big operators might be offering landlords double what we’d pay the landlord to use a rooftop, but because we moved so much faster, the landlords would rather take R$2,000 from us right away than wait for the big operators to make up their minds. Outside Campinas, in the smaller municipalities, the rents would be lower. TowerXchange: How does the build to suit market function in Brazil?Steven Roberts, Expert – Cellular Rollouts and former Director, ON Telecom: Once a towerco is registered and has built a relationship with the operator, they ask for a forecast of tower builds. The operator releases search rings and the build

“ “2sqm on a ground based tower would cost us an average of R$,000-2,500 (~US$700). Rooftop rents were higher, so the site cost around R$3,000-4,000 (~$1,000). About half of that was ground rent. If we built the rooftop ourselves then we would halve our opex costs

to suit companies go out with a nominal plan and come back with three candidate sites which might include existing structures and/or new builds. That’s the same as in any market, but in Brazil this can take ages as the towerco’s engineering guys don’t always have access to the engineering guys at the operator. Licensing remains the biggest challenge to building new sites in Brazil. Once our RF guys qualify that we need to get a tower built at a given location, we go into pre-licensing, seek clearance of the aviation authorities, present the environmental issues, and only then begin the main licensing process. Often we would visit the local Mayors and emphasise our provision of Internet (rather than telecoms) services, often offering to provide free Internet to local schools. We’d take one of the smaller build to suit towercos with us like Brazil Tower Company or QMC, and we’d often get permission granted on that basis. The larger towercos often didn’t want to do build to suit for ON Telecom; they felt we were too small. At ON Telecom I did nearly all the acquisitions myself, our hunters came in and qualified sites, and the smaller, hungrier towercos often took it on from there. We did this to gain time. Also because of our limitations on specific coverage, focus was needed!In a build to suit contract, it is important to clarify whether the anchor tenant pays fees from the moment the tower is built and ready for installation, or whether fees are payable from the moment the foundations are dug.

TowerXchange: TowerXchange concluded a study which suggested there may be less than 50,000 towers in Brazil, accounting for the towers of the towercos and the big operators, a significant difference from the 70,000 towers most people suggest there are in the country. Are we missing any? Steven Roberts, Expert – Cellular Rollouts and former Director, ON Telecom: There are a number of towers run by SCMs (licensed small operators) providing service where the big operators do not yet provide internet coverage. Even in the interior of São Paulo State you come across the antennas of a lot of ISPs with unlicensed frequency, providing low quality Internet service to maybe 2,000 customers in a small town. There are hundreds of them across the country and they account for a lot of sites. I’m not sure you should include such sites in your analysis though – it’s unlikely that many are shareable, and a proportion of them are probably unlicensed. Brazil also has a number of utilities companies creating telecom spin-offs, some of which have microwave networks. For example, CPFL (energy company based out of Campinas) is providing fibre over power lines, and there are similar projects in the Northeast. The other distorting effect on the tower count in Brazil is that when a towerco has built a tower, it’s registered to ANATEL by the tenants not the towerco, so the same tower can be registered

multiple times by co-locating tenants.

TowerXchange: Help us understand the demographics of the 5,570 “cities” (municipalities) ANATEL the Brazilian regulator has targeted for coverage. Steven Roberts, Expert – Cellular Rollouts and former Director, ON Telecom: ANATEL sets aggressive coverage targets, but the reality is that, with the cost of deployment, the operators will do well to close the gap by 50%, and they seem to get fined every year. Let me give you an example. One of the cities in ON Telecom’s footprint was Campinas, a municipality in São Paulo State. In a tier two city like Campinas, the core of a metropolis with a population of 2-2.5mn, residents’ have a healthy disposable income to spend on mobile and internet services, whereas many of the uncovered cities on ANATEL’s targets are in the North and Northeast of Brazil where the demographics become less attractive for operators and by extension for towercos. It’s the same in Australia, where I also worked for a couple of years – the government tries to force rural coverage through obligations in the license, but the economics do not add up. Deploying fibre is not cheap, and the alternative of coverage plus microwave towers has inherent opex and capex challenges. The challenge to connect Brazil’s unserved and underserved cities is as much to do with transmission as passive infrastructure.

TowerXchange: How complete is the fibre rollout



in Brazil in terms of the proportion of towers still relying on microwave backhaul?

Steven Roberts, Expert – Cellular Rollouts and former Director, ON Telecom: Outside of ‘The Triangle’ (between Rio de Janeiro, Belo Horizonte and São Paulo) where there are good fibre networks, the majority of Brazil’s towers are still relying on microwave or wireless transmission. At ON Telecom, if a site didn’t have microwave backhaul that we could install it was automatically rejected. Also we left all our towers infra fibre-ready, with a post at the entrance with ducting to get to the Node Bs. This was done as part of the scope by the towercos regardless if we were ever able to get fibre to the site. A few of the tier two operators use fibre or have their own fibre, but the larger operators focus on their core business or on supporting their backbone

rather than backhaul. Sharing someone else’s fibre is expensive. Deploying Leased Lines is still costly, these days needing higher link capacities. Values are coming down, but they still have a way to go. A lot of the fibre in Brazil is deployed “over air” – mounted on posts on the street, which is relatively cheap and fast to deploy. In most cities you see spaghetti junctions of cables on posts, some legal some illegal. However, the problem is that this means it is incredibly expensive from an O&M point of view, and it’s exposed to hazards like sugar cane fires, bush fires and lightning storms. Putting fibre underground may be safer and more reliable, but it’s too expensive and slow when it comes to planning permissions and securing concessions from all the different parties. In this context, microwave still has a lot going for it. 4G will put more strain on transmission networks. Fibre is still backbone oriented in Brazil, seldom

extending the last mile using microwave, especially in the North and Northeast of the country. I’m now leading a startup which will be called Arqueiro Telecom which will provide high capacity (1.2-1.4GB) last mile microwave links. We have intelligent data that helps us understand when operators are in trouble when it comes to capacity and reliability, and we can help them breathe a little bit. TowerXchange: How would you characterise the maturity of heterogeneous networks in Brazil? Do you see a lot of demand for metro cells and DAS?

Steven Roberts, Expert – Cellular Rollouts and former Director, ON Telecom: In general almost everything is deployed on macro towers in Brazil. But with demand for data rising, and with data relying on speed, all the operators are asking towercos for metro cells and even femtocells. At ON Telecom we deployed a couple of small cells from Airspan to extend the RF signal in specific apartment blocks. A heterogeneous layer will be added to Brazil’s macro network over the next two to ten years, and the towercos need to help the operators to think differently. However at the moment it seems like the big towercos are focused on integrating their acquisitions and maximising tower cash flow from their huge inventory of macro sites – the largest of them must be billing over US$100mn per calendar

“ “Outside of ‘The Triangle’ (between Rio de Janeiro, Belo Horizonte and São Paulo) where there are good fibre networks, the majority of Brazil’s towers are still relying on microwave or wireless transmission

month now. As long as ATC, SBA and GTS remain focused on macro sites, the smaller towercos will continue to think that the best way to create capital value is through building big ground based towers. So I think there’s a gap in the market for someone focused on Brazilian operators’ increasing need for small cells and DAS, non-line of site transmission, and point to multi-point systems, which have been used in Europe for years but have seen slower uptake in Brazil. Using DAS as an example, there might be 30 multi-band distributed antenna systems in various Brazilian shopping malls, but that represents a fraction of the addressable market for DAS. For example, there are huge condominium and housing estates in the interior of São Paulo State, gated developments hiding mansions where cabling fibre

or even copper will be too expensive to achieve return on investment. The only way to provide internet service is through 3G modems – but how do you get signal in there? You can’t build a big macro tower next to US$2mn mansions. This represents a gap in the market for someone who is prepared to think like an engineering company, building an RF plan and solutions, put small cells on lamp posts or in unseen places (mini stealth sites), “lite” camouflage sites and DAS on clock towers……this can be endless. You should be thinking of hiring an architect with creative civil works involved and not just good old concrete and steel methods. Taking this to an operator instead of your customary three candidates for a macro site is where I see some of the future. You make your money on volumes of sites/solutions but also you

will have a happier customer and guaranteed growth. TowerXchange: Please sum up how you see the future of Brazil’s tower networks. Steven Roberts, Expert – Cellular Rollouts and former Director, ON Telecom: Everything is unstable in Brazil at the moment – the government, the economy – but the tower industry is thriving and growing. Amid such growth, it’s difficult for the towercos to stop and think about what the operators might need in two years time. The operators’ engineering departments are saturated and over-worked. Within niche markets, a smaller company offering intelligent solutions for street furniture and IBS could overtake the big incumbent leaders with their huge base of macro sites. It’s already time to start thinking about deepening infrastructure to the next level of providing a tower plus equipment. There is always a risk when big, established market leaders sit back on their laurels – Nortel Networks have gone, Nokia are all but gone – innovators have got to think about smaller, lower structures. With the spectrum frequencies and wireless technologies today, sometimes mounting a little antenna on the side of a shop is more attractive than wading through red tape to build another macro tower. Brazilians want internet access, and if they can get it they’ll use it. It’s just a question of how best to get it to them


“ “I think there’s a gap in the market for someone focused on Brazilian operators’ increasing need for small cells and DAS, non-line of site transmission, and point to multi-point systems, which have been used in Europe for years but have seen slower uptake in Brazil

How to connect landownerswilling to lease/sell property to carriers and towercosIn three months, telecom property portal MyTower has already indexed over 2,000 sites in Brazil

TowerXchange: Please introduce yourself and tell us where did the idea for MyTower come from? Tiago Albino, Founder & CEO, MyTower: I have been an expert in telecommunications for the last ten years, working for various technology companies. In 2011, I led a metropolitan network construction project for a group of Brazilian banks. During this project, I experienced all the difficulties that operators and towercos have in renting sites – in particular, the difficulty of finding people who want to rent or sell their properties for the purpose of installing of towers and antennas. After four years of studying the market in the field, I identified that there was no property listings portal for telecom real estate in Brazil. All the portals that existed and exist now are focused on the sale or lease of real estate for residential or commercial purposes other than telecom. When a major publication in Brazil featured a story about cell phone towers, the forums and comments section had huge supply of potential real estate for operators. People read the article and at the end offered their property. However, this is an inefficient way of identifying sites because the operator does not have time to be reading discussion forums. That’s when the idea was born to create a Property Classifieds portal for telecom operators. In fact the MyTower portal can be used by major carriers, towercos, small and medium sized Internet service providers, radio and TV stations. The advantage for

Read this article to learn:< The story behind the launch of MyTower and their early successes< Who uses a telecom property portal like MyTower, MNOs, towercos or site hunters?< The coverage gap in Brazil – carriers are only serving 88.6-91.9% of the required municipalities< The potential to extend the MyTower business model beyond Brazil

Four years ago, Tiago Albino was struggling to lead a metropolitan network project for a group of Brazilian banks, but he ran into a problem familiar to most people in the tower industry – few people were prepared to lease space for their antenna. Tiago decided to bridge the gap by building the MyTower portal, where people interested in leasing or selling property suitable for telecoms structures could list their sites, and where site hunters, towercos and MNOs could identify readily available sites. Just three months after launch, Tiago is already indexing over 2,000 sites….

Keywords: Interview, Market Overview, 4G, Urban vs Rural, Network Rollout, Leasing & Permitting, Rooftop, Masts & Towers, Site Management System, Stakeholder Buy-In, South America, Brazil, VIVO, Claro, TIM, Oi, Algar, Sercomtel, MyTower


Tiago Albino, Founder & CEO, MyTower

them is to find a property in their desired region, already knowing an estimation of the cost, size of the area available and knowing that the person wants to do business with the telecom industry, which is essential because they are seeking long-term contracts.

TowerXchange: What’s your business model – how does MyTower make money? Tiago Albino, Founder & CEO, MyTower: MyTower is funded by property listing fees paid by homeowners, asset liquidators, property and real estate managers. TowerXchange: Are most of your site visitors carriers, independent tower companies or specialist site acquisition companies? Tiago Albino, Founder & CEO, MyTower: We speak daily with Brazil’s major carriers, towercos and the site hunters. In most cases, the Brazilian carriers have outsourced site acquisition to specialist site hunters, so they are the main users of MyTower, alongside the towercos. TowerXchange: When did MyTower launch, and how quickly are new properties being added to MyTower? Tiago Albino, Founder & CEO, MyTower: We launched the portal in December 2014. We’ve experienced very fast growth because word is spreading virally among subscribers. We have also been featured on some important technology sites


in Brazil such as TiInside, Telesintese, TI Bahia and SindicoNet. Today we’re getting more than 300 hits per day, but that number is growing daily. We already have over 100 properties listed on the portal, but more than 2,000 have been indexed – these are subscribers who have sent details of their properties to us,

which we are gradually converting to list on the portal.

TowerXchange: Are you attracting more site listings from dense urban areas, such as the big cities in the South of Brazil, or from the less densely populated areas such as the North and Northeast of the country?

The MyTower website


Tiago Albino, Founder & CEO, MyTower: The MyTower portal is open to everyone; no matter the location, the owner may disclose the property. Naturally, large cities have more supply, but we have many advertisers from rural areas and the North and Northeast.

TowerXchange: Please describe the current level of coverage of Brazil’s carriers. Tiago Albino, Founder & CEO, MyTower: Today the Brazilian population is 200 million inhabitants, but there are 278 million active SIM cards across the country. Brazil’s operators have coverage between 88.6% and 91.9% of the population, according to statistics from Anatel in February 2015. The Federal government has identified 5,570 municipalities in Brazil which must have coverage in the coming years. The operator that has the greatest coverage is VIVO, but even they are present in only 3,757 municipalities. So they would need to install their infrastructure in 1,813 more municipalities in order to meet Anatel’s coverage requirements. In many municipalities, there is not a healthy compliment of competing carriers. According to data from Anatel in February 2015, there was only one carrier offering a service in a third of Brazil’s municipalities, while in 16% there were only two carriers, three carriers in 9% of municipalities, and four in 34%. The statistics also include Algar and

(Anatel does not provide statistics on Nextel’s coverage).

Operator

VIVO

CLARO

TIM

OI

ALGAR

SERCOMTEL

Municipalities

3,757

3,695

3,454

3,386

106

2

Population Served

91.2%

91.9%

91.3%

88.6%

2.0%

0.3%

Sercomtel, so it rises to 47% of municipalities that have five carriers serving them, but less than 1% with all six. TowerXchange: How many towers and rooftop cell sites are in Brazil and who owns them? Tiago Albino, Founder & CEO, MyTower: Currently there are 70,000 points of service in Brazil, including both macro towers and rooftops. However this doesn’t mean there are 70,000 different structures as many shared structures are registered once by each tenant. The main owners are the towercos such as American Tower and SBA in addition to the operators such as Claro, VIVO, TIM, Oi and Nextel. Not all the towers were built by the large carriers and towercos. There are more than 7,000 Internet service providers market in Brazil and many of

them have their own points of service.

TowerXchange: How do you see the future evolution of Brazil’s tower networks? Tiago Albino, Founder & CEO, MyTower: There is great potential in the Brazilian tower market. The country, and the South American continent, will require at least twice as many towers to meet coverage and capacity needs, especially with the arrival of 4G. TowerXchange: Finally, do you have any interest to extend the MyTower portal to cover other markets as well as Brazil? Tiago Albino, Founder & CEO, MyTower: Although the company is currently 100% Brazilian, I chose the name “MyTower” so we would not have to rebrand to achieve global scale. We are currently talking to foreign investors from Israel, USA, Argentina, Mexico and of course Brazil. The need for people to advertise their properties, and the need for operators and towercos to identify new sites, is identical worldwide. So our next step is to complete a version in English and Spanish. In fact we get more hits from Russia than anywhere except Brazil and the US, so perhaps that is an important audience to think about because of the size of the country. At the moment the company is seeking investor funding in order to expand the business to other countries

Special feature:

TowerXchange issued its first Mexican case study back in February 2014 (issue 7) and much has changed since then.

América Móvil has created its own towerco spin-off Telesites, to which it has recently transferred 10,800 towers in response to regulatory pressure to reduce its dominant position. AT&T has entered the Mexican market with the double acquisition of Grupo Salinas’ Iusacell and NII Holdings’ Nextel Mexico. In the meantime, BTS focused firms Mexico Tower Partners and IIMT have increased their tower count to respectively 860 and 250 sites from the then reported 600 and 180. Organic growth opportunities for Mexico’s many towercos will only increase at AT&T sparks a frenzy of network investment.

In this issue, TowerXchange analyses the potential of the Mexican market in light of this interesting phase of restructuring, which is like to bring a wave of new investments, BTS projects and renewed confidence in the Mexican tower industry.

Mexico case study

Don’t miss:111 The restructuring of the Mexican tower market

115 What we know about Telesites

119 If diversification is the keyword, AT&T is a winner


The restructuring of the Mexican tower marketCreation of Telcel towerco Telesites, entry of AT&T and launch of wholesale LTE network opens a new chapter in Mexican telecom infrastructure

Market overview There are 103.4mn connections among a population of 124.5mn in Mexico, representing just 83% SIM penetration (compared to 152% in Costa Rica, 140% in El Salvador, 120% in Nicaragua, 111% in Guatemala, and 101% in Honduras). Smartphone penetration is growing whilst prices are falling, which means 42% of those connections are mobile broadband (market statistics courtesy of GSMA Intelligence, Q4 2014). An RFP is due to be issued in October 2015 for a shared wholesale LTE network. Spectrum is being cleared for LTE and incumbent MNO trials have commenced, with over half a million subscribers already secured, so expect a surge in demand for infill sites. With AT&T entering the market, significant capital is already being deployed by Telcel and Telefónica to extend and densify their networks. The MNO battle for subscribers remains concentrated at that higher value end of the Mexican market, and one could make a case that only Carlos Slim and Telcel seem to have much appetite to serve Mexico’s 60mn 2G, lower value customers, which in part explains Telcel’s dominant position in Mexico, which finally prompted newly empowered regulator IFETEL to seek to restructure the market. Addressing the dominant position of Telcel; the carve out of Telesites In July 2014 IFETEL, seeking to end Telcel’s

Read this article to learn:< SIM penetration, broadband penetration and the progress of LTE in Mexico< The scale and structure of Telcel’s towerco Telesites< A breakdown of the ownership of Mexico’s 23,000+ towers among the country’s seven towercos< AT&T market entry sparks BTS feeding frenzy< Progress of Mexico’s proposed wholesale LTE network

It seems like the Mexican tower ecosystem, and the mobile operator market which it serves, is metamorphasising into a completely new structure, creating tremendous opportunities for savvy investors, and tremendous risks for those who fail to appreciate the nuances of the change. The headlines are obvious: Telcel is being forced to reduce their market share below 49%, leading to the potential disposal of assets, including the carve out of 10,800 towers to their own towerco Telesites. Meanwhile, AT&T acquired both third and fourth ranked operators Iusacell and Nextel Mexico, sparking a BTS feeding frenzy in the country.

Keywords: Editorial, MNOs, Towercos, Market Overview, 3G, 4G, Transfer Assets, Build-to-Suit, New Market Entrant, Pass-Through, Regulation, Anchor Tenant, Carve Out, Sale & Leaseback, North America, Mexico, Grupo Carso, Telesites, Telcel, América Móvil, Movistar, Telefónica, AT&T, Iusacell, Nextel Mexico, NII Holdings, American Tower, QMC Telecom, Conex, NMS Towers, Torrecom, Centennial, IIMT, Mexico Tower Partners, MTP



dominant position in the market and to promote competition, directed Telcel to reduce their national market share in Mexico to less than 50%. However, this won’t bring about a “fire sale” of Telcel’s core telecoms operations nor of their towers; Telcel insist any assets will be sold at market prices. At least 10,800 towers are initially being carved out to Telesites, which is operated from the offices of Grupo Carso; Carlos Slim is literally keeping the assets “in the family”. It remains to be seen whether Telesites might be compelled to be sold in the future, but most tower industry commentators, including TowerXchange, do not expect the assets to come to market in the foreseeable future.


The proof is in the pricing Just how serious América Móvil is about creating a bona fida tower company might best be evidenced by the lease rates they charge for co-location. There is no suggestion that any América Móvil-derived towerco should offer discounted tenancies, but the maturity of Mexico’s existing towerco ecosystem means the pricing of leases and build to suit programmes is brutally competitive. If an América Móvil towerco charged significantly higher than market rates, few tenants would be attracted onto the towers, and status quo would be maintained.However, while Telesites remains preoccupied

with the integration of assets and the building of new towers for Telcel, it may be premature to expect much pro-active marketing of the sites for co-location – for example, it took years rather than months for India’s operator-led towercos to add many third party tenants to their towers.

The changing shape of Mexico’s tower market Mexico is now one of the most penetrated towerco markets in the world, with an estimated 91% of the country’s 23,000+ towers owned and operated by independent towercos, of one counts Telesites’s 10,800 towers as independently owned.

Estimated breakdown of tower ownership in Mexico

Source: TowerXchange“

“

Mexico is now one of the most penetrated towerco markets in the world, with an estimated 91% of the country’s 23,000+ towers owned and operated by independent towercos

Telesites

American Tower

Mexico Tower Partners

Centennial

IIMT

Torrecom

Other independent towercos, including Conex

(QMC) and NMS Towers

Estimated remaining MNO-captive towers

10,800

2,000

8,716

860

400250

146250


American Tower (AMT) has been established in Mexico since 1999, where it currently owns 8,716 towers. AMT’s notable recent Mexican acquisitions include a total of 2,138 towers acquired from Telefónica for US$445mn in Q3-4 2011, 883 towers acquired for US$250mn from Axtel in Q1 2013, and the acquisition of 1,666 towers from Nextel for US$398mn in Q3 2013. Telefónica and Nextel (now AT&T) are believed, to retain a handful of remaining towers each – totaling perhaps 350. While it is not clear whether Telcel is transferring all their towers to Telesites, a form 6-K América Móvil filed with the U.S. SEC in April 2015 states “the Spin-off (of Telesites) will increase the number of towers in Mexico that are accessible to any telecommunications operator from 45% to 90%”, suggesting ~2,000 towers remain operator captive, perhaps including some choice Telcel sites. Between them, a host of independent towercos own a further ~1,500 Mexican towers. These include QMC Telecom (trading locally as Conex), NMS Towers, Torrecom, IIMT (which has 250 towers, plus the rights to install telecoms equipment on CFE’s electricity towers), Centennial and Mexico Tower Partners. Mexico Tower Partners (MTP) is the portion of the GTP business which Marc Ganzi resisted selling to AMT when the rest of GTP’s portfolio was sold to the US-giant for US$4.8bn in 2013. Don’t underestimate MTP – with around 860 towers, it might be less than a tenth of the size of AMT, but the combination of Marc Ganzi’s Digital Bridge and Macquarie’s MIRA makes them formidable competitors.

Mexican towercos report that the country’s 3G overlay is almost complete. Telcel has the most 3G work remaining, but Mexico’s other operators largely started with 3G, so have little left to do. Telcel are anecdotally reported to have the most 4G sites, but it is very early days for the 4G rollout. Power costs are passed through to the tenant – it’s a pure “steel and grass” business model in Mexico. AT&T market entry sparks BTS feeding frenzy AT&T have made a smart move to enter the Mexican market by acquiring the Mexican wireless business of NII Holdings (Nextel Mexico) for US$1.875bn, as well as Iusacell for US$2.5bn, representing a total of almost 12mn subscribers, including a substantial

proportion of the county’s high value, corporate subscribers. AT&T may have acquired premium spectrum at a distressed asset discount, but they have also bought two companies which own very few towers, having sold the vast majority to AMT. Mexico’s tower companies have already met with AT&T executives who explained that their number one rollout priority will be co-location, particularly given the time to market advantages it offers. The entrance of AT&T, checkbook in hand, has triggered Mexico’s incumbent operators Telcel and Movistar to accelerate their own network investments, sparking a feeding frenzy of build-to-suit projects. Some of our contacts have suggested that as many as 5,000 new towers could be built each year for the next three years, suggesting the Mexican tower

“

“

Mexico’s tower companies have already met with AT&T executives who explained that their number one rollout priority will be co-location, particularly given the time to market advantages it offers. The entrance of AT&T, checkbook in hand, has triggered Mexico’s incumbent operators Telcel and Movistar to accelerate their own network investments

count could rise by two thirds over that time – one of the fastest growing tower markets in the world.

AT&T’s acquisition of Nextel Mexico from the bankrupt NII Holdings represented the best possible news for Mexico’s tower industry, particularly for American Tower. AMT had acquired 1,666 of Nextel’s towers, paying what most analysts reckoned to be full value at US$239k per tower for sites with an anchor tenant with questionable credit worthiness. The conversion of that bankrupt anchor tenant to AT&T, even coupled with the consolidation of AT&T’s other Mexican acquisition Iusacell, represents a net win for AMT and for it’s competitors who similarly welcome an uptick in their tenants’ thus their own investibility. A shared LTE network for Mexico In another component of the government’s strategy to boost competition in Mexican telecommunications, the Mexican Transport and Communications Ministry has published a formal request for expressions of interest from companies and consortiums interested in deploying a US$10bn wholesale national broadband network in Mexico, utilising 90MHz of spectrum cleared in the 700MHz band. A full RFP is due in October. The so-called “carrier of carriers” would likely become a tenant on a significant number of Mexico’s shared towers. How much will really change? América Móvil has not sold much in the way


of Telcel assets yet. Telcel has not shed many subscribers yet. Their preferred strategy seems to be to wait for churn and competition to gradually erode their market share below 50% and to pay whatever fines IFETEL throws at them in the meantime. But with AT&T and Movistar concentrating on the smaller, higher value end of the market, with Telcel not prepared to cede much ground there, and with América Móvil not needing the cash from a tower sale, thus retaining as much control over the towers, and upside, as possible, I feel little will change structurally in the Mexican market in medium term beyond an acceleration of build and co-location. Conclusions: What does this all mean for Mexico? The Mexican tower market should be considered mature; highly profitable but highly competitive. Any aspiring new entrant towerco into Mexico must also compete with seven incumbent Mexican towercos. Remaining sale and leaseback opportunities are extremely limited in Mexico. Movistar (Telefónica), Unefon, Nextel and Iusacell (the latter two now owned by AT&T) have sold their towers. In the unlikely event of the Telesites assets coming to market, I don’t foresee there being credible bidders beyond AMT and MTP, with BMI analysis suggesting Mexico’s towers have already set a mark as the most expensive in LatAm. There may be build to suit, IBS and special

structure opportunities to be found by smart telecom real estate investors, but in terms of large scale towerco activity, Mexico is probably best left to the incumbents and to the publicly listed towercos with their relatively low cost of capital. The towercos in Mexico, and their partners, have thrived and will continue to thrive even if Telesites brings its towers to market. While Mexico needs tens of thousands of additional towers and additional tenancies, the country will not support seven towercos in the long term. Some will remain smaller build to suit plays, some will inevitably be consolidated. Implications for the CALA tower market If América Móvil wholeheartedly embraces the independent towerco business model by proactively marketing the Telesites sites, and if that towerco thrives as we would expect it to, TowerXchange would expect to see the model replicated in several of América Móvil’s other CALA markets, with or without the prompting of local regulators. América Móvil’s success may be viewed with a degree of jealousy by their competitors, but their success is a product of smart, flexible and sometimes aggressive market building. If the restructuring of Telcel and creation of Telesites really does represent América Móvil’s bona fida first towerco, it probably won’t be their last. There could be a major new player in the CALA tower market in the coming years!

What do we know about Telesites?América Móvil’s spin-off towerco will initially manage and market 10,800 Mexican towers

Why is América Móvil spinning off a towerco? América Móvil cites the usual motivations to spin off their towers; coverage is no longer a competitive differentiator; the capex required to meet data demand drives the impetus to share; and, given the relatively low penetration of fixed line infrastructure in CALA, the criticality of mobile networks in facilitating broadband access and services has already prompted several MNOs in the region to sell a total of over 30,000 towers in recent years. However, when the Federal Institute of Telecommunications (IFT), Mexico’s newly empowered telecoms regulator, declared América Móvil and its subsidiaries Telcel, Telmex, Grupo Carso and Grupo Financiero Inbursa “preponderant” (market dominant) a year ago, the clock started ticking on the inevitable and fundamental restructuring of the Group. Would América Móvil have spun off a towerco without their hands being forced by the IFT? Probably not. Does that mean it’s not going to be a highly lucrative venture? Probably not. Will the spin-off of Telesites be sufficient for the IFT to not be considered preponderant? No. The spin-off of Telesites is not expected to be sufficient for Telcel, and fixed line equivalent Telmex, to not be considered preponderant. But it will be seen as a step in the right direction.

Read this article to learn:< Why is América Móvil spinning off their towers into Telesites, what is in it for them?

< Who will control Telesites?

< Who is going to define Telesites’ lease rates?

< What is the current size of, and competitive landscape in, the Mexican tower industry?

< Lessons learned for operators with >50% market share in other markets

A form 6-K filed by América Móvil to the U.S. SEC revealed several details of the structure of their new carve out towerco Telesites. We combine insights gleaned from that submission, together with press coverage and TowerXchange’s own research with other stakeholders in the Mexican tower industry to provide this summary.

Keywords: News, Editorial, MNOs, Towercos, Capex, Lease Rates, Bankability, New Market Entrant, MLA, Carve Out, Infrastructure Sharing, North America, Mexico, AT&T, Iusacell, Nextel, Telefónica, América Móvil, Telesites


Who will control Telesites? Holders of América Móvil’s shares will receive one Telesites share for every América Móvil share held, with substantially the same rights. Just how much control does Carlos Slim and the Slim family have over América Móvil and thus, with shares being issued one for one with the same voting rights, how much control will the Slim family have over Telesites? Under América Móvil’s current capital structure, which will be mirrored by Telesites, 97.33% of shares with voting rights are “Series AA Shares”. Of the Series AA shares, just 8% are led by Carlos Slim himself. However, 46.5% of the Series AA shares are held by The Control Trust, which holds various América Móvil shares for the benefit of the members of the Slim Family. A further 18.2% of Series AA shares are held by Immobiliaria Carso, and a further 12.2% are held by Control Empresarial de Capitales, both of which “may be controlled indirectly by the Slim Family” according to the footnotes in the Form 6-K. In summary, 97.33% of both América Móvil and Telesites shares with voting rights are or will be held by entities directly or indirectly controlled by the Slim family. The form 6-K also states “Telesites will be organized as an independent company, with sufficient capacity to hold its own assets and dispose of them.” How many towers are there in Mexico, who


owns them and what proportion will Telesites represent?

There are a little over 23,000 towers in Mexico, of which Telesites will be managing and marketing 10,800 initially, or 46.8%. American Tower has acquired the majority of the other MNO’s sites, and they currently have 8,716 towers in Mexico, or 37.3% of the total. Six other towercos own and market a further 1,906 towers, or 8% of the stock: MTP, Centennial, IIMT, Torrecom, Conex (QMC) and NMS Towers.

América Móvil suggest that the spin-off of Telesites will mean that 90% of Mexico’s towers are accessible to any operator, which implies that MNOs retain about 10% of Mexico’s towers. Since TowerXchange understand that Telefónica and Nextel (recently acquired by AT&T) retained only

América Móvil

AT&T (Iusacell+Nextel)

Telefónica

around 350 towers, this would suggest that Telcel and/or Telmex has retained around 1,650 towers.

And how many towers does Mexico need? América Móvil’s submission to the SEC notes “in 2013, the Mexican Federal Telecommunications Commission estimated that Mexico required a four-fold increase of radio bases, which would result in an increase from 20,000 radio bases to a total of 80,000, creating an important growth opportunity for Telesites.” It should be noted that this reference appears to be to a need for base stations as opposed to towers. Thus the required 80,000 BTSs could be accommodated on a healthy Mexican tower market of 40,000 towers with an average tenancy ratio of 2.0.

How do Mexico’s operators compare in terms of coverage?

Source: Telesemana

200 40 60 80 100

93%

75.6%

70.3%

One thing is for certain: Mexico needs a lot more cell sites! One of Telesites’ first priorities will be building sites for Telcel. So if Telesites’ first priority will be to build more sites for Telcel, will the towers actually be proactively marketed to third party tenants? Quoting the Form 6-K concerning the spin-off of Telesites: “This new business unit will grant access to, and allow use of, the Site Infrastructure by América Móvil’s subsidiaries, as well as to third party providers of wireless telecommunications services.” Later in the document it is revealed that Telcel had published a “Tower Reference Offer” with an initial term expiring on December 31, 2015. “Under the terms of the Tower Reference Offer, the operators who wish to have access and shared used of the Site Infrastructure must execute a master services agreement, as well as specific agreements for each site.” However, to manage expectations, it should be noted that it can take several months to carve out a towerco, so we don’t expect much to change in 2015. Who is going to define Telesites’ lease rates? It seems that the market will set the lease rate – and that’s how we think it should be at TowerXchange! A light touch from regulators is required when it comes to tower companies.

However, IFT would doubtless get involved if they felt Telesites’ lease rates were set inappropriately high in order to maintain the status quo. This is acknowledged in the Form 6-K from which we again quote: “the IFT may, when necessary to provide access services, and if there are no alternatives, establish terms governing the usage and sharing of physical space as well as the corresponding fees… Moreover, as established by the IFT’s resolution, the predominant economic agent must allow operators access to and shared use of passive infrastructure on a nondiscriminatory and nonexclusive basis. Fees for access to and shared use of passive infrastructure shall be negotiated by the predominant economic agent and the operator requesting such services. If agreement cannot be reached, the IFT shall determine access rates using a long-run average incremental cost methodology, which must be offered on nondiscriminatory terms and may vary by geographical area.” When will the creation of Telesites actually take place? The restructuring of América Móvil to spin-off Telesites is set to be approved at an EGM on 17 April 2015. The spinoff itself will occur in May or June 2015. Will the strategy to spin-off towercos be replicated in América Móvil’s other markets? Indeed, could those towers be transferred to Telesites?

The international expansion of Telesites remains a possibility in the medium to long-term. According to the 6-K “There will be no limitation on Telesites’ ability to carry out any type of business in Mexico or abroad.”

What are the potential benefits to América Móvil of the spin-off of Telesites? Increasing their focus on global customer acquisition, customer service and differentiation through innovation. Refocusing on investments and costs. “Capital expenditures and operating expenses are the biggest costs in the telecommunications industry, especially in emerging markets like Mexico. Making the Site Infrastructure business independent will allow América Móvil to reduce costs quickly and significantly and simultaneously refocus its capital investments on the expansion of its Active Infrastructure.” The 6-K also makes reference to the opportunity to share land rent between multiple tower tenants. Finally, the 6-K also references the potential to capitalize on the spin-off by selling Telesites to a third party in future, but what seems the more likely outcome is “an increase in aggregated market value of both companies” as a function of the relatively high multiples at which towercos trade; according to the 6-K “the major telecommunications companies traded at four times EBITDA while telecommunications infrastructure service providers traded at 14 to 16 times EBITDA.”


What are the lessons learned here for market dominant operators worldwide? Any operator with >50% market share runs the risk that an empowered, independent telecoms regulator might seek to stimulate competition in their market by introducing asymmetrical regulations and mandating infrastructure sharing. Why not jump before you are pushed? If you have a better network than your competition, why not monetise it? Towercos currently trade at multiples around four times greater than MNOs – investors appreciate the separation of retail risk from a pure infrastructure play with long term recurring contracted revenues. Unless you are operating in one of the last remaining Nationalised telecom markets, competition is inevitable. Spinning off a towerco is more than a hedge against competition


risk, it represents a genuine opportunity to create huge new capital value. Akhil Gupta, Vice Chairman of Bharti Enterprises, one of the forefathers of two of the most successful operator-led carve out towercos in the world, Indus Towers and Bharti Infratel, of which he is also Chairman, summed it up best in his recent TowerXchange interview: “Our vision for the next three to five years is to get all the passive infrastructure out of the hands of the MNOs; it will be a wonderful day when that happens! The towerco industry is such an efficient one, and MNOs will become more efficient as a result. Infrastructure needs to be shared – gone are the days when owning towers conferred a competitive advantage. Nobody has ever been able to stop a competitor putting up a tower next door, but the efficiencies that can be achieved by sharing towers are undeniable.”

“ “If you have a better network than your competition, why not monetise it? Towercos currently trade at multiples around four times greater than MNOs... Spinning off a towerco is more than a hedge against competition risk, it represents a genuine opportunity to create huge new capital value

Meetup Africa 2015

Meetup Asia 2015



Meetup Europe &Global AwardCeremony 2016




Q1 2016, London

If diversificationis the keyword, AT&T is a winnerVerizon and AT&T adopt contrasting growth strategies, one of which is particularly pertinent to international towers

AT&T acquisition strategy South of the border: from pay-TV to Mexican MNOs

DirecTV is the second largest pay-TV service in the United States behind Comcast, and has a total of over 18 million subscribers in Latin America (split between DirecTV Latin America and Sky Brasil). The pay-TV industry is expanding in CALA thanks to the growth of a young middle class and to date, it has a reported 40% penetration rate.

Just a few weeks later, AT&T made the headlines in the region but not for any Brazilian acquisition. Over the course of a few days, the U.S. giant signed agreements with both Grupo Salinas and NII Holdings for the acquisition of their Mexican operations, namely Iusacell and Nextel Mexico. While the Iusacell merger is now complete, the Nextel acquisition remains subject to regulatory review. In the meantime, through its Iusacell deal, AT&T gained control over 9.2 million subscribers in Mexico, which could become 12.4 million should the Nextel deal get approved.

Although not even close to the 71.3 million users of Telcel, AT&T could become a serious competitor both to América Móvil’s market leader and to Movistar, Telefonica’s Mexican carrier, which serves more than 18.3 million customers in the country. In the meantime, AT&T will add a few more million wireless subscribers to its score - which reached 120 million back in 2014, making it the second largest operator in the U.S. behind Verizon.

Read this article to learn:< AT&T’s expansion beyond its U.S. wireless service< Verizon sticks to known territory and focuses on wireless< Why Mexico is a good move for AT&T< The slowing of AT&T’s domestic spend with towercos and the feeding frenzy they’ve prompted in Mexico< DirecTV and U-verse: different - and appealing - revenue streams

While in Brazil, many executives I met were still wondering why AT&T hadn’t invested in South American telecoms. The rumour has been going on for so long, people started to refer to it as a urban myth. Of course in the meantime, AT&T put US$67bn on the table to acquire DirecTV, a transaction which is now under review by the Federal Communications Commission (FCC). Although not technically related to telecoms, the move was just the initial step of AT&T shopping spree in the CALA region that has since been followed by acquisitions in Mexico. I am intrigued about the implications for the tower industry in both the U.S. and Latin America.

Keywords: AT&T, Verizon, Brazil, Mexico, Federal Communications Commission, United States, DirecTV, Sky Brasil, Latin America, Iusacell, Grupo Salinas, NII Holdings, Nextel, Telefonica, Movistar, América Móvil, Telcel, Editorial, MNOs, Towercos, American Tower, Acquisition, Market Overview, Investment, New Market Entrant, ARPU


By Arianna Neri, Head of Americas, TowerXchange

In the meantime, Verizon focuses on its domestic wireless business

Looking at Verizon’s growth strategy, one thing is obvious. It couldn’t be more different than AT&T’s. A few weeks ago, Verizon’s CEO Fran Shammo denied that the company is interested in América Móvil’s towers and stressed in an interview with the Wall Street Journal that there’s no plan to invest


in Mexico nor Latin America.

A few weeks ago, American Tower agreed to pay US$5.05bn to acquire rights to 11,324 telecom towers and buy an additional 165 sites from Verizon. This latest substantial tower divestiture is in line with Verizon’s strategy to focus its attention entirely on its wireless business.

Back in February 2014, Verizon paid an astounding US$130bn to acquire full control of Verizon Wireless by acquiring Vodafone’s 45% interest in the company. The transaction contributed to consolidating the company’s position in the wireless market but also to raising Verizon’s debt from US$50bn to US$113bn over a few months; hence its decision to divest its towers and other nonessential assets. However, thanks to the acquisition, Verizon Wireless reported an 8.2% growth YOY and represented 70% of the company’s overall revenue.

Is diversification the right move?

The implications for AT&T and Verizon’s strategies have to be analysed in light of the ongoing and cut-throat U.S. price war among carriers. As new subscribers are tough to find in a highly penetrated market, companies seek to attract new activations via competitive price plans, credits and special offers, all contributing to declining ARPUs and reduced margins. And although data consumption is expected to still grow exponentially, carriers won’t benefit as much due to falling data prices.

While American Tower reported 7% domestic core organic growth, compared to 13.5% internationally in their 2014 Q4 results, SBA forecast 9% domestic growth and around 13% international, one of the themes of analyst Q&A during recent webcasts and investor conferences was the slowdown in AT&T expenditure which started at the tail end of FY2014 and which is predicted to continue into FY2015. Whilst there has always been an ebb and

A comparison of AT&T revenue mix 2014 vs 2015

4Q14

4Q15e

Business

Business(wired/wireless)

Consumer

US Video & Broadband

Mobility

Consumer Mobility

Intl. Video & Mobility

Source: AT&T Investors update


flow of capital from the leading operators into their towerco partners in the US, the coincidence of AT&T’s reduced expenditure in the US and the feeding frenzy of build-to-suit activity their entry in the Mexican market has heralded is illustrative of why AMT and SBA are investing heavily in CALA.

In fact, during 2014 AT&T added 3,700 sites to its U.S. portfolio with a slowing trend towards a maximum of 2,000 sites estimated in the period 2015/2016, as recently reported by analyst firm RBC Capital Markets, LLC.

The potential of the Mexican tower market is obvious. América Móvil is being forced by the regulator to decrease its market share from 70% to 50%, while mobile penetration rate hasn’t reached 100% yet (92% as of January 2015), illustrating the country’s great growth potential.

AT&T is moving in the right direction – South of the border

Personally, I am inclined to view AT&T moves, especially the Mexican acquisitions, as highly favourable for the company for a few good reasons.

First of all, Mexico is in need of a strong alternative to Telcel, whose sheer dominance had disincentivised Telefonica Movistar from investing the vast capex required to become a strong second alternative - although in fairness, considerable coverage progress has been made recently. AT&T could bring a breath of fresh air along with its U.S. expertise, budget and strong US dollars to become

a serious competitor to Telcel and Movistar, hence pushing Movistar to further invest in the country and creating an even more compelling market for foreign investments.

In the meantime, AT&T has announced its plans to build a unified U.S.-Mexico footprint by including unlimited calls to Mexico in some of its Cricket Wireless plans. For now, the plans will prevent people travelling to Mexico from being hit by roaming charges, but commentators expect AT&T to further enhance its offering and make the Mexico-U.S. rates a huge component of its mobility plans. Effectively AT&T is soon to become the only carrier with offerings spanning North America.

Furthermore, we are all expecting América Móvil to disclose its detailed plans to reduce its market share, which apparently include the creation of a separate entity in charge of leasing up its tower portfolio. However, the company has so far relied on its dominant position to retain its customer base and only a recent law has forced operators to decrease its prices. But in a country with one of the lowest customer longevity rates in the world (Mexico is at 35% behind the UK at 32% and Brazil at 20%), a competitive and fair-priced newcomer could represent a serious threat even for Telcel.

In summary, AT&T looks to have made a smart move in diversifying by betting metaphorical ‘chips’ on both wireless and pay-TV, and on both the US and Mexico (and potentially beyond). In contrast, Verizon is ‘going all in’ on the US wireless market, and divesting towers to finance the bet


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The European tower industry is gathering momentum. With over €1.1

billion spent in tower acquisitions in the last two years and over 65,000

towers under the management of independent towercos on the continent,

plus several large scale operator-led carve-out ‘infracos’ and broadcast-

telecom infrastructure hybrids, there is a substantial amount of tower

activity taking place in the region. As MNOs come under increasing

pressure to fund LTE and fibre projects and as consolidation increases

in many markets, the scope for further transfer of passive infrastructure

assets is increasing.

TowerXchange is delighted to launch our coverage of the European

market. Over the past few months we have met with key leaders from

mobile network operators, infracos, towercos, suppliers and associations

and gathered insights which allow us to build a picture of the European

tower industry. We are proud to share our views and several interviews

with leading European experts over the next few pages.

European towers

Read our coverage of the European tower market here:38 European tower market overview

41 Europe tower news

128 UK special feature

141 Russia special feature

151 Ericsson close the gap between the managed services and towerco

business models


Regional coverage:

An introduction to theunique tower industry in EuropeSynergies between broadcast and telecom structures, a pipeline of transactions, and a need for capital to drive growth

But once you scratch the surface, there’s a depth and scale in the European market which represent solid and sustainable growth. For the purposes of our coverage of the region, TowerXchange defines Europe by landmass rather than political boundaries, incorporating Western Europe, Central and Eastern Europe, Russia, Ukraine, Turkey and (where relevant) the CIS. Across this region there are around 30 independent towercos currently active and with at least 65,000 towers under management between them. According to TowerXchange’s recent ‘Top 110 towercos’ list, European towercos and infracos make up five of the top 20 towercos in the world and a further two of the top 20 towercos hold a major stake in the European market.

History of the European tower market

As the mobile market grew in the 90s and early 2000s, the majority of European countries were quick to adopt new technologies. Operators competed on network coverage and quality, and towers were built rapidly and often in close proximity to each other. As in the U.S., there was also plenty of existing infrastructure which could be employed including broadcast towers, utility structures and fixed line infrastructure. From this use of infrastructure evolved a different breed of towerco whose foundations lie as much in existing assets in the space, as in acquisition or build to suit.

Investment and appetite in the European tower market

While the European tower market won’t necessarily

Read this article to learn:< The investment landscape and appetite for growth in the European independent tower market< How Europe’s history and broadcast infrastructure influences the market< The scale and depth of current infrastructure sharing initiatives< A who’s who of European towercos< Assets transferred to date, deal values and key players

When we mooted the idea of covering the European market at the TowerXchange Meetup in Johannesburg last year, we were met with some sceptical looks. For many of the execs who have worked in the African market over the last five years, Europe is a far cry from the tower business as they know it. Disparate markets, a strong MNO attachment to the network as a competitive advantage, slow growth compared to the boom in Africa or Asia and a lack of obvious precedent for towerco activity make Europe seem a million miles from the meteoric rise of the towerco in emerging markets.

Keywords: Editorial, Russia & CIS, Europe, France, United Kingdom, Italy, Spain, Sweden, Scandinavia, Germany, The Netherlands, Ireland, Portugal, Poland, Emitel, TDF, Arqiva, American Tower, KPN, Abertis, Wireless Infrastructure Group, Shere Group, Arcus, Alinda, Macquarie, Brookfield, MBNL, Cornerstone, Providence Equity Partners, Deal Structure, Acquisition, Market Overview, Valuation, Investment, 4G, LTE, EBITDA, Valuation, Transfer Assets, Tenancy Ratios, Co-locations, Infrastructure Sharing, Active Infrasharing, Regulation, Procurement, Rooftop, IBS, DAS, Small Cells, Decommissioning, Infrastructure Funds


By Frances Rose, Head of Europe, TowerXchange

offer the kind of EBITDA multiples you might see in emerging market tower markets, there is certainly an appetite for investment in infrastructure.

Institutional and infrastructure funds have invested heavily in European infrastructure over the last decade and they have an increasing appetite for the long term, steady cash flows towers represent, and can outbid the private equity firms who often want to buy cheaper and target faster growth. However as with most infrastructure in Europe, there’s a shortage of assets and a lot of capital looking for strong investments. Circumstances are ripe for further growth in the European tower industry.

TowerXchange was told that on average buyers will pay 12x EBITDA in Europe for a tower portfolio, although Abertis’ estimated 16x multiple for the Wind Towers in Q1 2015 has shaken a conservative industry and will no doubt influence


pricing in future. The disparity between operators’ expectations and towercos’ valuations in Europe has slowed the pace of European tower transactions for over ten years. As far back as 2003 Crown Castle’s entry into the European market was curtailed after they found themselves unable to agree valuations for European tower portfolios, and over the last decade the divestment of several more tower portfolios including Orange’s towers in Spain and Bite Group in Latvia have been postponed due to a failure to reach agreements on pricing.

However the appetite for investment in the market is at an unprecedented level and as more deals are closed valuations will be easier to reach, the gap between U.S. and European valuations will begin to

close and TowerXchange believes we will see a deal pipeline beginning to fill up.

With funds such as Arcus and Alinda investing in several towercos across the continent, Macquarie and Brookfield active in the sector, and funds such as Providence Equity Partners, who have significant tower assets in Africa, teaming up with local partners to bid for European tower portfolios, the liquidity in the market promises a busy future for the European tower market.

Broadcast towers and the telecoms industry

The European and U.S. markets are differentiated from emerging markets by the volume of existing

“ “There’s a shortage of assets and a lot of capital looking for strong investments. Circumstances are ripe for further growth in the European tower industry

Figure 1: Estimated tower numbers across Europe (macro structures only)


UK53,000

Italy40,000

Russia37,000

Germany21,000

Denmark5,000


infrastructure which predates mobile phone usage. Broadcast infrastructure in particular, often originally owned by the state or state-supported entities, lends itself well to additional use for communications and has created towercos which are strong market leaders in their own countries, but with limited interest in an international portfolio. Among others Arqiva (UK), TDF (France and Germany), EI Towers (Italy) and Emitel (Poland) all offer both broadcast and communications infrastructure. Abertis has used a strong background in broadcast to create a more entrepreneurial towerco with international ambitions.

Broadcast towers lend themselves well to communications as they are generally in excess of 100m high (often as much as 300m), well positioned for maximum coverage, and strong enough to support a large number of tenants. Towercos with both a broadcast and communications infrastructure can not only benefit from employing existing infrastructure but also from economies of scale when dealing with suppliers across both portfolios of tenants. Synergies between the two types of tenant also means they can more quickly achieve the scale needed to support skilled teams in house for technical work or project management.

Joint ventures, carve outs and network sharing

The fact that Europe lacks the volume of high profile tower deals experienced in other markets often masks the fact that Europe is actually ahead of much of the world in terms of infrastructure sharing. From sharing agreements to joint ventures and carved

out infracos, there are very few markets in Europe where some kind of infrastructure sharing isn’t taking place.

Most notable among these are MBNL and CTIL in the UK. MBNL, a business spun out of T-Mobile and Three almost ten years ago (now incorporating T-Mobile’s merger with Orange to form EE), is a RAN sharing organisation which goes much deeper than any other partnership of its kind, seeing itself as a partner and service supplier to two shareholders. CTIL, although more of a simple passive infrastructure sharing organisation, represents the remaining UK operators, O2 and Vodafone, meaning that in the UK market there are barely any remaining operator-captive towers.

Further network sharing ventures include

T-Mobile and O2 in the Czech Republic, Bougyes Telecom and SFR in France and various JVs in Sweden (Net4Mobility, SUNAB and 3GiS), where infrastructure sharing is mandated by the state.

Capacity, infill and heterogeneous networks

In a market where LTE roll out is well underway and the European Commission estimates 5G will not begin to roll out until 2020, network growth in the next years will centre around urban infill capacity and indoor solutions. As it becomes increasingly clear that heterogeneous networks will be needed to provide depth and flexibility of capacity, European towercos are seeking growth through the provision of DAS, metro cell and small cell networks to cities, local government and venues, as well as supplementing the macro network.

“ “There are several towercos in the market who are likely to have the appetite for a large scale acquisition, and could be the catalysts for an acceleration in the European transfer of assets to independent towercos

The European towerco landscape

There is no one model for independent towercos in Europe. Both publicly listed and private equity-backed organisations are thriving and the continent boasts a strong ‘middle market’ as well as top 20 global companies.

The market is dominated somewhat by the broadcast/communication tower hybrids mentioned above. Arqiva (with 10,550 telecom towers in the UK) and TDF (with around 11,000 towers available to the telecoms industry in France) lead two of the biggest towercos in Europe by some margin. In Germany the biggest towerco is Deutsche Funkturm, which offers over 24,500 structures, of which 8,500 are macro towers. Deutsche Funkturm is a subsidiary of Deutsche Telekom, and it is believed was intended to be spun out for a trade sale when it was created


in 2002, although 13 years later it remains under Deutsche Telekom’s control. These organisations, while market leaders, have not demonstrated any ambition for significant expansion through acquisition in Europe.

There are also a good number of middle market towercos such as Wireless Infrastructure Group (UK), FTP (France) and Towercom (Ireland) who may not have the capital to bid for a large tower portfolio but continue to grow through smaller scale acquisitions and build to suit.

There are however several towercos in the market who are likely to have the appetite for a large scale acquisition, and could be the catalysts for an acceleration in the European transfer of assets to independent towercos. The Spanish company Abertis, fresh from their most recent acquisition of

Wind’s Towers in Italy, are about to complete an IPO in order to raise the capital they need for further expansion. If recent rumours are to be believed, they are also keen to acquire Telecom Italia’s 11,000 assets in Italy before they undertake an IPO, giving them a strong market position in southern Europe.

Further East, Global Tower, spun out of Turkcell, which owns more than 20,000 structures in Turkey, and a total of almost 8,000 macro towers across Turkey and the Ukraine, could have an appetite for international expansion into Europe or Asia.Staying in the East, Russian Towers, although currently geographically specific, boasts some impressive investors and could be in a position to raise the capital needed to acquire a significant tower portfolio in Russia when the opportunity arises. They would likely encounter competition from ESN Group should a substantial sale and

Figure 2: European tower deals since 2008

Year

2012

2012

2012

2010

2008

2014

2012

2015

2015

2012

Country Towerco Operator #Towers Deal value Cost per towerDeal terms

France

Germany

Netherlands

Netherlands

Netherlands

Spain

Spain

Italy

Italy

Netherlands

FTP

American Tower

Protelindo

Open Tower Company

Open Tower Company

Abertis

Abertis

Abertis

Abertis

Shere Group

Bougyes Telecom

KPN

KPN

KPN

KPN

Telefonica/Yoigo

Telefonica

TowerCo

Wind

KPN

€185 million €100,400

€393 million €193,500

€75 million €287,000

Unavailable NA

Unavailable NA

2166

2031

261

500

101

€385 million €90,000

€45 million €90,000

4277

500

€94.6 million €309,000 per site

€693 million €104,400

€115 million €250,000

212 (plus 94 points in tunnels)

7377

460

SLB with 15% equity

SLB

SLB

SLB

SLB

SLB

SLB

Trade sale

SLB with 10% equity

SLB



leaseback come to market in Russia.

Two large international towercos, Protelindo and American Tower, also manage assets in Europe (Netherlands and Germany respectively) and could be well placed for further investment in the region should the opportunity arise.

The Americans are coming

With reliable grid access, a wealthy market and strong growth potential, there is also no reason why an attractive European portfolio would not raise the interest of another large international player, indeed, Crown Castle have been active in Europe in the past (before selling their UK assets to Arqiva) and US investors such as KKR have been linked to European deals in the past. Recent interest including Brookfield’s recent acquisition of the entrepreneurial Wireless Infrastructure Group and American Tower’s bid for the Wind portfolio indicate that the European market holds plenty of interest for the big US players, who certainly have the expertise in developed markets to offer a compelling story to European operators. As expectations close in terms of valuation, we may see a new dynamic in the European market, although as Abertis’ outbidding of American Tower for the Wind portfolio demonstrates, there is enough expertise and capital in Europe to challenge the established players.

Tower transaction pipeline in Europe

Looking back as far as 2008, there have been at least

ten tower deals of scale in the European market. It’s clear at a glance that Abertis have been the most acquisitive towerco in the market, spending almost €1.2 billion on towers in Southern Europe since 2012. Although KPN have conducted the most tower transactions, Wind, a subsidiary of Russian firm Vimpelcom, has divested the greatest number of towers in a deal which may well inform their strategy with other tower portfolios.

With most of these deals taking place in the last three years, there is momentum building in the tower industry and it seems unlikely Abertis will be able to continue their charge across Europe unchallenged. There are several factors which may well increase the appeal of tower divestments; firstly the simple momentum driven by more and larger deals with higher values already taking place, which will bring more capital to the market and which will close the gaps in value expectation between operators and towercos. Secondly the drive for

fibre and LTE+ roll outs, plus substantial debt from a recent wave of M&A activity across Europe, will force operators to lighten their balance sheets and reduce capital expenditure where possible. Finally, there may well be increased regulatory pressure on operators to share towers – as MNOs consolidate the need to dispose of spectrum means MVNOs may well enter the market and passive infrastructure will be opened up more effectively in the hands of independent owners.

What does the future hold for European towers?

With more deals rumoured in Southern Europe over 2015 and the potential for significant market consolidation in many Western European countries, there is plenty of opportunity for entrepreneurial towercos to find ways to grow the tower market in Europe. TowerXchange expects to see an increasing number of large scale deals happening over 2015 and 2016 and at least two large towercos expanding their reach across borders on the continent

“ “As MNOs consolidate the need to dispose of spectrum means MVNOs may well enter the market and passive infrastructure will be opened up more effectively in the hands of independent owners

I’m delighted to be personally leading TowerXchange’s research into the European tower market, with a view to launching the first TowerXchange Meetup Europe, provisionally in London in Q1 2016. If you have a view on the European tower market, would like to be interviewed in the TowerXchange Journal or would like to participate in the TowerXchange Meetup Europe, please contact me at: [email protected].

Special feature:

In a market dominated by MNO-owned infracos, three

towercos have still managed to carve out their own successful

niche in the UK tower market. As further consolidation

is announced in the market, existing infrastructure

requirements will change and MNO ventures will come under

review. There is also considerable scope for entrepreneurial

towercos in the UK to grow through capacity solutions such as

DAS and small cell networks.

TowerXchange is proud to have been offered insights from

all three of the UK’s independent towercos, as well as leading

investors and MNO-led infracos. We are delighted to share

with you interviews with the UK’s top two towercos and

leading tower and site builder, revealing their thoughts on the

market and plans for the future.

The unique structure of the UK telecom and broadcast tower market

Don’t miss:129 Interview with Nicolas Ott, MD Telecoms, Arqiva

134 Interview with Scott Coates, CEO, Wireless

Infrastructure Group

137 Interview with Richard Smith, MD, Alifabs and VP,

CommScope


Accreditation: Phil Jones / Shutterstock.com

View from the top: the UK’sbiggest towerco on rural coverage and capacity solutionsArqiva illustrates the synergies between broadcast and telecom towers, and highlights value added services

TowerXchange: Please share Arqiva’s background. How was the company formed? Nicolas Ott, MD Telecoms, Arqiva: Arqiva is a private company owned by pension and infrastructure funds. We have a long history in the UK starting at the beginning of the 20th century as Arqiva’s roots go back to the ITA (Independent Television Authority) in the 1950s. It’s been going through a long journey in TV infrastructure whilst developing the mobile tower business step by step. The ITA was renamed a number of times and as NTL Broadcast was bought by a Macquarie-led consortium in 2005 and renamed Arqiva. In 2007 Arqiva acquired National Grid Wireless, which was owned by Crown Castle until 2004, and which included within that business the former BBC terrestrial broadcast assets. In the UK Arqiva does all the TV broadcasting (which is a regulated activity) and it was Arqiva who made the digital switchover two years ago, we also do most of the radio broadcasting in the UK and buy wholesale satellite capacity and resell as a service to TV channels all over the world for Turner, Al Jazeera and many big TV groups. We also have recently formed a strong machine-to-machine division. We won the smart meter tender issued by the UK government, from Manchester to North of Scotland, making us defacto one of the biggest players in the UK. We have also invested in other technologies, for example we have exclusive rights of the SIGFOX technology in the UK for the first nationwide Internet of Things network.

Read this article to learn:< How one of Europe’s oldest towercos has diversified to remain competitive in the current market

< How broadcast infrastructure can be employed for telecoms coverage and capacity

< How potential consolidation in the market will affect MNOs’ appetite for further independent

tower access

< How Arqiva is making capacity solutions work for MNOs and landlords in the UK

With over 60 years’ history in broadcast infrastructure, Arqiva is one of a uniquely European breed of towerco which has grown up from a solid history in television broadcasting and now owns a large chunk of both broadcast and telecommunications infrastructure in their home countries. Nicolas Ott, MD of Telecoms at Arqiva, spoke to TowerXchange to explain why he thinks the broadcast/telco infrastructure synergy works so well in Europe, how capacity solutions will be the next big area for growth, and how he sees the UK tower market developing.

Keywords: Interview, Towercos, Europe, Arqiva, United Kingdom, England, Scotland, Wales, Northern Ireland, O&M, Construction, Market Overview, Investment, 4G, EBITDA, Valuation, Tenancy Ratios, Co-locations, Infrastructure Sharing, QoS, Build-to-Suit, On-Grid, Procurement, Skilled Workforces, Rooftop, DAS, Small Cells, Decommissioning, Infrastructure Funds


Nicolas Ott, MD Telecoms, Arqiva

In terms of telecom infrastructure we own roughly 25% market share in UK macro tower sites. We service all of the four MNOs and have around 8,600 active towers for these mobile operators. Our tenancy ratio is around 2.5 MNOs per tower on average. Our total portfolio consists of over 16,500 towers but they’re not all active either because the specific locations do not currently form part of wireless operators’ network rollout plans, are in rural locations where there is no current demand or in some cases are sites which are complex and expensive to deploy (such as electricity pylons). Either way we are the largest independent wireless infrastructure provider in the UK. We have around 2,200 employees across the whole business and most are in the UK – we do have a handful of staff in the Republic of Ireland, France, USA and Asia but primarily we are a UK company. TowerXchange: Would you describe Arqiva as a towerco, an infraco or something different - we’re trying to understand the language the industry uses in Europe. Nicolas Ott, MD Telecoms, Arqiva: We’re a communications infrastructure and media services company, operating at the heart of the broadcast, satellite and mobile communications markets in the UK. If you want a comparison we’re similar to TDF in France or Abertis Telecoms/Cellnex in Spain or other broadcast infrastructure providers across Europe. The African model doesn’t look like Europe


and the US is different again so comparisons are hard. We offer infrastructure (mobile, broadcast and satellite) and we also package up services to broadcasters and MNOs. In order to do this we need to co-ordinate who does what, so we end up doing the end to end service as a natural part of what we do. TowerXchange: We encounter a lot more hybrid broadcast and telecom towercos in Europe than elsewhere, and we’re trying to understand why. To what extent do the telecom and broadcast tower businesses complement one another - are a lot of resources and capabilities shared across the business units, or are they really quite distinct operations? Does the relative maturity of European mobile network infrastructure make telecom towers a more typical infrastructure investment and thus more natural complement to broadcast towers than telecom towers in higher growth, higher risk markets?

“ “We service all of the four MNOs and have around 8,600 active towers for these mobile operators. Our tenancy ratio is around 2.5 MNOs per tower on average. Our total portfolio consists of over 16,500 towers

Nicolas Ott, MD Telecoms, Arqiva: It’s a very simple, three layer answer: infrastructure, sourcing and skills. Infrastructure; if you look at a broadcast tower it’s always a relevant structure for MNOs. If you look at our tower at Crystal Palace it does the TV broadcasting for most of London, it would be a lost opportunity not to use it for telecoms as well. These broadcast towers are so big and strong, adding a few antennas for MNOs is easy. The majority of our broadcast towers have antennae for MNOs as well and they’re liked by our MNO clients as they are high up and stable. There’s no need to duplicate assets and investment with these towers. In terms of sourcing, for both telcos and TV we outsource a lot to third party suppliers for maintenance and other ‘easy’ work, although we do keep the sophisticated stuff in house. We use the same suppliers for all parts of the business, so

when we issue a tender we can propose a bigger scope, which means the bidder can offer us a more competitive price and service. The same applies for electricity as we buy electricity on our sites for both our MNO and broadcast customers, and by combining we get a better service and price, so our customers all benefit. There are very demanding service level agreements (SLAs) in terms of maintenance and, because sites are everywhere across the country, putting a bigger tender makes it easier to find a supplier capable of delivering the right SLA at the right price all over the country. When it comes to skills, we keep the most value-add functions in house. When someone wants to put an antenna on a mast you need to do fairly technical drawings, we do a lot of that in house as we have to be sure it’s done well. Also in terms of the 4G rollout right now we have about 6,000 requests for 4G upgrades, so you need huge project management capabilities to manage that. Also for TV we’re working on the next digital upgrades so we can

create a much more efficient project management office by combining everyone together. And last, in terms of shared service desks, it becomes possible to provide a better service for our customers. There are some really interesting synergies in all of these three areas. TowerXchange: How has Arqiva’s telecoms tower mix developed?

Nicolas Ott, MD Telecoms, Arqiva: The ITA had been renamed a number of times and was known as NTL Broadcast when it was bought by a Macquarie-led consortium in 2005 and then renamed Arqiva. Between 2005 and 2007 we acquired various satellite assets, and in 2007 we acquired National Grid Wireless, which included the BBC’s terrestrial broadcast assets. Both NTL Broadcast and Crown Castle/National Grid Wireless had developed their own telecoms mast portfolios, before both were merged into Arqiva.

After the merger, Arqiva continued with a number

of smaller acquisitions, including Spectrum Interactive, the WiFi business, in 2012 and we continued to develop the telecoms mast portfolio, including outsourcing from mobile operators, to around the 8,600 active macro sites we have today. Of these, less than 1,000 are broadcast sites, a mix of former ITA/NTL Broadcast and BBC/National Grid Wireless masts. In total we have wireless infrastructure rights on around 16,500 marketable sites - by ‘marketable’ we mean that a site is capable of accommodating the equipment of at least one new wireless operator, but as I mentioned not all of these are attractive to use for mobile operators due to their often remote locations, but nevertheless would be available any time to deploy MNO or other wireless operator equipment on.

TowerXchange: Given unique position of the UK market with both MBNL and CTIL providing infrastructure sharing (and more) across all the operators, how does that affect Arqiva’s role as a towerco and what your tenants require from you? Nicolas Ott, MD Telecoms, Arqiva: For us it’s pretty straightforward. If you take the long term view, in 10 years’ time, especially in rural areas, there’s no valid reason why MNOs would keep duplicated towers.

When MNOs launched, the big USP was to construct towers faster than your competitors and market your network as a competitive advantage. Now when there’s a big spectrum auction in Europe it comes with high coverage obligations. For the MNOs


“ “

For the MNOs coverage in rural areas won’t provide marketing differentiation any more. So at a time when profitability in the UK is challenging, they’ll have to move step by step to a shared tower infrastructure

coverage in rural areas won’t provide marketing differentiation any more. So at a time when MNO profitability in the UK is challenging, they’ll have to move step by step to a shared tower infrastructure. So we provide towers to all of them. MBNL and CTIL are our top two customers. We see it as Arqiva’s’ responsibility to find solutions for MBNL and CTIL to have the capacity to consolidate their network in the most efficient way. If you take the long-term view once they complete their 4G roll out, BT will buy EE and Hutch might buy O2, so if you look to 2020 and beyond, they’ll need to consolidate where they have sites. Most sites in the UK are still owned by the MNOs themselves; you’ll often see two masts very close together as they are owned by CTIL and MBNL. Fundamentally we will find elegant solutions to help them to reduce these towers. The UK government launched the Mobile Infrastructure Programme (MIP) which constructs brand new sites in remote areas where all four MNOs are installed. So MIP is a model of what the UK will be in five years’ time. It’s not just specific to the UK, though, every European country is in a similar situation. TowerXchange: What are you doing in response to your clients’ long term needs?Nicolas Ott, MD Telecoms, Arqiva: It’s publicly available information that we have long-term contracts with MBNL and CTIL. We have the right clauses in place so the ball is in their court and for them to decide what and how they want to build.


You also have to consider what their priorities are – 4G rollout is high on their agenda. We meet with them daily, I meet their CTOs every month. The day they want to put it on the agenda it will happen as it is provided for in our contracts with them which are designed to allow for future technology upgrades and growth. TowerXchange: Where is the growth coming from in UK communications infrastructure today? For example, what’s the balance of existing and new business between macro towers and infill sites - small cells, metro cells, Wi-Fi and DAS? Nicolas Ott, MD Telecoms, Arqiva: This is one of the most interesting things happening in this industry at the moment. There are two main areas for growth; the first is coverage in rural areas, the

second is by far the biggest growth area and that’s capacity solutions. In terms of rural coverage there is still growth; the UK government is investing in new masts in this area, some MNOs want to densify coverage in rural areas and the 4G rollout is a lot of work. There’s good growth there but it’s not game changing. The challenges around capacity solutions, however, are very exciting. Think about London; we’re often struggling to have a decent call in congested places or indoors and the data speed isn’t always what we want. We offer a portfolio of capacity solutions to MNOs, cities and big real estate owners. It might be a rooftop, a city cell network, a distributed antenna system in a shopping mall, outdoor small cells on street infrastructure, indoor small cells or Wi-Fi. We offer everyone that portfolio of solutions, work out

“ “The challenges around capacity solutions is one of the most interesting things happening in this industry at the moment

what problems they want to solve where and then pick the best mix to address the issue. For example we now provide all the Wi-Fi at Heathrow. They weren’t happy with the Wi-Fi they had and wanted to provide high quality connectivity so we provide that for them. MNOs don’t always have the right indoor coverage so Arqiva can do this as an agnostic host for all four mobile operators – we did this at Canary Wharf with an indoor and outdoor distributed antenna systems. For a landlord it’s easier as they only have one company to deal with, one set of wires going in and one company coming out to do maintenance. For the MNO it’s a better price and their service is provided by a company for whom this is a core competency. We’ve been tendering for street infrastructure in several London boroughs and we’ve won almost all of them, plus contracts in Manchester. We also work in partnership with Virgin Media Business who won assets across Birmingham, Leeds and Bradford and the London Borough of Hackney, so we are the number one player in the UK to provide the best managed service for small cells to UK operators via our combined, wireless, fixed, deployment and operational expertise. We’re in the trial phase with MNOs but it’s very promising. The roll out of small cells in Japan is hundreds of thousands, so the UK is a bit behind but we will catch up. We believe it will generate significant growth. TowerXchange: As a growing area there doesn’t seem to be a clear precedent for who pays for a lot of this additional network capacity. How does it work for your clients?

Nicolas Ott, MD Telecoms, Arqiva: It’s an endless debate in the industry. You have to differentiate – outdoor small cells are always paid for by the MNO, it’s part of their coverage solution, it’s just a micro site and there’s no difference to any other site. The big debate is about the indoor solutions. In five years from now if you enter a shopping mall or an airport you won’t go back if you don’t have phone or WiFi coverage. In fact, either you won’t go back at all, or if you go into a coffee shop with a friend who’s with another operator but your friend has coverage, and you won’t be happy with your operator so you’re more inclined to switch to the other operator with coverage. So the long term view is that from a customer point of view the landlord has an obligation to provide coverage but the MNOs also have an obligation to provide coverage. So everyone is in the same boat! We have agreed with MNOs that if they don’t have coverage we go to see the landlord and we agree with them that everyone is contributing. It has to be a win-win; the time when the one said the other should pay everything is over. One of the biggest London flagship department stores came to us saying their coverage wasn’t good so we went to the MNOs and three of the four agreed to contribute to the financing of the solution along with the landlord and Arqiva to implement the right solution, resulting in a good solution for everyone and satisfied customers. TowerXchange: Does Arqiva have any ambition


for expansion in mainland Europe over the next few years? Nicolas Ott, MD Telecoms, Arqiva: No. We don’t believe there are synergies in operating on a multi-country basis. Every EU country has its own equivalent of Arqiva, and a new entrant is destined to fail. And the multiples we see in tower acquisition of 12x to 16x EBITDA don’t make sense to us. TowerXchange: Apart from the UK, we’ve seen relatively few substantial communications infrastructure transactions and joint ventures in recent years, the recent acquisition of Wind’s towers by Abertis notwithstanding. What are the most common drivers for the transfer of assets from MNOs and broadcasters to independent towercos and infracos in Europe, and should we expect more transactions in future? Nicolas Ott, MD Telecoms, Arqiva: MNOs will outsource more towers to towercos and the main driver is to generate savings. So right now they carry all the costs and capex, but when it’s outsourced they create savings. I think that outsourcing or selling towers is a complex exercise, so you have to be sure it’s worth all the work and pain to do it, which means it has to be done on a big scale. If you want savings to be material enough to have a big benefit you’ll do it in a big chunk, not in small pieces, to make it worthwhile. So I think we will see some big divestments in future

Fostering the growth of the independent tower industry in EuropeHow Europe’s towercos are finding a voice as their sector builds momentum

TowerXchange: Tell us about Wireless Infrastructure Group (WIG) - how was the company formed? How have you grown?

Scott Coates, CEO, Wireless Infrastructure Group: We have existed in the UK market for over 15 years, however in 2007 the business launched itself as a towerco and that’s when WIG proper was born. At that time we were very small, we’ve built the business up through organic growth and M&A.You get a lot of towercos built by large sale and leaseback deals but WIG has done a series of small and mid-sized deals. We’ve bought from many different sources including small towercos, MNOs, cable companies, utilities and real estate companies – we’ve been very entrepreneurial. Through this period we’ve also been organically developing the business meaning in total we’ve grown the footprint of the business tenfold in the last eight years to 2,000 active sites. TowerXchange: Where do WIG’s ambitions lie for the future?

Scott Coates, CEO, Wireless Infrastructure Group: We want to be the leading mid-market towerco in Western Europe. Mid-market to us excludes the €500m+ deals in new markets but everything else is in-scope including larger deals in the markets we already operate in. As part of our European strategy we’ve developed a footing in the Dutch and Irish markets. We’d like to do more in both these markets, but we’re open to acquisitions in any markets in Western Europe. We’d look at either a mid-market towerco, a sale and leaseback deal from

Read this article to learn:< The geographical and market areas which WIG has identified for growth

< From whom European towercos should be seeking funding

< The current drivers for growth in the European tower market

< Who has joined the European Wireless Infrastructure Association

< What the EWIA aims to achieve in the region

TowerXchange met Scott Coates, CEO one of Europe’s most entrepreneurial middle-market towercos and the driving force between the newly-formed European Wireless Industry Association, prior to his participation in the TowerXchange CXO dinner at the Mobile World Congress in Barcelona. Scott shared with us his vision for WIG’s growth in the UK and Europe and explained how the European tower industry is ripe for a coordinated organisation to help accelerate its growth.

Keywords: Interview, Towercos, Europe, United Kingdom, The Netherlands, Ireland, Wireless Infrastructure Group, European Wireless Industry Association, Acquisition, Market Overview, Valuation, Investment, Transfer Assets, Co-locations, Infrastructure Sharing, Build-to-Suit, Business Model, Regulation, On-Grid, Rooftop, IBS, DAS, Small Cells, Single RAN, Private Equity


Scott Coates, CEO,Wireless Infrastructure Group

an MNO or maybe by buying a smaller asset and developing from there.

TowerXchange: Tell us about your shareholders and how they support your goals?

Scott Coates, CEO, Wireless Infrastructure Group: The right kind of capital to invest in these kind of assets is infrastructure capital, but the challenge is to make sure the capital can be deployed in an entrepreneurial way. It can be a challenge for some infrastructure funds to operate with the flexibility we’re looking for. Our investors, Wood Creek Capital Management, have infrastructure capital to deploy but are also willing to be more entrepreneurial. We see ourselves as an entrepreneurial infrastructure business. We need our capital to be competitive but also flexible to support the business for deals which don’t always meet the conventional infrastructure investment thesis from the outset.

TowerXchange: Abertis have said they looked at how American Tower built and financed their business for inspiration, if the European independent towerco market wants to become more entrepreneurial, how and where should they be looking for capital?

Scott Coates, CEO, Wireless Infrastructure Group: American Tower is an industry leader, and is an incredible business. They’re one of our partners in the European Wireless Infrastructure Association (EWIA) and it’s great to have them in the European market.


For certain very large deals it’s hard to compete with any of the big US towercos if they wanted to take a run at a given opportunity. However, they’re such large enterprises that deals need to be of a substantial scale to be of significance to them. That’s one reason why we’re focussed on the mid-market.In terms of finance, the industry in Europe has evolved in the last eight years. There weren’t really any independent towercos eight years ago. You had two or three towercos operating broadcast based assets (including Arqiva and TDF) but you didn’t have independent towercos. Today you now have public companies like Abertis, American Tower and EI towers as well as a handful of independent mid-market towercos like ourselves. As a result we now have a much broader base of private and public capital funding the sector here.

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“For certain very large deals it’s hard to compete with any of the big US towercos if they wanted to take a run at a given opportunity

TowerXchange: How do you see the European market developing in general? What do you feel are the main drivers for this?

Scott Coates, CEO, Wireless Infrastructure Group: You’ve got a lot more liquidity in the market now. EWIA has ten members and almost all of them are in expansion mode. You have the equity and debt sources looking for deals, both private and public, resulting in a much broader financing community. You also have growing appetite from MNOs to do deals that didn’t exist previously because there was too steep a discount between what US and EU towers were selling for. The more appetite there is to invest the more liquidity there is, the more the discount versus the US will close, which will in turn encourage more transactions. We’re definitely on that upcycle now and I expect to see a lot more deals in the next four to five years.

MNO consolidation could also create some interesting opportunities – tower divestments could be a sensible remedy for regulators to have in their toolkit when they look at mergers. Historically there’s been a need for merging MNOs to dispose of spectrum and accommodate MVNOs but tower divestments should also be considered - in the hands of independent ownership towers are opened up and shared more effectively.

TowerXchange: Will European towercos follow the US model and simply provide real estate and infrastructure or will they lean more towards emerging market models and include services such as supplying power?

Scott Coates, CEO, Wireless Infrastructure Group: The European market will be more based on the US model given we have a reliable and complete power grid. The asset is the same, wireless infrastructure, European towercos will also look to provide more network services like installation services and backup power. If we look beyond ten years, we may see more parts of the mobile network value chain being outsourced to infrastructure companies, potentially towercos could see an advantage to put more wholesale assets onto their balance sheet. This is one area where the European market may see opportunity before the US market.

TowerXchange: You have recently been involved with other towercos in setting up the European Wireless Infrastructure Association (EWIA), who are the members of EWIA so far?

Scott Coates, CEO, Wireless Infrastructure Group: Wireless Infrastructure Group, Abertis, Axion, EI Towers, FPS Towers, Open Tower Company, TowerCom, American Tower Germany, Protelindo and the PCIA. We have another large tower company in the process of joining. You can find more information on our members at our website www.ewia.org.

We believe the formation of the association is a very important moment for the European tower industry, we’ve seen in the US that part of building momentum is starting to operate like an industry and the European market is ready for this now. EWIA represents over 90% of independently owned towers in Europe. On average 20% of

towers in the seven markets in which our members operate are owned by independent towercos. We estimate that across the whole of Europe between 10-20% of towers are outsourced so there is a huge potential. On the surface, European tower networks are well developed relative to some of the emerging markets that towercos are investing in, but in Europe most markets are experiencing very high increases in capacity needs which will drive the need for more utilisation on existing towers as well as a need for more towers. TowerXchange: Does the EWIA have a mission statement or agenda in terms of what you aim to deliver?

Scott Coates, CEO, Wireless Infrastructure Group: There is an active telecoms agenda in Europe, including the EU’s 2020 digital agenda, and political will to increase the penetration of wireline and wireless broadband. Our industry has a fantastic

story to be told in terms of investment, higher utilisation of infrastructure, and promotion of competition in the market. We created the association to tell that story and have a voice in public policy. TowerXchange: What size could the European market be in five years time?

Scott Coates, CEO, Wireless Infrastructure Group: The interesting thing about the European market is the scale – there are around 300,000 towers in the EU. If we get to half the level of outsourcing as the US market there would be an additional 100,000 towers owned by towercos. The opportunity also extends beyond towers – WIG for example has an active DAS business and we are looking at outdoor small cell networks for cities in the UK. Whether it’s towers or small cells, the wholesale sector has a major role to play in the next chapter of European wireless networks


“ “Our industry has a fantastic story to be told in terms of investment, higher utilisation of infrastructure, and promotion of competition in the market. We created the association to tell that story and have a voice in public policy

CommScope takes British tower builder Alifabs internationalLeading UK tower and cabinet manufacturer and installer maximises ‘deployability’

TowerXchange: Please introduce Alifabs - where do you fit in the telecoms infrastructure ecosystem? How did you get started in this business?

Richard Smith, Managing Director, Alifabs and VP, CommScope: Alifabs designs, manufactures and installs telecom towers and cabinets, offering an end to end service from building the base to testing and rigging the tower, all the way to the site being ready to ready integrate into the network.

Alifabs’ first foray into telecoms came after being approached by BT to design a 15m, fully transportable, rapid deployment microwave mast. This led to us making hundreds of microwave towers for 30Ghz transmission. Building microwave links for BT led to contracts to manufacture and install macro towers for BT Cellnet, and to our participation in the PSRCP (Public Safety Radio Communications Project) rollout for Airwave. After three years of the rollout, Airwave re-tendered everything except the towers because of the performance they got from Alifabs.

From the outset, Alifabs has offered superior price and performance; we’ve made it commercially easy to come to us.

Our turnover grew very quickly, and over the last ten years, Alifabs has become the default one stop shop for tower manufacture and installation in the UK market. Our customers value us for the advice, concealment, temporary towers, permanent macro towers and street work solutions we offer. For

Read this article to learn:< Alifabs capabilities from tower and cabinet design, manufacture, rigging and installation to temporary structures and street work< Leveraging CommScope’s PartnerPro network to bring Alifabs’ high quality products and services to international markets< Example project: the 14 temporary sites built for the London Olympics, including the ‘Supercell’< UK: tower count, the impact of MBNL and CTIL, new builds, decommissioning and site upgrades< Designing structures urban planning officials are willing to permit deploying into the streetscape – the metro cell in EMEA

Richard Smith is infamous for his ability to identify the manufacturer and model of a tower or cabinet within seconds just by looking at a photo! With a degree in engineering and psychology (necessary to manage his team of “dysfunctional geniuses”) Richard joined Alifabs 20 years ago, starting on the telecom side of the business, ending up as Managing Director. Alifabs has manufactured and installed more UK towers than any other company and, having been acquired by CommScope, they are now leveraging the company’s international relationships to seek opportunities overseas.

Keywords: Who’s Who, Steelwork, Passive Equipment, Construction, Installation, LTE, Capacity Enhancements, Network Rollout, Densification, Leasing & Permitting, Tax, Skilled Workforces, Multi-Country Partner, Rooftop, DAS, Small Cells, Decommissioning, Operator-Led JV, Masts & Towers, Shelters, Infrastructure Sharing, UK, MBNL, CTIL, Cornerstone, Net4Mobility, CommScope, Alifabs


Richard Smith and Colin Bryce

example, we’re doing a lot of street works for a UK network operator.

We’d build a brownfield or greenfield site, only to return six months later to find that the site was still not on air because they couldn’t get the equipment shelters they needed, so we started building cabinets too, which complements our tower business.

TowerXchange: How does Alifabs’ recent acquisition by CommScope enhance your business?

Richard Smith, Managing Director, Alifabs and VP, CommScope: Alifabs is well-positioned with long-standing, deep relationships with all of the UK wireless operators. We will be leveraging CommScope’s PartnerPro network of local partners to bring Alifabs’ training, processes and capabilities to provide the same high quality of service internationally as we have in our domestic market. Since CommScope’s acquisition of Alifabs in July 2014, many of those local partners come to us interested in what we can do for them. A global agency network is just what we need: we typically find that if we can get one of Alifabs’ products into play in a new market or with a new customer, then they discover the Alifabs performance difference, and the relationship snowballs to include our other products – all we need is a chance to prove what we can do and how we do it.

Colin Bryce, Director of Technical Sales, CommScope: CommScope is focused on the RF path plus


microwave antenna products. We manufacture a lot of the equipment on a telecom structure from feeder cables, different duplexing and combining solutions, to tower mounted amplifiers. Our largest segment is of course antenna systems, which are becoming more complex as markets evolve into new technologies, frequencies and network sharing. CommScope is also a leading player in the DAS and Metro Cell markets: we’ve developed high capacity, multi-beam antennas and DAS systems, one application of which is to enable towercos to get into neutral hosting in stadia and concert venues.

We saw Alifabs as complimentary to CommScope’s existing businesses. We’re talking to the same groups within the MNO and towerco community, so we’re seeking to expand Alifabs’ route to market across our sales channels across developed and developing markets.

TowerXchange: With the Rio Olympics coming up, and as an example of Alifabs’ capabilities, could you tell us a bit about your work on cell sites for the 2012 London Olympics? Richard Smith, Managing Director, Alifabs and VP, CommScope: We deployed temporary tower solutions at 14 sites in and around the Olympic parks to supplement capacity. Obviously timing was critical, and we got all the sites up and running on time and decommissioned them all within a few weeks of the games. A lot of people expected network congestion to become a problem during the London Olympics, but in the end there were no complaints about network capacity issues – just

one of the many success stories from the London Olympics! We also erected temporary structures on a rooftop in Southbank, London specifically for the Olympic Victory Parade. In Hyde Park, we erected the first ever Supercell, the biggest temporary site that had ever been deployed by any network, with 15 sectors and three base stations on a 30m temporary tower with a sailboat of feeders and 23 cabinets at the foot of the structure! This was an incredibly hard site to get built, but it only took Alifabs three days to get it ready. At the parade alone, a massive 600 gigabytes of data was used and over 300,000 text and picture messages were sent as the parade made its way across London. The Supercell covered a crowd of up to 80,000 people, taking care of the huge mobile traffic. It all went off without a hitch!

TowerXchange: I’m not sure whether one should call network sharing joint ventures like MBNL and CTIL (Cornerstone) towercos, but how did the creation of those infrastructure sharing organisations affect Alifabs’ business in the UK?

Richard Smith, Managing Director, Alifabs and VP, CommScope: The only difference for us was that there was someone else to negotiate with and get a PO from – we have the same interaction with MBNL and CTIL as with the networks. The jury is still out on whether the independent towerco model will flourish in the UK. The MNOs are

still commissioning the vast majority of the new sites – most orders are coming straight from MBNL and CTIL, not via the independent towercos. TowerXchange: Has the creation of MBNL and CTIL led to a lot of decommissioning?

Richard Smith, Managing Director, Alifabs and VP, CommScope: Alifabs has done some decommissioning for MBNL and CTIL but it’s not our core business and there’s not as much decommissioning of towers in the UK as many people seem to assume. Between the second half of 2015 and 2016 we anticipate a strong build in UK. We’re making and rigging a lot of towers to build our inventory. The acquisition by Three of O2 UK may impact the UK tower market temporarily – to separate RAN sharing will require deconstructing and reconstructing agreements, so there are complicated times ahead for network strategists.

Colin Bryce, Director of Technical Sales, CommScope: You get a false picture of the amount of work going on in the UK if you focus on decommissioning and new site builds, because the volume of upgrade work on existing sites is phenomenal – the whole network configuration and topology is changing in the UK. The pressure to reduce the number of towers on the landscape may have initially driven on network sharing, but now it’s about extending the network to boost coverage, and building capacity in urban areas. If there’s a site with permission for antennas they’re certainly going to try to use it!

TowerXchange: How would you sum up the

lessons learned from the deep infrastructure sharing partnerships created in the UK? Richard Smith, Managing Director, Alifabs and VP, CommScope: It might have been a slow start initially, but I think MBNL and CTIL got it spot on. The simple lesson for deep infrastructure sharing is to take time and plan it. It can be made to work – there will inevitably be trials and tribulations but the networks didn’t collapse in the meantime and the goals of the UK’s asset sharing companies have eventually been met. There are plenty of network sharing success stories. It’s working in Sweden with Net4Mobility, where Tele2 and Telenor have divided country in two, and remain effectively in competition as they pay the

lowest common denominator, creating competition to keep the cost base per unit of capacity as low as possible.

TowerXchange: One last question before we move on from the UK market. Given that Alifabs has built a good proportion of the towers in the UK, do you know how many shareable structures there are in the country? Richard Smith, Managing Director, Alifabs and VP, CommScope: According to our estimates, there are about 52,000 sites in the UK. TowerXchange: It seems that a lot of the new network design and deployment in Europe is focused on small cells, or what CommScope would call Metro Cells. What has been your experience deploying heterogeneous networks for LTE?

Colin Bryce, Director of Technical Sales, CommScope: First you’ve got to define what a small cell is. CommScope uses the term Metro Cell. It’s not a picocell or femtocell – low capacity units hooked in via DSL backhaul. Analysts thought there was market for hundreds of millions of these things, but that hasn’t proved to be the case. When CommScope is talking about small cells, we’re talking about full capacity LTE radio, 5-10 W rather than 20-40 W systems, requiring a lower antenna height which tends to be below rooftop level. Alifabs has the capability to design structures which urban planning officials are willing to permit


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For the MNOs coverage in rural areas won’t provide marketing differentiation any more. So at a time when profitability in the UK is challenging, they’ll have to move step by step to a shared tower infrastructure

deploying in the streetscape, rather than on macro and rooftop structures. Demand for Metro Cells can be met using smaller monopole structures with unobtrusive cabinet structures that fit into the street scape, leveraging street poles, bus stops and other urban structures. Deployability is ensured as these units are pre-integrated and pre-configured. We design the right types of antennas and structures to focus RF energy where it’s needed, and where it doesn’t interfere with the macro network. Richard Smith, Managing Director, Alifabs and VP, CommScope: One of our customers is installing “unsexed” cabinets at the base of their extensive network of wooden poles. So any network can jump in, and the sites can be “sexed up” with Three or Vodafone or whoever wants to use the location. We see this as a new type of RF coverage.

TowerXchange: What is CommScope’s appetite for heterogeneous network opportunities in the Middle East and Africa? Colin Bryce, Director of Technical Sales, CommScope: CommScope has furnished wireless network infrastructure in North Africa and the Middle East for decades. We’ve recently had discussions in Nigeria and South Africa, where there are good economies and dense urban environments with rising smartphone adoption, where operators are in need of additional capacity by either adding spectrum or by splitting cells. We think we’ll start to see those heterogeneous two layer networks being deployed in urban environments, with hotspot capacity put into Central Business Districts, within


the next year or two, particularly in the top end economic markets.

Richard Smith, Managing Director, Alifabs and VP, CommScope: In urban environments we can see the demand for the neutral host model and for the Metro Cells previously discussed – there are already some early stage trials. We are conscious of the exciting shift in the ecosystem: about 30% of towers in developing countries are now owned or operated by tower companies, yet it could be closer to 45% by the end of this year. We think that some of our low opex, energy efficient products recently developed and adopted by some MNOs can fit perfectly to their business model and enable them to increase capacity and uptime.

TowerXchange: When designing new sites, how do you balance the concerns of camouflage, cost and structural capacity?

Richard Smith, Managing Director, Alifabs and VP, CommScope: It’s a balancing act. Telcos have to accept that some sites need to be camouflaged. 14 years ago we were doing some camouflage work – we looked at what material was on the front of different antenna and we tested a shroud that actually acts as a passive amplifier. So a network would come to us and say we have horrible-looking rooftop which requires camouflage, and we would often be able to use a shroud and paint on brickwork or whatever fit best with the surroundings. You’ve got to take each site individually and innovate to blend in, so if there’s a grain silo nearby, build it to

look like a grain silo. We have to be mindful of cost – camouflage can’t cost too much money otherwise it turns the operators away. Camouflage often need not cost more than 30% more than a standard site.

Shared sites just require a different way of innovating. You can’t always get all the tenants on one structure, so maybe you split them up to accommodate a third tenant on some street work nearby. TowerXchange: Finally, please sum up how you would differentiate Alifabs from other equipment and service providers to MNOs and towercos.

Colin Bryce, Director of Technical Sales, CommScope: The business of telecom towers is becoming more complex because of the number of bands and the evolution of technologies used, and because of the possibility of site sharing. Designing structures which MNOs and towercos can get planning permission to deploy is key to the success of this industry – working with Alifabs and CommScope makes those problems as easy as possible to resolve.

Richard Smith, Managing Director, Alifabs and VP, CommScope: Our differential is the people who work for me – that’s what makes Alifabs great. They’re an eclectic bunch, but they are all genuine geniuses in their own right! And they want come to work every day – they love it – they’re motivated, driven and dysfunctional!

Special feature:

The Russian telecoms market has recently been shaken up by the rapid

expansion plans of Tele2, whose ambitious growth strategy is predicated

on extensive tower rollout or access to existing passive infrastructure.

However the window for the independent tower market to capitalise

on this potential tenant revenue has been reduced by severe political

and economic turbulence, essentially freezing any potential sale and

leaseback process until international sanctions are lifted and the Rouble

recovers.

TowerXchange has been able to speak to the main players in the Russian

industry, including three of the four leading MNOs in the country, three

potential counterparties who have an interest in acquiring any tower

assets which come to market, two of the leading investors in Russian

infrastructure and several other experts in the region. This in-depth

research translates into an extensive overview of the market and allows

the reader to gain a deeper understanding of how the Russian tower

market might evolve once the political situation improves.

The Russian tower market – high potential in deep freeze conditions

Don’t miss:142 Russian FAQs

148 Interview with Peter Owen Edwards, Chairman of Russian Towers


Russia and CIS FAQsOver 40 questions and answers to help you understand the tremendous opportunities within the Russian tower market

Russian telecoms infrastructure How many towers are there currently in Russia?TowerXchange estimates that there are around 30-35,000 macro tower structures in Russia (i.e. not including rooftops and street poles). Our sources indicate that Megafon has the most extensive network with around 10,000 towers, Vimpelcom and MTS own around 8-9,000 towers each, Tele2 owns about 2,000, Russian Towers a further 1,000+, and a handful of smaller towercos including Link Development account for a few hundred more. How many rooftop and streetpole masts are there in Russia?TowerXchange estimates there are around 60,000-80,000 urban mast solutions in Russia, mostly rooftops and streetpoles. However this number is hard to pinpoint as asset registers and contractual documentation is often incomplete as far as these assets are concerned. What is the current situation for urban masts?A lot of the urban capacity in Russia is currently provided by rooftop and pole solutions. MNOs find it easier to secure licensing for streetpoles and are subsequently more inclined to put points of service on existing high buildings. However there is no standard for agreements on rooftop space and dealing with multiple private landlords across urban areas is a logistical nightmare for operators. There are also a lot of question marks over the legality of new and existing rooftop masts and the permitting situation is not always clear. Although rooftops and streetpoles would probably not be included in a

Read this article to learn:< Which Russian MNOs have an interest in an independent tower industry

< What the current towerco landscape in Russia looks like

< How the Russian wireless market has developed and where growth is needed

< Sources of potential funding in the Russian market

< Challenges and opportunities in the wider CIS

As the largest country on the planet, Russian passive infrastructure is made up of 30-35,000 towers and 60-80,000 rooftops across its populated regions, most of which remain operator-captive. In a fiercely competitive MNO landcape with little experience of colocation, a couple of small towercos are steadily creating an independent towerco market in the country. For the last five years there have been rumours of towerco JVs, SLBs and BTS opportunities in the country, and most recently the entry of Tele2 offered a unique opportunity to attract tenants, but activity in the market has been frozen by the crash of the rouble in late 2014. With political, economic and commercial uncertainty still rife, what’s really going on in the Russian market?

Keywords: Editorial, MNOs, Towercos, Russia & CIS, Europe, Russia, Ukraine, Kazakhstan, Russian Towers, ESN, Tele2, Megafon, Vimpelcom, MTS, Acquisition, Market Overview, Valuation, 4G, LTE, Deal Structure, Transfer Assets, Urban vs Rural Co-locations, Infrastructure Sharing, Risk, Build-to-Suit, First Mover Advantage, Country Risk, Rooftop, Sale & Leaseback, Private Equity, Infrastructure Funds


By Frances Rose, Head of EMEA, TowerXchange

potential tower divestment, TowerXchange believes there may be room in the market for a standardised and legal solution provider for Russian rooftop points of service. How extensive is current LTE coverage?LTE is currently available in 30-50% of Russian regions, mainly in Moscow, St Petersburg and the larger cities. Politics, economy and business environment How has the recent decline of the rouble affected the Russian telecoms market?On one hand the unstable currency and resulting economic turbulence is causing operators to reassess their capital expenditure, but on the other hand devaluation of the rouble is a disincentive for divestiture of passive infrastructure assets as MNOs won’t want to sell if they can’t get full value. Russian tenants would pay their bills in roubles and although raw materials and rent for towers are bought in roubles, and Russia has plenty of domestic energy resources, technology tends to be bought from overseas and is thus effectively building and maintaining towers becomea more and more expensive as a function of devaluation. There is some discussion currently as to whether a tower divestment would be conducted in roubles or dollars; a rouble price would allow the operator to reduce tower opex, however the amount raised would be less significant for the overall balance sheet. For the interested towercos, however, it seems increasingly unpalatable to pay for an asset in dollars


for which they would receive rent paid in unstable roubles – and this brings down the potential purchase price irrespective of currency. How does the fiercely competitive Russian telecom market affect the potential for tower transactions?In general we find that the Russian MNOs have a relatively conservative and defensive attitude to selling towers – coming round to the idea of sharing passive infrastructure is a big psychological step. For those organisations with roots in both Europe and Russia, this seems to mean that there are strong forces pulling in both directions, with the European-thinking parts of the business pushing to monetise passive infrastructure and the more Russian elements resisting this strenuously. A high staff turnover in many large Russian organisations is also inhibitive to change as there is little continuity of strategic thinking and process. The market in Russia and the CIS What is the most important market in Russia?Moscow is the biggest market in Russia, with by far the greatest population density and the highest ARPU, however there are still significant coverage gaps in the area and MNOs are keen to add capacity to improve their quality of service to Muscovites. Which regions are the hardest for Russian operators to cover?Due to a much lower ARPU and population density than the rest of the country, the far east is the hardest area to cover and sustain operationally and MNOs are much more open to sharing in this area to try

and minimise opex. All operators are under pressure from the government to provide service to rural areas and 4G licenses require that Russia’s MNOs cover all areas with a population of 10,000+. Leveraging the Rostelecom network then delivering the ‘last mile’ helps them to do this. The current status of tower sharing in Russia How has the Russian tower market evolved?As mobile penetration has exploded in Russia over the last ten years, the three major MNOs engaged in something of an ‘arms race’ in order to gain competitive advantage through better network coverage. However MNOs are now being more cautious about this kind of capital expenditure and over the last couple of years Russia’s operators have started to focus on bilateral swaps and leasing space where possible, and only built new infrastructure where there was a clear revenue stream. A large MNO in Russia told us they currently spend around US$1bn per annum (a figure quoted before the rouble crashed) on their network to develop coverage and capacity. Where is tower growth needed in Russia?The main priorities for operators in the short term is the LTE roll out and infill in Moscow. In sparsely populated parts of Russia offering network coverage is commercially unattractive, however MNOs are able to use Rostelecom’s fixed-line infrastructure and focus on providing the ‘last mile’ of network connection in order to fulfil license obligations.

What does sharing look like now?Currently tower sharing does take place to a limited extent in the form of bilateral swaps. Tele2 is generally excluded from this, particularly in Moscow where the most value is to be found, as they are unable to offer attractive tower locations to the most established MNOs. What is the current tenancy ratio and how many towers are shared?TowerXchange sources suggest that less than 30% of towers are currently shared, typically through bilateral swaps and some through existing towercos such as market leaders Russian Towers. Existing tenancy ratios on independent towers are thought to be no higher than 1.2. How ready are Russian MNOs for tower sharing?All of the top four operators use Russian Towers’ infrastructure to a certain extent so there is a level of appreciation of shared towers in the market, however some network planners are more open to pursuing this than others and there is a big difference between a small strategic colocation and sweeping changes to the way towers are managed. None of the MNOs seem keen to abandon the concept that the network confers a competitive advantage, and even the most keen to sell and lease back towers may limit the number of shared sites with their competitors. However, TowerXchange believes that all of the operators would be open to increasing their network by leveraging independent towers. What is the current state of the passive infrastructure and asset registers in Russia?

Reports on this vary wildly, but TowerXchange estimates that the majority of asset registers are not complete and there remains a significant amount of work to be done before a Russian tower sale process could take place. The infrastructure is functioning but paperwork is not in good order. It is rumoured that some of Russia’s MNOs have begun to work on tidying up their asset registers over the last couple of years, possibly with a sale in mind, but generally it seems that Russian telecoms infrastructure is blighted by poor maintenance, poor record keeping, complex legislation and unclear information about land ownership. Incomplete asset registers could slow any sale process, but at the same time the time lag could exacerbate the value of first mover advantage if it takes competitors many months to clean up asset registers and bring their towers to market. Financing a Russian tower deal Is there sufficient capital available for a Russian towerco to raise the up to US$1bn needed to make a significant acquisition, should the opportunity arise?Experts believe that in general, even given the current economic situation in Russia, that raising the necessary capital will not be a problem. However, the source of the investment and the structure of the investment may vary depending on the political climate. Foreign investors are more prudent and there are few actively investing in Russia given the current currency devaluation and political issues. However, there is a shallow pool of foreign

investors with experience of investing in Russian infrastructure and with an appetite for more. In Russia, unlike in many emerging markets, there is no shortage of home grown investors. Who is investing in the Russian tower market right now?Known investors in the market include: UFG, Macquarie, IFC, Eurasian Development Bank (EDB), EBRD, ADM Capital and Sumitomo The towercos competing for the Russian market Who are the most likely potential buyers if a significant tower sale were to take place in Russia?There are currently two main competitors who TowerXchange believe represent credible counterparties for Russian operators: Russian Towers and ESN. There has been interest from other parties, and in the Russian market there is always room for surprises, however it is generally felt that building the right level of tower experience and Russian market expertise is not something which can be done overnight. In terms of other market players, at least one of Russia’s tower build and O&M contractors has sought international partners and finance and may be interested in entering the space, perhaps focusing on build to suit, and Russian towerco Link Development operates around 250 towers currently. It remains to be seen whether any new market entrants can raise the financial backing needed to build or acquire a large chunk of infrastructure.


It’s worth noting that Russian operators also use infrastructure owned by RTRS (part of the state-owned Russian Television Broadcasting organisation) to boost their network, although to our knowledge this network of around 16,000 broadcast towers is not run as a commercial towerco. What’s clear is that whoever manages to persuade a Russian MNO to part with their towers will instantly lead the market and will become the most likely counterparty for any subsequent deals which may be done. This means that despite a long and so far fruitless process, Russian towercos cannot afford to take their eye off the ball for a second in case they lose ground, and therefore the whole market, to a competitor. What does a towerco have to do to appeal in this market?Ideally a towerco needs to attract a solid management team with extensive experience in comparably challenging markets, strong financial backing and the experience in Russia to navigate any political and administrative difficulties which might arise.

Who are Russian Towers?Russian Towers was established in 2009 by both Russian and Western professionals with substantial telco experience in Russia. Backed by both Russian and international investors, including Macquarie and the IFC, Russian Towers is the leading and only institutionally backed towerco in Russia. Russian Towers’ current portfolio of around 1,500 towers has grown organically through Build to Suit and relationships with key partners including Russian


Railways, to deliver tower access in low coverage areas. Russian Towers are under pressure to secure a Russian tower deal if and when it happens and TowerXchange speculates that they might be more open to a JV or partnership with Russian MNOs than their competitors ESN. Who are ESN?ESN is one of the largest private companies in Russia. Established in 1991 by Grigori Briozkin, they began in oil and gas and were then able to diversity into new areas such as energy, engineering and media with a current interest in high tech and start ups. For an ambitious and bullish company like ESN, acquiring a portfolio of towers in Russia could be a way into CEE and even Europe as a whole. Given ESN’s proven ability across multiple industries and track record in maintaining infrastructure across a country the size of Russia, it’s likely that if they were to bid they would have a strong preference towards an outright acquisition of a tower portfolio over a collaborative partnership with any of the Russian operators. However ESN’s lack of existing specialism in this field and flexibility in the market means their interest in the tower market may not remain top of their agenda indefinitely.

How ambitious are Russian towercos in terms of growth?To date Russian Towers has built portfolio through BTS programmes and partnerships with other infrastructure providers. They see themselves as able to acquire a substantial portfolio if an opportunity came to market, but in the meantime they have a focus on organic growth with guaranteed returns.

As far as TowerXchange can tell, ESN are focussing solely on a big deal and will enter the tower market only if they are able to acquire a large portfolio. How likely are we to see a big international towerco come into Russia?There have been rumours of international towercos or consortia entering the Russian market on a management agreement with limited scope in order to mitigate country risk then taking more control at a later stage. However this was before the events of 2013 and TowerXchange believes that there is currently minimal interest from the big established towercos to enter the Russian market. A Russian tower deal: How will it happen and what will it look like? How will existing market dynamics affect the tower market?Given the fierce competition between the three incumbent operators in Russia (Megafon, MTS and Vimpelcom) there is a pervading fear of losing market share, particularly now that the Tele2/Rostelecom merger has created a highly credible competitor with significant political clout and an appetite to rapidly expand their network. If one of the incumbent MNOs were to divest their towers, it has been suggested that they may choose to retain right of veto for potential tenants. The feasibility of this choice and the resulting impact on the value of a tower portfolio would undoubtedly throw into question the ability of the tower industry to develop in the country.

Who will trigger a change in the Russian market?Vimpelcom have the potential to set the pace if they choose to divest their towers following a successful divestiture of Wind’s towers in Italy. Vimpelcom achieved a 16x valuation in Italy, which is sure to have boosted their case to consider further tower sales. Tele2 will also have a strong influence on the market as potential tenants for a new Russian portfolio. In the mean time Tele2 will be focussing on build to suit towers in order to meet coverage targets following their merger with Rostelecom. TowerXchange has reason to believe that they may be interested in a buy and lease back deal at some point in the future if they are happy with their towerco partner. Given Tele2’s European background, they may be more open to tower sharing as a way to cut costs and increase operational figures. What drives Vimpelcom being the most likely to divest?A need to restructure debt from their merger with Orascom, with Vimpelcom’s balance sheet believed to be US$25bn in the red. Executives with experience of tower M&A at Vimpelcom’s European HQ led the recent Wind process in Italy. With the excellent valuation realised in that tower transaction, Vimpelcom may have appetite for further tower sales, although their assets in Russia may not be next in the queue! However, the size of Vimpelcom’s debt means even a US$1bn sale would not release sufficient capital to substantially restructure debt, especially if Vimpelcom prefers to retain a substantial stake in the towers, or even offer the assets on a Manage with

License to Lease basis. How good would Tele2 be as tenants for the Vimpelcom towers?Tele2 would be drive demand for tenancies for any substantial Russian towerco, but would not take on tenancies on the towers wholesale – they would pick and choose according to when the towers became available, their locations and local competition. Nonetheless, Tele2’s appetite to rollout represents a potential near-term spike in tenancy ratio growth.

How will a substantial divestment affect the market?Tele2’s need for coverage creates a ‘first mover advantage’ for whoever is first to divest their towers, particularly if their deal is structured in a way to allow Tele2 to significantly improve their network. However, because the market includes some bilateral swaps and network coverage is not equal across all operators, there will be continued and proven opportunity for at least one subsequent tower deal. As TowerXchange has noted in other markets though, if the ‘first mover advantage’ isn’t clear cut, the ‘last mover disadvantage’ still holds true and whoever doesn’t divest will be left with stranded assets on their balance sheet being devalued as first and second movers’ towers are leased up. What is the potential tenancy ratio in Russia for a divested tower portfolio?Given Tele2’s clear need for network growth the tenancy ratio in Russia could achieve a healthy annual growth rate near 0.2, and eventually exceed two, although would be unlikely to go beyond three. We would expect a substantial difference, in the order of 0.5 or greater, between the potential tenancy ratios in major urban cities compared to smaller towns exceeding 10,000 population. What would a deal structure look like?Given the Russian reticence to lose control of their networks, it is likely that we will see a deal structured as a joint venture, or with the MNO retaining a stake in the tower portfolio, or indeed structured as a ‘Manage with License to Lease’ deal rather than an outright sale and lease back. TowerXchange believes


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“Given Tele2’s clear need for network growth the tenancy ratio in Russia could achieve a healthy annual growth rate near 0.2, and eventually exceed two

that, although the Russian towercos would prefer a straightforward sale, the pressure to secure a deal and effectively take control of the market will probably drive them to compromise when the opportunity arises. How long would a potential Russian transaction take once someone decides to divest?Much depends on the state of asset registers. If asset registers are quietly being tidied up, then an advisory firm could be appointed and a process commenced relatively swiftly. However, if asset registers require substantial work, there could be a 12 month lag before a process even commences. The devaluation of the Rouble has likely moved the potential for a tower transaction in Russia from a near-term to a mid-term opportunity. What time pressures are there to bring towers to market sooner rather than later?By worring about conceding market share to Tele2, Russia’s incumbent MNOs risk losing value in their towers as Tele2 (most likely tenants) acquire alternative solutions to fulfil their RF planning needs. Tele2 are pouring millions into a capex programme meaning that their value as potential tenants is likely to decrease in the near future. However it’s been at least five years since rumours started to come out of Russia about a potential tower deal – a process has even been started and stopped within that timeframe – so most commentators see this dragging on for another three or more years, especially given the current economic and political situation


How has the Ukrainian telecom market been affected by recent events?The Ukrainian telecom market has been heavily affected by the unrest in the country and our sources confirm most companies in the country are adoping a ‘wait and see’ attitude with no plans for asset divestment or significant strategic change in the near future. However given Ukraine’s ties to the European market it may well be easier for Western firms to invest once the region settles down and we may see the telecom industry bouncing back quite quickly. How ready is Ukraine for an independent tower market?There is one small towerco in the country – Turkish owned UKRtower – who are focussed on organic growth and have around 400 towers and deep partnerships with two of the major operators in the region. The market accepts towersharing as a concept but a large scale tower divestment is unlikely at this stage. Very limited growth is expected next year due to the political situation. What is the potential for a Ukrainian tower market?Good sized population of five million. 3G is due

to roll out 2015-17 if the spectrum auction is realised and there is a need for rural network extensions. If the political situation calms down there could be a good market but that seems unlikely in the next one to two years. What is the size of the Ukrainian telecom tower market?There are approximately 11,000 towers in Ukraine in total, Kievstar owns around 5,500, MTS 4,500, Life 1,000 and then there are UKRtower’s 400. There is an estimated need for another 1,000 or so towers in the market just for full 2G coverage. How are the tower markets in the CIS region seen in relation to Russia?Investors and MNOs tend to cluster together the CIS as the region consists of a small number of countries and could fold into a pan-Russia & CIS initiative. There is also a significant cross-over of key MNOs across several markets. However CIS countries do have their own challenges and several have a unique tower market structure – for example in Kazakhstan the incumbent national operator owns the vast majority of towers, which they are required to share at a remarkably low lease rate

The Ukrainian tower market

From towers in Moscow to bears in Kamchatka – how Russian Towers have built Russia’s independent tower marketRiding the ups and downs of the Russian market, Russian Towers is positioning themselves for growth in a turbulent but potentially exciting tower market

TowerXchange: Peter, can you tell us a bit about your background?

Peter Owen Edmunds, Co - Founder and Chairman, Russian Towers: I spent ten years in the Welsh Guards, and completed a Russian language course and went to Berlin. While I was there the wall came down. After learning the language I was drawn to Russia and ended up in telecoms by chance. In 1992 I moved to St Petersburg and was a Director and then Chairman of fixed line network for PeterStar.Until 2003 I worked in Russia for PLD Telecom and later Metromedia International as their Director for Russia doing all sorts of roles: overseeing assets, mergers, acquisitions, fixed and mobile assets, cable TV and radio. In 2008 I realised that towers was an up and coming sector and with partners began work on Russian Towers, which was funded at the end of 2009 by UFG and EBRD. TowerXchange: How has Russian Towers developed since then? Peter Owen Edmunds, Co - Founder and Chairman, Russian Towers: We started operations in 2010 – our cornerstone client was Tele2 as their European background meant they understood the tower model and value of outsourcing.

We had first towers for them completed by the end of 2010. We were creating the market from scratch as the concept wasn’t understood or adopted in Russia at the time. We spent a lot of time and effort building towers and working with the big three operators to make them understand this

Read this article to learn:< How Russian Towers secured funding from the most credible investors in Russia

< The partnerships put in place to allow them to build credibility in the market

< How Russian Towers divides responsibilities in house or via third parties

< Timeframes for maximising first mover advantage in the Russian market

< Russian Towers’ appetite for opportunities in the CIS

Since 2009 Russian Towers has been working to create a towerco market in Russia from scratch, reaching a point where they now have over 1,000 towers and all of the major Russian MNOs as tenants. We spoke to Co-founder and Chairman Peter Owen Edmunds about his background in Russia, how the company has grown and what their ambitions are for the future.

Keywords: Interview, Towercos, Russia & CIS, Europe, Russia, Russian Towers, Acquisition, Market Overview, Investment, Transfer Assets, Opex Reduction, Urban vs Rural, Co-locations, Risk, Build-to-Suit, First Mover Advantage, Country Risk, Anchor Tenant, On-Grid, Skilled Workforces, Rooftop, Private Equity, Masts & Towers, Fencing, RMS, Site Management System


Peter Owen Edmunds, Co - Founder and Chairman, Russian Towers

was an interesting model for them. It took a long time especially as the Russian psyche dictates that building and owning your own towers is a good thing. In Russia construction and technology are well understood and pride in that technology made it more of a wrench to use a third party. In 2012 we brought in more shareholders and capital to the company with Maqcuarie Russia Investment Fund, ADM Capital and Sumitomo then the IFC. We were fortunate to attract a strong shareholder base who understand the Russian market and the tower business – for a small company it was a statement of intent that the market was viable.

We have developed consistently organically over the years and all the big operators are now primary customers for our build to suit offering and adopters as second and supplementary tenants. Our initial aim of getting trust in the market has been achieved very successfully. TowerXchange: Can you give us some detail on the capital raise process?

Peter Owen Edmunds, Co - Founder and Chairman, Russian Towers: We did the first capital raise from our own resources and contacts. We were fortunate in UFG in having a fund committed to Russia which understood telecoms and the EBRD has strong backgrounds in both as well. We had crossed paths before on other projects so the pedigree of our management team was known to them.

We were careful to choose investors who were likely to bite and were flexing our reputation in


the market to show we were likely to deliver. Our relationship with Tele2 meant we could bring something tangible to the market already. Once we got the first round of funding and established we could deliver it was relatively easy for the second round funders to come in. Towers and Russia are both interesting for Macquarie, Sumitomo has a long history in Russia and well understands the dynamics, ADM were looking to find a credible path in Russia, and the IFC is mandated to work in Russia, so they all had strong motivations to be involved. TowerXchange: Can you tell us about how your partnerships with transport providers helped you to reach your goals?

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We’ve partnered with several Russian organisations in good times and in bad and we’ve never had the rug pulled from under our feet – we’ve taken the highs and lows together

Peter Owen Edmunds, Co - Founder and Chairman, Russian Towers: We have a relationship with RZhD (Russian Railways) which allows us to build along the railway infrastructure. We can both build and lease infrastructure from RZhD which they prefer for us to maintain and run. Early on it gave us a unique selling point, profile and enabled us to offer operators something well recognised, so it’s been an invaluable partnership for us. TowerXchange: Have you encountered any corruption in getting a business set up in Russia?

Peter Owen Edmunds, Co - Founder and Chairman, Russian Towers: I’ve never come across any corruption in our line of business. We’ve partnered with several Russian organisations in good times and in bad and we’ve never had the rug pulled from under our feet – we’ve taken the highs and lows together. In my personal experience if you set the right tone and agenda the rest will fall into place. Given the shareholder group we have and the stringent standards of the IFC and EBRD it is clear to employees that everything has to be above board. TowerXchange: How do you manage a lean business model – what sits on your payroll and what is outsourced?

Peter Owen Edmunds, Co - Founder and Chairman, Russian Towers: At the top of the company our executives and the board formulate our strategy for growth and how the company is financed are all done in-house. Running the commercial relationships with the operators is also critical

and is controlled within the company, similarly our relationship with strategic players like RZhD remains managed in-house.

Our tower management system and key proprietorial systems are in-house too. It’s a third party system bespoked for us, and sitting on top of that is our remote monitoring system which is a testament to Russian know-how. It gives us a buzz to watch bears scratching their backs on our fences in Kamchatka via a live feed!

The guys who design towers and order materials (design compliance in Russia is important and hefty) are all kept in-house to comply with local standards. Interaction between our tech guys and tech in operators is important. A key piece that we

hand out is construction and maintenance. For us it’s extremely fragmented and labour intensive – a patchwork of varied relationships for building and maintenance is a huge challenge. TowerXchange: Can you tell us about your power mix?

Peter Owen Edmunds, Co - Founder and Chairman, Russian Towers: We don’t do diesel - we try to connect to the mains. We have backup diesel and a simple battery bank at most sites, but the grid is fairly good. One benefit of our relationship with the railways is that they have power along the main routes anyway. Power is a time consuming issue for us.

The remote monitoring we use is less about power and more to do with diagnostics and knowing what’s going on on each site and also controlling access – for example which contractors have gone in to each site on which day at what time. TowerXchange: What are Russian Tower’s longer term ambitions both in and out of Russia?

Peter Owen Edmunds, Co - Founder and Chairman, Russian Towers: We are pleased with how the organic underpinning build is going. We know the model works and we have a viable business.Given our shareholder group and how the market works we feel we’d be in a position to do an acquisition when and if that comes up. Our shareholders are able to invest in the CIS and, in terms of looking for opportunities in wider

geographies, we’d consider that as time goes on. That said you’ve got to get it right somewhere and prove you can make it work, only then you can go elsewhere with a credible path to delivering something of value to all parties. TowerXchange: What are the current dynamics within the domestic Russian market and opportunities for anyone looking to divest a tower portfolio?

Peter Owen Edmunds, Co - Founder and Chairman, Russian Towers: From what we can see within the timeframes of organic growth I think there’s still potential leaseup from Tele2 or alternate operators for there to be a reasonable return for the first tower sale. There is a finite window for Tele2’s appetite to co-locate rather than build, which will focus people’s attention, but their need won’t decline significantly in the next four to five years. Remember that the 4G expansion in Russia is a top priority and is sucking in a lot of capital which provides a lot of opportunities for us.

TowerXchange: How has Russian Tower been affected by the devaluation of the rouble over the last few months?

Peter Owen Edmunds, Co - Founder and Chairman, Russian Towers: We can do most of our sourcing locally so we’re mainly insulated. Plainly sanctions are a huge challenge but we feel the environment will be good for our organic growth as it stops MNOs having to spend on non-essential equipment which makes our proposition more compelling


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“There is a finite window for Tele2’s appetite to co-locate rather than build, which will focus people’s attention

Closing the gap between the managed services and towerco business modelsAs Ericsson launch ‘network as a service’ offerings like Small Cell as-a-Service and Managed Rural Coverage, and acquire their own active infrastructure, is the line blurring, between managed service provider, property owner and towerco?

TowerXchange: Can you tell us a bit about the infrastructure services Ericsson is offering right now? Patrik Jakobson, Head of Network Sharing, Ericsson Global Services: One area we support operators with is “network as-a-service” or “network sharing models”.

We see quite a lot of interest from the market for small cells as a service due to need for support in the go-to-market model towards Enterprise / indoors, where it’s not practical or not allowed with parallel networks, or where there is a need to support in monetisation of venue connectivity etc. A lot of activities are around enterprise and indoor connectivity as you have a many buildings which lack high quality voice and high throughput mobile broadband coverage, where the traditional network cannot handle demand, as well accelerated by behaviour changes. We see enterprise and indoor as becoming a focus growth area again for many operators.

For these areas we provide a dedicated small cell network, where technology is owned by Ericsson and all relevant services are included: planning, design, optimisation and maintenance, we can provide sites, backhaul and really sell it as a service model. Then of course we have the managed rural coverage option and we now have our first deal in that area, which hasn’t been announced yet. It’s with a blue chip operator in SSA. We provide

Read this article to learn:< Why CMOs, not CTOs, are driving growth into rural Africa

< How comprehensive maintenance and management offerings are blurring the lines between towerco

and managed services

< Drivers to increasing tenancy ratios in Europe

< The role of property owners beyond the traditional ‘towerco’ in the European market

TowerXchange caught up with Patrik Jakobson, Head of Network Sharing at Ericsson Global Services at the enormous Ericsson stand at Mobile World Congress in March. Patrik talked to us about Ericsson’s plans to provide ‘network as a service’ like Small Cell as-a-Service and Managed Rural Coverage, and their ambitions to help both established and emerging markets fulfil their coverage needs. From portfolios in rural Africa to connectivity solutions for large stadia, shopping centres and enterprise in-building in Europe, they see growth opportunities in a variety of markets needing coverage and/or capacity.

Keywords: Interview, Managed Services, Steelwork, East Africa, Southern Africa, West Africa, Russia & CIS, Europe, Ericsson, Installation, Investment, 4G, LTE, Capex, Batteries, Urban vs Rural, Tenancy Ratios, Co-locations, Infrastructure Sharing, Build-to-Suit, SLA, ROI, KPIs, DAS, Small Cells


Patrik Jakobson, Head of Network Sharing, Ericsson Global Services

a low-cost site so MNOs can profitable expand into rural white spots or deep rural areas. We use solar panels and we use satellite, because to build out traditional backhauling with microwave and towers kills the business case in low ARPU areas. And we provide this as a service so we own the equipment, which insulates the customer from the capex cost and share the commercial risks. Ericsson provide the full site and the operator can either pay us on a pay per minute model or a revenue share model. TowerXchange: What is the driver for a network operator to invest in these rural areas? Patrik Jakobson, Head of Network Sharing, Ericsson Global Services: Some are driven by a need to fulfil their license requirement, some are driven by sustainability but these are the less common reasons; in the most part it’s about addressing an unserved part of the market and to be able to grow market share and revenues. But to reach new untapped segments, MNOs need to do it in a new way as the traditional model would not be economically sustainable. Ericsson have engaged in rural coverage quite extensively, and right now I think most operators want to provide rural coverage in a cost-efficient way. So it’s also about the next steps in cost efficiency, such as looking at low cost towers where you don’t need the concrete foundation, you just use dirt and sand and stones in the foundation to really bring down the cost. We’re also looking at solutions based on a trailer so you can move them around if needs be. It could also be a 10m pole and a 1m concrete


foundation or it could be 30-40 metre structure in hilly regions.

Also increasingly we’re talking to the CMO and the marketing department who are responsible for addressing the rural segment and achieving growth. TowerXchange: So you could almost say you’re operating as a towerco?

Patrik Jakobson, Head of Network Sharing, Ericsson Global Services: We’d rather see ourselves as a service and technology company. Yes we might provide the sites, but only because we need somewhere to place the technology. So we’re not investing in sites in order to earn money on the

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Increasingly we’re talking to the CMO and the marketing department who are responsible for addressing the rural segment and achieving growth

sites, rather the other way round – we try to make the sites as cost efficient as possible.

TowerXchange: How does Ericsson approach infrastructure sharing in the European market? Patrik Jakobson, Head of Network Sharing, Ericsson Global Services: The European market is different. We have the small cell as a service part, also other discussions where we see operators are interested in divesting and we could partner up with some of the players interested to take on those towers and for example provide backhaul as a service. For example if a towerco target is to increase the tower tenancy from around 1.2 to 1.5, to do that you need to improve the backhaul, so we can work in co-operation with those players and offer backhaul as a service so that tenant number two can also have the backhaul he needs.

Then of course we’re also in discussions about network sharing of both active and passive infrastructure. Such ventures have been announced in the Czech Republic, where PPF have a sharing agreement with T-Mobile in which they have spun off the network to a separate NetCo - we think that maybe more could happen in that area. There’s more consolidation happening in the market with operators buying each other but in some markets we think there will be these kind of NetCo set-ups as well. TowerXchange: The European market is typified by a close relationship between operator and managed service provider, do you think there’s

room in the market for towercos?

Patrik Jakobson, Head of Network Sharing, Ericsson Global Services: We know towercos have bought towers in Europe, of course, and some other operators are in the process of selling off towers. Some of them are multi-tenant towercos and some are straightforward sale and leaseback. We’ve heard from infrastructure investors and others is that they are pretty keen to invest in telecoms as infrastructure and not only doing lease back. TowerXchange: What are Ericsson’s aspirations in the tower market?

Patrik Jakobson, Head of Network Sharing, Ericsson Global Services: If you look at Europe and you look at the next steps then I think we will be able to add value to the industry by providing backhaul as a service as the next step. Ericsson are focussing quite a lot on other segments like small cells as a services for enterprise, indoor and venues where the market might now be driven also by other types of real estate owners. To complement the European market, you have the towercos and also property owners. The big real estate owners are going to operators saying ‘I built this new campus or industrial part or trade centre and I’d like to have improved indoor coverage’. So real estate owners going out for the first time to companies like ourselves . That’s another part of the site owner equation. Maybe looking at Europe from that point of view will be equally interesting to see what will happen


Have you missed one of the past eleven editions of TowerXchange?

Tower Xchange

Tower Xchange

Don’t miss TowerXchange’s checklist of the data you need to buy and sell towers

ISSUE 2 | FEBRUARY 2013 | www.towerxchange.com

The front lines of the African Tower IndustryWho’s who in the telecoms infrastructure supply chain

Standard Bank: aggressive bids likely to continue Helios take you inside the due diligence process Who’s who: turnkey infrastructure and law firms TowerPower: reducing Africa’s reliance on diesel

Africa’s New telecoms infrastructure journal

Tower Xchange

Tower Xchange

Top 200 decision makers in African towers invited to TowerXchange Meetup

ISSUE 3 | April 2013 | www.towerxchange.com

Marc Rennard: Why Orange is sharing towersStructuring deals to meet the requirements of each affiliate

Why IHS invested in Cameroon and Cote d’Ivoire

Eaton CTO Thomas Jonell’s procurement priorities

Egypt’s 4 companies licensed to lease infrastructure

Growth stock ATC vs the PE-backed towercos


Tower Xchange

Tower Xchange

Join 200 African tower decision makers at the TowerXchange Meetup

ISSUE 4 | June 2013 | www.towerxchange.com

African tower market heats up

TowerXchange maps past, current and future tower transactions


< HTN, SWAP and BMI on the Nigerian tower market

< Tower deal news from Egypt, Mali, Senegal & Rwanda

< Who’s whos in Managed Services, RMS & TowerPower

< A closer look at Telkom Kenya’s deal with Eaton

Tower Xchange

Tower Xchange

TowerXchange forecasts the growth of African towercos from 23k towers today to 54k by the end of 2014

ISSUE 5 | September 2013 | www.towerxchange.com

Let’s meet up!Top 200 decision makers in African Towers converge at TowerXchange Meetup

< Vodacom and Etisalat’s tower strategy

< MTN’s tower strategy in Rwanda and Zambia

< Tanzania case study with exclusive HTA interview

< TowerCo of Madagascar, FTS and Eaton interviewsThe journal for the emerging market telecom tower industry

Tower Xchange

Tower Xchange

TowerXchange extends our coverage to include Africa and the Americas!

ISSUE 6 | December 2013 | www.towerxchange.com

The drivers of SBA Communications’ expansionExclusive interview with Kurt Bagwell, President - International, SBA Communications

The journal for the emerging market telecom tower industry

TowerXchange Africa:< Airtel’s 15,000 African towers may be sold country by country

< The risks and rewards of operating towers in DRC

< Rural infraco pioneers Connect Africa and AMN

< Insights and images from the TowerXchange Meetup Africa

TowerXchange Americas:< Brazil case study: 9,000 new towers needed for World Cup

< Accelerating new tower construction - the Lei das Antennas

< Brazil’s Ministry of Communications’ view of the tower industry

< LatAm transactions to date, plus new deals by AMT and SBAC

Tower Xchange

Tower Xchange

Towerco or powerco? Views from a major vendor, an ESCO and a community power venture

ISSUE 9 | August 2014 | www.towerxchange.com

The TowerXchange Who’s Who:18 advisory firms with experienceof emerging market tower deals

The journal for the emerging market telecom tower industry

TowerXchange Africa:< Cameroon and Cote d’Ivoire case study

< IHS acquires 2,136 Etisalat Nigeria towers

< Towershare on opportunities in MENASA

TowerXchange Americas:< CEO Olivier Puech on AMT’s BR Towers deal

< Maria Scotti on Central America and Mexico

< Torres Andinas: BTS in Colombia and Peru

TowerXchange Asia:< Myanmar: 17,300 towers by 2017, Telenor interview

< Asian tower report, India and Indonesia tower counts

< Commentary on the new towerco for China

“With our latest acquisition from Airtel, HTA now owns over 7,800 towers in Africa” – Chuck Green, CEO, Helios Towers Africa

Tower Xchange

Tower Xchange

Plus our analyses of Q4 tower deals worth $3.8bn by AMT, TBIG, STP and IHS

ISSUE 11 | February 2015 | www.towerxchange.com

Journal of the telecom tower industry in Africa, CALA and Asia

TowerXchange Americas:< How many towers are in Brazil?

< Argentina: are the rewards worth the risk?

< Interviews with BTC, PTI and Skysites

TowerXchange Africa:< What’s left for SSA’s leading towercos and MNOs?

< Four opportunities for middle market towercos

< Burkina Faso, Ghana, Niger, Nigeria and Tanzania

TowerXchange Asia:< edotco 360: views of CEO, COO, CFO and CSMO

< Myanmar’s tower power ‘Mexican standoff’

< Towercos now own 51% of Indonesia’s towers

“In Brazil, other than AMT and SBA, everyone has an exit strategy”- Dr Chahram Zolfaghari, CEO, Brazil Tower Company

Now featuring even more comprehensivetower counts and transaction histories!

For a limited period, you can download back issues FREE at:

www.towerxchange.com/publicationsEnsure you have the entire back catalogue of TowerXchange, which provides a record of emerging market tower industry evolution, and a comprehensive index of proven solution and service providers in Africa, LatAm and Asia.

BCTEK is a unique towerco in Nigeria, leasing up 700 police

surveillance towers. Their interview is essential reading for anyone

interested in Nigeria, and for anyone interested in the untapped

potential of public safety networks!

We also take a look at the potential for another major tower

transaction in South Africa, with Telkom’s towers for sale and MTN

fielding renewed interest from American Tower.

Meanwhile, GDP in Mozambique is forecast to double between

2014 and 2021. A new market entrant third operator has shaken up

incumbents, and as many telecom towers have been built in the last

three years than in the thirty previous. But infrastructure is seldom

shared. Why? And what needs to change? Read on…

Africa special features

Read our coverage of the African tower market here:15 African tower market overview

23 African tower news

27 Re-igniting competition for South Africa’s towers

155 BCTEK unlock the potential of the Nigerian police network

158 The unfulfilled potential for infrastructure sharing in

Mozambique


Regional coverage:

Unlocking the co-location potential of police network infrastructureBCTEK is leasing up a portfolio of 700 towers across all 36 Nigerian states

TowerXchange: Please introduce our readers to BCTEK.

Peter Audu, Acting CEO, BCTEK: BCTEK is the newest towerco in Nigeria. Although we were incorporated in 2008, our operations started fully in May 2013. BCTEK manages, and markets for co-location, about 700 towers built by the Federal Government for police and other security agencies. We have a 20 year contract to manage and commercialise these towers, on sites in all 36 Nigerian States. Most of our sites are in Nigeria’s major cities, and 80-85% are within a Nigerian police station compound. The RF planning motivation when designing this CDMA police network was to place towers primarily in densely populated areas so the authorities could attain intelligence information to fight crime. While not all the towers are in densely populated areas, most of the network’s footprint agrees with the RF planning needs of Nigeria’s MNOs. Having invested substantial capex into the network, the government saw an opportunity to commercialise the towers. However, until BCTEK took over the towers, there was no allowance for third party equipment. TowerXchange: How is BCTEK funded? Peter Audu, Acting CEO, BCTEK: BCTEK is funded by a combination of private equity funding topped up by local bank debt. TowerXchange: Why was BCTEK chosen as the partner to manage and market these towers?

Read this article to learn:< The scale, lease up rate, and future growth of BCTEK’s network< How BCTEK is managed and funded< BCTEK’s power strategy and SLA< The impact on BCTEK of the sale of 16,000 Nigerian towers from MNOs to towercos in 2014

Public safety networks are often untapped sources of potential value for the telecom tower industry, while the commercialisation of these networks can be an untapped source of revenue for government agencies. Public safety networks are necessarily extremely secure and reliable, and can offer coverage in prime metropolitan areas. In Nigeria, BCTEK have a unique business model which involves leasing up 700 towers built by the police as a surveillance network. Acting CEO Peter Audu, a veteran of the Nigerian tower industry, explained to TowerXchange how BCTEK has partnered with government, and where they’ve found the strongest demand for co-locations on this unique network.

Keywords: Who’s Who, Towercos, Public Safety Networks, O&M, Lease Rates, Batteries, Tenancy Ratios, Fuel Security, Network Rollout, Business Model, SLA, Uptime, Unreliable Grid, DG Runtime, Manage With License To Lease, RF Design, Infrastructure Sharing, Africa, Nigeria, IHS, Helios Towers Nigeria, American Tower, BCTEK


Peter Audu, Acting CEO, BCTEK

Peter Audu, Acting CEO, BCTEK: BCTEK is driven by a formidable management team that has excellent knowledge and experience of the tower industry in Nigeria. Being veterans in the infrastructure sharing and management space, the team’s combine expertise cuts across various senior roles in procurement, administration, technical, government relations, supply chain management, project management et cetera. This was crucial and, perhaps, helped in making BCTEK the right choice to manage and commercialise the assets. TowerXchange: What progress have BCTEK made since you started marketing the sites in May 2013?

Peter Audu, Acting CEO, BCTEK: We’ve made good progress in leasing up the sites. There are currently about 700 towers in the network, out of which we


have populated 67 sites with about 115 tenants – mostly in Nigeria’s three largest cities. We continue to receive ITPs from the MNOs and I would say we are as optimistic as ever about now and the future. TowerXchange: What is difference in demand for tenancies between the major metropolitan areas compared to smaller towns and villages? Do you charge the same lease rates regardless of the location of the site? Peter Audu, Acting CEO, BCTEK: 80-85% of demand for co-location on our towers has been for our sites in Lagos, Abuja and Port Harcourt, rather than for towers in remote towns and villages in Nigeria.

Right now, our pricing is uniform in the main although we are also flexible enough to discount prices based on volume. However, in doing their RF planning, operators are mostly concerned with the commercial viability of a site, therefore what matters to them is the potential minutes of usage, not the lease rate. Even if BCTEK offered differential prices it won’t attract MNOs to provide service in a market where there’s no commercial incentive.

TowerXchange: Is there much overlap between your 700 sites and those of Helios Towers Nigeria, IHS and those recently acquired by American Tower from Airtel Nigeria?

BCTEK site at a police station

“ “There are currently about 700 towers in the network, out of which we have populated 67 sites with about 115 tenants – mostly in Nigeria’s three largest cities


Peter Audu, Acting CEO, BCTEK: We’ve looked at the portfolios of our competitors, and there’s an overlap of only around 20-25%. You have to remember that these networks were built for different reasons; our competitors in Nigeria started by doing build to suit projects for their clients primarily – they were commissioned to build in areas where there was demand. Nevertheless, due to constraint of capital they were never able to provide full coverage and had to address the challenge with yearly roll-out plans. Our network was built driven by the intelligence gathering and surveillance requirements of the national security agencies including the police. However, much of the coverage is commercially viable. TowerXchange: Are there any plans to extend your network? Peter Audu, Acting CEO, BCTEK: Yes. As a tower company BCTEK is involved in site build and expanding the network is definitely part of our overall growth strategy. This will give BCTEK even more sites in locations appealing to MNOs. TowerXchange: What Service Level Agreement (SLA) do BCTEK offer, and is power included in your service?

Peter Audu, Acting CEO, BCTEK: BC Tek offers a full service inclusive of power, with a 99.99% uptime guarantee. Like the other towercos, when we fall below SLAs penalties are incurred, but we have

been able to maintain that service level in the main. We don’t have the same security problems that affect many other towercos as most of our towers are secure inside police stations and compounds. Unfortunately, in many other parts of Nigeria it is necessary to pay “Area Boy charges” – community fees for the opportunity to deliver diesel without being impeded. Nigeria’s National grid is so unreliable that at the moment BCTEK uses dual diesel generators at all our sites, with a rectifier and capacity for 14 batteries to provide at least eight hours of autonomy. We are finalising plans for the use of more efficient alternative power sources.

TowerXchange: What will be the impact on niche towercos like BCTEK of the recent sale of 11,287 towers from MTN and Etisalat to IHS, and the sale of 4,800 towers from Airtel to American Tower in Nigeria, given that ~80% of Nigeria’s towers are now owned and operated by independent towercos? Peter Audu, Acting CEO, BCTEK: The sale of over 16,000 Nigerian towers to IHS and American Tower might look like bad news for niche towercos like BCTEK, but I think it is good news. Competition will be keener now, but since the inception of commercial mobile telephony in Nigeria, many have been making the case to persuade all the MNOs to buy into the idea of colocation – the principle of conserving resources, minimising capex, and improving competition – and now it

seems like everyone is going the way of colocation. Though we can refer to the competitors as early birds in the market with an established presence and long standing relationships with many operators, still the Nigerian MNO market is ultimately dominated by just four GSM operators, and BCTEK already has excellent mutually beneficial relationships with all of them. What is key for us is to maintain our niche market. BCTEK does not have aspirations to acquire and run a network of over 10,000 towers in Nigeria. We have a vision to run a virile, lean and nimble business providing excellent service to our customers. TowerXchange: What is BCTEK’s vision for the future? Peter Audu, Acting CEO, BCTEK: The future for the Nigerian tower industry is very bright. One of the challenges for MNOs rolling out has been the paucity of funds – it’s difficult to raise the capital necessary to build towers. That burden has now been taken away, freeing up more resources to devote to rollout, with demand driven by both voice and data. Internet penetration remains low in Nigeria, there is a huge gap to be filled, and there are new WiMAX companies being launched who all need towers. Nigeria’s towercos are ideally positioned to benefit from one of the fastest growing, most profitable telecom markets in the world

Special feature:

According to our regular columnists BMI, GDP per capita in Mozambique is forecast to double between 2014 and 2021, fuelled by gas discoveries. Mozambique’s tower networks are growing at an even faster rate: Vodacom has doubled the size of their tower network in the last three years, during which time Movitel has gone from zero to 1,800 sites. With so many positive indicators, you would be forgiven for assuming Mozambique must be a thriving market for infrastructure sharing and independent towercos. Instead, Mozambique stands isolated as one of the few remaining countries where the potential for infrastructure sharing has to date been stifled by a lack of will around the boardroom table. Vodacom has been willing to discuss tower sharing, even getting behind TowerCo Mozambique when they tried to galvanise the market in 2012-13, but mCel has been unwilling to co-operate whilst seeing their market share eroded by Viettel, whose partnership with governing party FRELIMO via holding company SPI, has seen Movitel grab sites and subscribers at an astonishing rate. Almost as astonishing, having put up ~1,800 tough to share guy-masts, rumors now suggest SPI may be interested in selling their stake in Movitel, or selling Movitel’s sites… The plot thickens – read on!

The unfulfilled potential for infrastructure sharing in Mozambique

In this special feature:159 BMI: Viettel holds the ropes on the tower market

163 Likusasa on growth, competition and co-operation in Mozambique

166 What happened to TowerCo Mozambique?


Viettel holds the ropes on the tower marketA BMI view of the tower market in Mozambique

By Amy Cameron, MEA ICT Analyst, BMI

Viettel still an unlikely participant

Without participation from Viettel-backed Movitel, the country’s fastest growing and now largest mobile operator by subscriptions, Mozambique is unlikely to see the entry of any of Africa’s ‘big four’ tower companies into the market over the next year. However, depending on how Viettel’s strategies in Cameroon and Tanzania take shape, we believe the operator may warm to the prospect of tower sharing over time. In both markets, Viettel is up against two or more major regional players, with penetration rates already between 60-80%, and where tower sharing is the norm. Viettel initially tried to go it alone in Cameroon, but after losing most of its 3G exclusivity window to network roll-out challenges, it is understood to have eventually partnered with IHS Towers for co-location in some areas.

In Tanzania, Viettel is spending US$1bn to build out its network. Like in Mozambique, it will have a strong focus on expanding rural coverage and BMI expects it will partner with Helios Towers Tanzania in built-up urban areas, especially following the difficulties it faced in Cameroon.

In Mozambique however, Motivel entered the market when the penetration rate had just reached 30%, leaving enough room for it to invest heavily in expanding networks to underserved areas and achieve a dominant position in less than three years. By June 2014, just two years after launching services, Movitel reportedly had 2,800 cell sites in Mozambique, accounting for around 50% of total towers in the country, as well as 25,000km of fibre,

Read this article to learn:< Viettel’s appetite for tower sharing and how that may be influenced by their other African operations

< The growth of managed services in Mozambique

< The impact of regulatory pressure on tower sharing in rural areas

< What drives the potential for growth in the Mozmabican market

< The country risk factors which will affect entry into the market

Mozambique’s impressive economic growth outlook, combined with a predominantly rural population, generates good tower sharing opportunities. However, while fast-growing operator Movitel’s parent Viettel remains closed to tower sharing, the country is unlikely to become the next area of expansion for any of Sub-Saharan Africa’s leading tower companies.

Keywords: Third-party Research, Southern Africa, Third Party Research, Mozambique, Viettel, Vodacom, mCel, Market Overview, Urban vs Rural, Co-locations, Infrastructure, Sharing, Risk, New Market Entrant, Regulation, Country Risk, Skilled Workforces, BMI Analysis


accounting for 70% of total national fibre coverage. BMI estimates that by the end of 2014 Movitel had 5.1mn mobile subscriptions, giving it a market share of 33.8%, narrowly ahead of Vodacom’s 33.4% share, and driving state-owned mCel’s sharp decline to a 32.9% share.

With its wider network coverage playing a key role in rapid subscriptions growth BMI expects the operator will seek to build up a comparable range of services to its competitors, such as mobile financial services and partnerships with content providers, before thinking of outsourcing infrastructure and inviting competition into underserved regions. But Viettel’s ambitious expansion plans, in Sub-Saharan Africa and elsewhere (Peru, Myanmar, Cambodia), will stretch its financial capacity. If investment costs in these markets scale up faster than planned, then the operator may consider boosting its coffers by exploring tower sharing options in Mozambique. Vodacom and mCel explore other options

In October 2013, Israeli-based Mer Group announced that it had partnered with two of Mozambique’s leading mobile network operators to provide full turnkey tower site solutions. This includes site design, tower supply, site construction, and hybrid energy system design and implementation. BMI believes Viettel’s two competitors are the MNOs in question. Likusasa, the South African engineering and construction group, has also been contracted to build 800 sites for Vodacom in Mozambique. Strong competition from Movitel in its first 18 months of operation

pushed its rivals to reduce operational costs by outsourcing network management. This is a growing trend across Sub-Saharan Africa, with the operational savings enabling operators to maximise their capacity to invest in new services and network expansion.

While Viettel remains closed to the idea of tower sharing, BMI believes continued outsourcing of network management and partnerships with rural network specialists is a more likely course of action for Vodacom and mCel.

Increasing regulatory pressure

Viettel enjoys a strong relationship with the


Mozambican telecoms regulator and government, in no small part because its local partner SPI is owned by the ruling FRELIMO political party. SPI is a holding company and has a 29% share in Movitel.

However, the government is beginning to apply more pressure on telecoms operators to embrace network sharing in rural areas, in order to achieve universal internet access goals. In January 2015, the government announced three projects to encourage internet access in the country, among them the promotion of infrastructure sharing in rural areas.

While the government has not previously shown signs of belligerent behaviour towards foreign companies, meaning any drastic action such as

Viettel pulls aheadMozambique mobile market shares (%), 2011-2014

Source: BMI, operators


confiscation of network assets is very unlikely, it may try to apply more pressure on Movitel to consider tower sharing through SPI’s stake in the company.

Whether or not added government pressure is likely to factor into Viettel or other operators’ willingness to share infrastructure in rural areas, BMI believes it is the most cost effective approach. Mozambique has a population density of 33 persons per sq km, which is considerably lower than in regional key markets; for example Tanzania has 53.7 persons per sq km, Cameroon has 48 and Kenya has 78.5. BMI estimates that 68% of Mozambique’s population lived in rural areas in 2014, with the urban population not expected to become a majority until

2050. Even though Mozambique is set to experience strong economic growth over the five years to 2019, lower incomes and spread out populations in rural areas mean few single tenant towers are likely to be profitable. Economic boom, but politically tense

Though starting from a low base, Mozambique paints a promising picture in terms of economic growth. The country has vast reserves of both coal and natural gas. Mozambique began exporting coal in 2011 and by 2013 it already accounted for 12.2% of exports, at US$503mn, according to the latest data from the Bank of Mozambique. Exploration into new coal mines is still ongoing, underpinning BMI’s

forecast for production capacity to increase from 6.1mn tonnes in 2014 to nearly 8mn tonnes by 2019.

Meanwhile, Mozambique also has the largest proven reserves of natural gas in Sub-Saharan Africa. While the era of lower oil prices means investment into extracting the resources has been postponed, the sheer size of the reserves guarantees that they will eventually be tapped. BMI expects Mozambique to begin benefitting from natural gas exports around 2020, resulting in the sharp rise in real GDP growth to 14.5% for that year. That said, the offshore sites are likely to benefit from most of the early investment, which will limit the positive impact in terms of job creation and infrastructure development that would come alongside investment in onshore sites. Driven by rising export capacity, BMI forecasts real GDP growth to average 7.9% over the five years to 2019, and GDP per capita to double to nearly US$1,300 between 2014 and 2021.

While the majority of economic growth is set to come from the extractive sector, BMI nevertheless expects the benefits to feed through to private consumption growth. We forecast private consumption to grow by 6.3% a year on average between 2015 and 2019, well ahead of the regional growth rate of 3.3%. This macroeconomic trend is most closely tied with increased usage of telecoms services, and therefore bodes well for greater take-up of both voice and data services among consumers.

Politically, Mozambique has a more risky profile, due to ongoing tensions between the ruling

e/f = BMI estimate/forecast. Source: BMI, national sources

Positive economic outlookMozambique GDP and GDP per capita forecast, 2012-2019

Mozambique Liberation Front (FRELIMO) and the opposition Mozambican National Resistance (RENAMO). Following FRELIMO’s comprehensive win in the October 2014 general elections, RENAMO leader Afonso Dhlakama denounced the results as fraudulent and declared that his party would not take up its 89 seats in the 250-member parliament.

The party subsequently ended the boycott in early February 2015, in order to utilise voting rights for a forthcoming bill on regional autonomy in six of Mozambique’s 10 provinces.

Given FRELIMO’s decisive parliamentary majority the autonomy bill is unlikely to pass, which may in turn mobilise its supporters to take alternative action. This raises the risk of a resumption of

violent insurgency, as seen in 2013-14, which could result in considerable damage to mobile network infrastructure. However, BMI does not believe this will lead to the outbreak of another civil war.

Aside from these tensions, Mozambique’s government is grappling with pervasive corruption and poverty. Without a strong political opposition to place checks on FRELIMO, the government has limited incentive to tackle corruption, other than the risk of alienating foreign aid donors. The high levels of corruption will make it difficult to ensure the equal distribution of wealth generated from natural resources, which will have an important impact on the level of demand for telecoms services from the rural population. This is one of the key reasons for our weak growth forecast for the 3G market, where we expect 3G subscriptions


to account for just 17.3% of the entire mobile market by 2019. ConclusionWithout Viettel on board, the presence of just two other MNOs and few data-focused telecoms operators to boost tenancy rates, Mozambique is not the most attractive towers market. But it has a large and growing population of around 26.5mn, as of 2014, comparable to Ghana or Uganda, both of which have developed towers markets. Even without Viettel’s participation, it remains a sizeable market with Vodacom and mCel looking for ways to improve competitiveness by cutting costs. BMI believes this creates enough opportunity to attract some mid-tier or more specialised players to Mozambique’s towers market

Mobile Phone Subscribers ('000)

3G/4G Subscribers ('000)

Mobile Subscribers/100 Inhabitants

3G/4G Subscribers, % of mobilemarket

“ “Without Viettel on board, the presence of just two other MNOs and few data-focused telecoms operators to boost tenancy rates, Mozambique is not the most attractive towers market

e/f = BMI estimate/forecast. Source: BMI, operators

Low penetration creates attractive long term prospectsMozambique mobile and 3G forecast, 2012-2019

Growth, competition and co-operation: the tower market in MozambiqueAs three operators fight for this rapidly expanding market, the question being asked is whether shared towers can be leveraged to support growth?

TowerXchange: Tell us about Likusasa’s experience in Mozambique. Gary Staunton, CEO, Likusasa Group: Likusasa has been in Mozambique for around three years. We have mainly been doing work for Vodacom but have recently started expanding to other areas. Most of our work to date has been upcountry, in the central and northern regions, and has involved fibre optics and site builds. We have contracts for this until the end of 2015. At the moment we have about 40-50 staff in Mozambique but as of April when many of these projects will get underway, there will be more than 700 people on the ground. TowerXchange: What can you tell us about the tower networks in the country and the size of the market at present? Gary Staunton, CEO, Likusasa Group: Vodacom has rolled out just under 800 new sites in the past two to three years, which has more than doubled its network size. Even with this expansion though, it is only just coming close to MCel in terms of sites. There are around 3,000 fixed towers in the country plus 1,500-1,800 guyed mast towers mostly belonging to Movitel (Viettel). TowerXchange: Are there many rooftop sites? Gary Staunton, CEO, Likusasa Group: Out of the few hundred towers we have had to build for Vodacom there have only been 10-15 rooftops, so they represent a small percentage of the new rural sites operators are investing in. But Maputo is a rooftop

Read this article to learn:< How Viettel’s arrival has affected the Mozambican market

< What attempts at infrastructure sharing have been tried and why they haven’t been successful

< The availability of grid access in Mozambique and what backup power is needed

< Governmental and regulatory precedents affecting the tower market

Now Vietnam’s leading mobile network operator, Viettel’s rapid and aggressive entry into the Mozambican Telecommunications industry has shaken up what had become a rather predictable and steady market.

This coupled with the excitement regarding renewed economic development in the country driven by untapped gas resources and increasing market penetration, has shown that there is undoubtedly opportunity for strong growth in the market.

Gary Staunton, CEO of Likusasa Group, talks to TowerXchange about these developments, how the market has changed and the effect it has had on the operators’ appetite for tower sharing.

Keywords: Interview, Managed Services, East Africa, Mozambique, Likusasa, Mobitel, Mcel, Vodacom, O&M, Construction, Installation, Market Overview, New License, Opex Reduction, Co-locations, Infrastructure Sharing, Risk, Health & Safety, QoS, New Market Entrant, Country Risk, Rooftop Masts & Towers


Gary Staunton, CEO, Likusasa Group

market and of course, the big cities will all need some rooftops. TowerXchange: How have the market dynamics changed with Viettel entering the market so aggressively?

Gary Staunton, CEO, Likusasa Group: We weren’t trading in Mozambique when it was a duopoly, but since we’ve been there, Viettel has definitely impacted the telecoms landscape. MCel were the dominant player until around four years ago and Viettel’s Movitel did a good job of covering the country with a high quality network service in a short space of time. It has used a unique rollout model, and while they have safety, maintenance and quality challenges, the general quality of telecom service it has provided over the last three years has been very good – for instance we could use 3G service in many areas where you couldn’t even make a voice call previously.

MCel was the largest player but from an infrastructure capital investment point of view has not been very active in recent times.

Vodacom has committed to significant roll out investment and has now positioned itself as a strong contender for market leadership. All three operators are rolling out fibre optic backhaul to link up as many sites as possible, which improves quality of service enormously and reduces the load demand of the towers.


Movitel has had a positive catalysing effect on the market but whether their execution model is sustainable, is another matter. Likusasa has found Viettel hard to work with – we’re not aligned to their price levels or working cultures and so, we have not successfully concluded any business to date. TowerXchange: How has Mozambique’s rural roll-out developed over the last three years? Gary Staunton, CEO, Likusasa Group: Our general experience when arriving in new rural areas is that they were either unserved or served by Movitel and/or MCel. Vodacom was catching-up in terms of coverage. But now, Vodacom offer a good quality of service so when it switches on in new areas it is able to pick up clients quickly. TowerXchange: Is there an opportunity for infrastructure sharing for a new tower company entering Mozambique? Gary Staunton, CEO, Likusasa Group: There is a

gap for an independent tower company in the market, although it has been attempted before. I have heard that some of the major African towercos have shown interest, but there isn’t much of a culture of infra-sharing in Mozambique. Operators have struggled to find common ground with each other, although some are more proactive than others, motivated by the obvious benefits. We have, however noticed that shared sites have become a part of the current rollout project scope. In 2013/2014, a company called TowerCo Mozambique tried to establish a shared site model but it couldn’t facilitate agreement between the two main operators and unfortunately time just ran out. The company may have been successful if it had had more time, but its attempt to link major operators in a tower sharing arrangement, did perhaps set up the market for a major tower company to establish itself eventually.

While in operation, we did some work with TowerCo Mozambique on capital structures and

“ “Viettel has used a unique rollout model, and while they have safety, maintenance and quality challenges, the general quality of telecom service it has provided over the last three years has been very good

dimensioning sites to meet the expectations of multiple tenants, but the project simply stopped. I’m not sure the potential for sharing is over though – some operators have increased their network size, operators have challenges with O&M. So yes, I see an opportunity for, at the very least, a strong managed services provider, if not a tower company, to maximise the asset potential in this market. TowerXchange: How would you characterise the maturity of the 3G roll out in Mozambique? Gary Staunton, CEO, Likusasa Group: First of all Viettel have an advantage having rolled out around 1,600-1,800 3G sites around the country. Its arrival definitely accelerated the 3G rollout around the country with the result that you can expect 3G coverage in most areas from all operators and expectations from subscribers is high. Mozambique is one of the best countries in Africa in terms of quality of service I have experienced, but there are still problems with network intermittency. TowerXchange: How reliable is electricity grid access for towers in Mozambique? Gary Staunton, CEO, Likusasa Group: Mozambique will grow over the next decade and will become an energy powerhouse in Africa, but for now we are still installing diesel generators on the rural sites. EDM (Electricidade de Moçambique – the national provider) has a reasonably good transmission network by African standards. South Africa’s Eskom has been working in Mozambique, for example on the Cahora Bassa Hydroelectric Power Station, and

there are reciprocal off-take/supply agreements in place. Mozambique also participates in the SAPP – the Southern African Power Pool, however as is the case in many African countries, the distribution and grid connections need a lot of work. The country is also developing a large gas resource which is expected to drive growth for the next 10-20 years and because of this Mozambique is one of the most potentially vital economies in southern Africa.

Some of the rural sites we built have the need for backup diesel generators; other sites that have power available contend with power intermittency problems. In terms of Vodacom’s site design, we were set very tough budget constraints without compromise to its specifications. With some innovative design, manufacturing and site configuration adaption, we were able to meet this budget expectation. The design has been quite successful. TowerXchange: Do you provide the procurement services for Vodacom or is it done through VPC (Vodafone Procurement Company)? Gary Staunton, CEO, Likusasa Group: We have not worked with VPC, although they may have some involvement with the local operating company. Our scope includes the design, manufacture and installation of the towers, fences and other civil materials. Up until last year we also provided power systems but Vodacom has now taken this scope over on a direct contract, possibly through VPC.

TowerXchange: Do the existing structures in the market look shareable? Or will significant upgrade work be needed to support multiple tenants? Gary Staunton, CEO, Likusasa Group: The fixed structures definitely look shareable – many of the old towers were built with a higher capacity. With fibre optic backhaul in place, microwave dishes are no longer required, meaning that even with 2G and 3G equipment on the towers there’s still room for another operator with minimal structural improvement. However the challenge to stimulate infrastructure sharing may not be structural, it’s more about business and co-operating with competition. Mozambique is different to other countries in the region and they may still consider passive infrastructure a source of differentiation and competitive advantage, much more than in East Africa, for example. TowerXchange: Can you shed any light on the rumour that Viettel are planning to sell its tower portfolio? Gary Staunton, CEO, Likusasa Group: There’s a general rumour on the ground which would be hard to validate. Movitel is owned Viettel and a holding company run by FRELIMO (Frente de Libertação de Moçambique – the main political party in the country). Rumour has it that the idea behind Movitel was as to create the infrastructure and network and then sell it – so the motivation to


sell might come more from FRELIMO than from Viettel. But it’s all hearsay. TowerXchange: Is there much pressure from regulatory bodies to share infrastructure? Gary Staunton, CEO, Likusasa Group: Regulations in Mozambique focus on quality of service first and foremost. As far as regulations on sharing go, I think the ministry/regulator would probably respond positively to proposals on sharing with a view to improving the service to rural communities. TowerXchange: Analysts often score country risk quite high in Mozambique compared to other African countries – what has been Likusasa’s experience on the ground? Gary Staunton, CEO, Likusasa Group: Eighty per cent of our work is in the middle half of the country, where there have been a few flare ups with social and civil unrest. There’s a strong opposition to the ruling party in this region and often the way to solve things is to fight rather than through negotiation. Unrest has caused some areas to be shut off for periods of time and we’ve had to abandon sites temporarily and go back when things have calmed down a bit but most of the flare ups are localised. ISOS risk does say there are certain areas you shouldn’t travel to, but one shouldn’t generalise for the whole of Mozambique. The biggest risk to our operations remains vehicle accidents as roads in the country and general poor driver competence/vehicle state of repair are not


well regulated. Also massive floods every year around February and March can cause problems. Civil unrest is not the biggest issue – the government is doing what it can to stabilise the situation but it’s a big country with a history of civil war and it’s a young democracy. In the mining areas in Tete there is very little unrest, their biggest problem is infrastructure, which presents its own challenges.Vodacom has implemented a ground-breaking approach to HSE management, the like we have only experienced in the international resources sector (Mining, Oil & Gas, etc). It is a very challenging concept but their support and commitment has been good for the sector as a whole.

TowerXchange: How would you sum up your outlook for the future of the Mozambique economy and telecom tower market? Gary Staunton, CEO, Likusasa Group: The Mozambique economy could double if not triple GDP when they develop their gas power resources, if well managed, so the whole economy is changing to one with a vibrant economic outlook. It’s an exciting market to be in, which is one of the reasons why we’re there now. Mozambique is a very large, fibre connected economy, with three solid operators, two of which are investing substantially in their network, and lots of ISPs. At the moment Mozambique remains an operator-captive tower market, but there is definitely potential for a tower company to catalyse further efficiencies as the Mozambique telecom network expands and densifies

TowerXchange believes TowerCo Mozambique felt they had identified a niche in the African market, a country which has a limited base of potential tenants but which could very much benefit from an ‘honest broker’ to facilitate infrastructure sharing. The arrival of Viettel in the market had galvanised the two incumbents (Vodacom and MCel) to upgrade their networks. Suddenly, they were not in competition with each other so much as with a new market entrant who was picking up market share at a rapid pace. Given these circumstances, the market seemed primed for a towerco who could facilitate further network rollout for the biggest two operators. Our sources tell us that TowerCo Mozambique had reached a point of identifying 50 potential sites following high-level conversations with senior management in both Vodacom and MCel. However, achieving agreement and actually getting contracts signed was beyond their reach. After two years, TowerCo Mozambique pulled out of the market and the founders went on to different projects. TowerXchange believes that the primary sticking point which prevented an agreement being reached occurred around tenancy rates, with the operators preferring bilateral tower sharing despite the associated capex requirements

What happened to TowerCo Mozambique?

Special feature:

With the first major tower transaction in MENA imminent,

MobiNil selling an estimated 3,000-3,500 towers and Eaton

Towers widely expected to win the deal, TowerXchange

presents two further analyses of the emerging tower

industry in MENA.

We open this special feature with Delta Partners’ overview

of the tower market in North Africa, contrasting the size

of and maturity of the tower markets in Morocco, Algeria,

Tunisia, Libya and Egypt.

Meanwhile, TowerXchange understand that Zain has

commenced a process to explore the sale of towers in the

Kingdom of Saudi Arabia, Kuwait and South Sudan. We

take a closer look at those markets, speculate about the

identity of potential bidders, and consider the implications

for the MENA region, with at least one other OpCo having

already been prompted to evaluate their tower strategy.

MENA towers

Don’t miss:168 Delta Partners ask: Is North Africa the new hotspot?

171 Zain propose tower divestment in three markets

174 Eaton Towers Egypt registered


Is North Africa the new hotspot? Delta Partners’ perspective on the passive infrastructure markets in North Africa

Mobile telecom markets reaching maturity…

Algeria, Egypt, Libya, Morocco and Tunisia are all sizeable economies accounting for a total GDP of US$790bn. At present, North Africa accounts for a total of 240mn subscribers. Voice penetration is already above 100% in most markets. Data subscribers and data usage are expected to grow, fuelled by investments in 3G and LTE networks. Most countries have three mobile operators, with the exception of Libya which is a duopoly. Competition is expected to intensify, with the planned entrance of a number of MVNOs in some of the markets (e.g. Telecom Egypt move to the mobile market as an MVNO, the entrance of two MVNOs in Morocco and one MVNO in Tunisia). …while passive infrastructure markets are still in their infancy Delta Partners estimates over 65,000 mobile telecom towers in North Africa, the most sizeable countries being Egypt (~19,000 towers), Algeria (~17,500) and Morocco (~17,000), followed by Tunisia (~7,000) and Libya (~5,000). The markets in North Africa have good 2G population coverage (between 98%-100%), which indicates limited future demand for towers for coverage purposes. Therefore, future rollout is expected to be mostly driven by 3G and 4G deployments and growth. Site sharing and bartering among operators is not very common: we are only aware of Mobilis and Djezzy’s agreement to share towers in Algeria and Meditel and Wana’s agreement in Morocco.

Read this article to learn:< Update on developments in the passive infrastructure markets in Morocco, Algeria, Tunisia, Libya and Egypt< Reasons for the lack of passive infrastructure deals in North Africa< Overview of each market in terms of tower count, expected market growth and regulatory environment< Could improved macro stability and increasing focus on infrastructure sharing by operators and regulators stimulate passive infrastructure transactions in North Africa?

North Africa is a sizeable market, which boasts a number of leading international players such as Vodafone, Orange, Etisalat, Ooredoo and Zain. Unfortunately, with the exception of a potential deal in Egypt, there have not been any other passive infrastructure transactions in the region. While there are merits for passive infrastructure transactions, in the last three to five years, North African operators have had to focus on other more pressing issues such as the Arab Spring or dealings with the government or regulator. However, we are starting to see some light at the end of the tunnel, with ROIC optimisation and increasing 3G/4G investment needs and take up driving the passive infrastructure transactions discussion between operators.

Keywords: Research, Strategic Consultancy, Market Overview, Investment, 4G, Market Forecasts, New Market Entrant, Regulation, Country Risk, Sale & Leaseback, Project Finance, Infrastructure Sharing, Africa, Morocco, Algeria, Tunisia, Libya, Egypt, Vodafone, Orange, Etisalat, Ooredoo, Zain, MobiNil, Telecom Egypt, Mobilis, Djezzy, Meditel, Wana, Mobiserve, Alkan Networks, EEC Group, Tubprofil, HOI MEA, Delta Partners


Kamal Daswani, Yana Kamburova and Walid Behar, Delta Partners

However, managed services, network rollout and tower installation are well spread out and are usually provided by independent players such as Mobiserve, Alkan Networks, EEC Group and Tubprofil, which helps to set the scene before sale-leaseback agreements come into play in the future. The ongoing sale of ~3,000 towers belonging to Egypt’s Mobinil (majority owned by Orange) is the first real attempt at a sale-lease-back deal in the region. After a lengthy process spanning over two years (2013 and 2014), the transaction is expected to be completed this year. Bidders have not been disclosed. But a transaction of this sort may pave the way for future deals in the market, setting a precedent in the region.


So why have there been so few passive infrastructure transactions in North Africa? While there is no clear answer for the lack of passive infrastructure transactions in the region, a possible reason may have been due to the past Arab Spring events that have re-shaped a significant part of the political landscape of North Africa. Furthermore, North African operators may have turned their focus in the past on other more pressing issues related to network rollout, licensing requirements, competitive scenarios and dealings with the government or regulatory authority (e.g. VimpelCom’s situation with Djezzy in Algeria). However, the North African markets are showing signs of improved macro and political

stability, liberalisation and enhanced regulatory frameworks. This, coupled with the continued demand for passive infrastructure and the presence of international operators who have passive infrastructure outsourcing on their agenda, could bring North Africa back to the top of the agenda again since it adds to the diversification of the portfolios of tower operators and provides potential attractive growth prospects. From an operator’s perspective, the benefits (including the impact on ROIC) from the sale of passive infrastructure, increased competition with the introduction of MVNOs in these markets and the bigger investment requirements for network upgrades (including LTE), can make operators in North Africa re-consider the merits of passive infrastructure sale/outsourcing. More passive infrastructure activity expected in the region? North Africa is one of the last untapped passive infrastructure markets. Recent political turmoil during the Arab Spring had reduced investor confidence and raised issues regarding direct investment schemes and exit strategies. However, the improved macroeconomic stability, together with increased focus on infrastructure sharing on behalf of regulators and MNOs, has led to an improved outsourcing readiness across the region. Therefore, we expect more passive infrastructure deals to occur in the region. Driven by the presence of international mobile operators, we foresee that there will be further consolidation in North Africa, in particular Egypt, and expect to see deals in larger markets such as Algeria and Morocco

Estimated number of towers in the North Africa


Source: IMF, Wireless Intelligence, operators’ annual reports, press releases, Delta Partners analysis

Main drivers of the passive infrastructure markets in North Africa

85.8mPopulation (2014E)

GDP / Capita (PPP) (2014E)

GDP growth (2014E-17E, CAGR)

Number of mobile operators

Subscribers (2014E)

Penetration (2014E)

Estimated number of towers

Population coverage

Regulatory environment

Expected future rollout

Pass

ive

infr

astr

uct

ure

mar

ket

Mob

ile

Mar

ket

Mac

ro

Expected new entrants

Existing tower sharing prevalence (high/mid/low)

Tower managers

Networks overlap (high/mid/low)

Data subscriber growth (2014E-17E, CAGR)

$6,696

12.7%

3

96.1m

111.9%

23.8%

~19,000

99%

High

3G coverage and capacity upgrades and

potential 4G roll-out

Telecom Egypt to enter the market as an MVNO

No

Mobiserve, Alkan Networks, EEC Group,

HOI MEA

Established regulatory and passive

infrastructure licensing framework

38.7m

$7,816

3.9%

3

44.2m

114.2%

48.9%

~17,500

99%

Mid



No

Tower sharing between Mobilis and Djezzy

Mobiserve, Tubprofil

No regulation on infrastructure sharing

33.2m

$5,699

8.4%

3

44.1m

133%

33%

~17,000

99%

High



2 MVNO planned

Meditel and Wana sharing towers

N/A

Infrastructure sharing is encouraged by the

regulator

11.1m

$10,253

3.2%

3

15.2m

137.2%

21.3%

~7,000

98%

High

3G capacity upgrades and potential 4G roll-out

1 MVNO planned

No

Mobiserve

No regulation on infrastructure sharing

6.2m

$10,604

27.5%

2

10.4m

167.6%

9.8%

~5,000

100%

High



Potential new entrant

No

N/A

Infrastructure sharing is encouraged by the

regulator

Egypt Algeria Morocco Tunisia Libya

Zain propose tower divestment in three marketsTowerXchange analyses tower markets in KSA, Kuwait and South Sudan and highlights prospective bidders

Deal structure

In terms of the deal structure being proposed by Zain, we understand it is a sale and leaseback, but it’s not yet clear whether Zain wish to retain some equity. Zain are believed top be open to dividing the three country portfolio between different bidders.

The markets

The markets which are rumoured to be included are among the least profitable in Zain’s portfolio, with Saudi Arabia in particular a market in which Zain has not yet achieved profitability according to BMI’s statistics in September 2014. Nonetheless, Zain represents an attractive counterpart and prospective anchor tenant in what would be the first major tower transaction in the Middle East.

In the maturing Kuwait market, where Zain retains its position as market leader, network coverage no longer confers a significant strategic advantage and the company is coming under increasing pressure from STC-backed Viva.

In terms of Zain’s beleaguered South Sudan operation, their market share is declining, while ongoing tensions between Sudan and South Sudan, exacerbated by the power struggle between South Sudan’s President Salva Kiir and former deputy Riek Machar and the associated conflicts, have made operations extremely challenging since the country was created in 2011. At time of writing, peace talks had collapsed and the UN threatened sanctions.

Read this article to learn:< How many towers Zain plans to divest and in which markets

< The motivations for divestment in KSA, Kuwait and South Sudan

< The pool of potential buyers who may be interested to enter the Middle Eastern market

< How an initial tower sale in the region will affect the market in the region

TowerXchange understands that Zain has commenced a process to divest towers in three countries: The Kingdom of Saudi Arabia, Kuwait and South Sudan. The deal was rumored to encompass approximately 8,000 towers, but that count seems high given the number of towers Zain reportedly owns in the markets concerned. Depending on the balance of cash released versus opex reduction, a tower sale could attract between US$200-300k per site. Citi are believed to be leading the process.

Keywords: News, Editorial, Middle East, Saudi Arabia, Kuwait, South Sudan, Zain, Deal Structure, Acquisition, Valuation, 4G, Transfer Assets, Due Diligence, Opex Reduction, Tenancy Ratios, Co-locations, Infrastructure Sharing, First Mover Advantage, Sale & Leaseback


Unlike markets such as Iraq, Jordan and Sudan, where Zain’s position as market leader is supported by a superior network, divesting towers in Saudi, Kuwait and South Sudan would allow Zain to make significant efficiency savings without ceding a competitive differentiator.

Saudi Arabia

With a population of 30.6 million, a GDP per capita of US$30,600 and mobile penetration among the highest rates in the world at 179%, the Kingdom of Saudi Arabia (KSA) is a wealthy and potentially very profitable market. However Zain (20% market


share) has struggled to compete with STC (45% market share) and Mobily (34% market share) in the country since they entered the market in 2008. The announcement by Saudi Arabia’s regulator, the Communications and Information Technology Commission (CITC), in June 2013 that it had awarded three mobile virtual network operator (MVNO) licenses, two of which (Virgin and Lebara) began operation in late 2014, will also no doubt put pressure on tariffs in a market where pricing has remained flat for several years.

Although high ARPUs and cash-rich MNOs across the region are often cited as being one of the main

contributing factors to the lack of towerco activity in the region, Zain continues to carry a significant debt from the purchase of its US$6.1bn operating license when it entered the market in 2008, which could well be a significant motivator for releasing cash tied up in passive assets.

BMI suggested that in September 2014 Zain owned just 1,680 of KSA’s 30,600 towers, or 5.5% of the total towers in the market, meaning the divestment of towers in this market wouldn’t have a significant impact on the balance of operator-captive assets vs towercos. However CITC do promote tower sharing and, with continued network demands to support 3G and LTE rollout and capacity upgrades, a foothold in this wealthy market could well drive further activity for an ambitious towerco.

The potential for the Zain process to trigger other tower sales in KSA is illustrated by a tender recently issued by another KSA operator seeking to engage an advisory firm to review their tower strategy.

Kuwait

The smallest market in the deal by population, Kuwait’s 4 million inhabitants are also among the wealthiest in the world, with a GDP of US$40,200 per capita and a mobile penetration rate of 180%. Despite holding its position as market leader (44% market share) ahead of Ooredoo (38% market share), new market entrant Viva, backed by STC, has grabbed 18% of market share in the last six years and continues to grow.

“

“

With no significant towerco activity in the Middle East, the acquisition of the Zain portfolio could offer a towerco the first foothold in a potentially very profitable market. It is believed that the portfolio can be broken up by country, offering opportunities for strategic acquisitions market by market. The investment profile of Middle Eastern towers is very different from SSA, which might potentially attract different bidders, from the big US players to more niche experts in individual markets

Zain’s divestment in Kuwait would have a much larger impact on the tower market, as BMI suggested that Zain own 1,807 of Kuwait’s 5,100 towers, or 35% of total towers in the country. Although there is no regulatory imperative for tower sharing, there is a degree of network densification needed to support ongoing 3G and LTE rollouts and Zain’s passive network could represent a strong foothold in the market for the right towerco.

South Sudan

Despite a population almost three times bigger than Kuwait’s (11.3 million) South Sudan is a significantly smaller market for Zain. GDP per capita in the country stands at US$1,045 and with only 20% mobile penetration in this region. South Sudan contributed only 1% of the Zain’s total revenues before the most recent conflicts flared up. Getting cash out of the country remains a challenge to Zain monetising towers, or to any entering towerco.

Zain’s position in South Sudan has been dogged by problems since the country’s creation in 2011, as the company was ordered to shut down 43 of its towers in South Sudan in April 2012 due to fears that Sudan could be tapping calls. With only 300km of paved roads in a country roughly the size of France, fuel supply issues and a six month long rainy season complicate operations on the ground, two towercos have recently discontinued operations in South Sudan, including African market leader IHS Africa, who ended a managed

services relationship with MTN South Sudan.

However, as a country with strong natural resources, South Sudan’s mobile market has the potential for enormous growth if and when the political situation becomes more stable. 80% of the population live outside of the country’s main cities, making South Sudan a prime market for mobile payment and mobile banking solutions. In order for the South Sudanese market to take off, MNOs in the region will need to expand their networks significantly, requiring significant capex from those who still manage their own infrastructure. The growth of a towerco in South Sudan would allow MNOs to harness growth much more effectively and to limit risk in the region.

TowerXchange believes that Zain’s network of 265 towers (count again courtesy of BMI and dated to September 2014) is currently the most extensive in the country, although it is rumoured that MTN are currently investing in network rollout, creating a potential market for any towerco with appetite to take on considerable country risk.

Potential buyers

With no significant towerco activity in the Middle East, the acquisition of the Zain portfolio could offer a towerco the first foothold in a potentially very profitable market. It is believed that the portfolio can be broken up by country, offering opportunities for strategic acquisitions market by market.

The investment profile of Middle Eastern towers is very different from SSA, which might potentially attract different bidders, from the big US players to more niche experts in individual markets. Local experts Towershare, with the former President of Ericsson GCC Ray Hassan at the helm, may well see this as an opportunity to consolidate their position in the market. With a wealth of experience in the African market, Helios Towers Africa, Eaton Towers, and IHS Africa could all make a legitimate case to their investors that the Middle East represents a natural extension of their footprint, although all three are at a scale which means they may be more focused on integration and building toward an exit than on new acquisitions.

The wealthy, low risk opportunities in KSA and Kuwait may suit the investment thesis of American Tower Corporation or even tempt SBA Communications to look beyond the Western hemisphere. Protelindo may be interested – they have a lot of experience from American Tower’s early international forays in their management DNA, have already dabbled in towers outside of their home market of Indonesia, acquiring towers in the Netherlands and investing in Pan Asia Tower in Myanmar. Turkey’s Global Tower, one of the biggest towercos in Europe, has an appetite for international investment.

While tower valuations in the Middle East are expected to be high by international standards, left-field bidders for smaller components of the portfolio could include US-based Square1 Infrastructure, which already has operations in


South Africa, Nigeria and Myanmar, and TASC Towers which already has presence in Jordan. We’d expect a couple of the usual private equity firms with an appetite for towers to also submit bids.

Will a tower divestment work?

Despite Zain’s decision to divest representing the first instance of a GCC-based operator committing to sell their towers, there are still challenges in the market and considerations which will impact towercos’ appetite for acquisition and willingness to meet Zain’s asking price for these assets.

With high levels of government ownership in


Middle Eastern operators, willingness to share towers will not be driven entirely by market forces. Concerns about National Security in all three countries, driven primarily by the rise of Islamic State and ongoing civil unrest in South Sudan, means there may be reluctance to transfer control of critical network infrastructure to a commercial third party.

As a wealthy region whose business owners have access to substantial funds, there also remain questions around the willingness of GCC network operators to co-locate on third party towers and surrender the concept of the network as a strategic advantage.

There have been rumors of tower sales and joint ventures in the Middle East in the past, yet with complex ownership structured meaning there are many stakeholders to convince, no deal has been consummated to date. There remains an opportunity for Zain to achieve first mover advantage, but we expect Etisalat to maintain a watching brief and to evaluate their own tower strategy in the meantime – Etisalat were able to beat Airtel and MTN to market with their tower sale in Nigeria, attracting a healthy valuation, so we expect moves and counter-moves before the dust settles on what would be the first major tower transactions in the Middle East

“

“

With high levels of government ownership in Middle Eastern operators, willingness to share towers will not be driven entirely by market forces. Concerns about National Security in all three countries, driven primarily by the rise of Islamic State and ongoing civil unrest in South Sudan, means there may be reluctance to transfer control of critical network infrastructure to a commercial third party.

Sticking with MENA, it seems that the long anticipated MobiNil transaction may be closing in the next few weeks. Reports on the grapevine that Eaton Towers would scoop the estimated 3,500 towers have been all but confirmed with the registration of Eaton Towers Egypt Limited in the United Kingdom on March 2. Unconfirmed reports suggest MobiNil may retain selected towers in Cairo, while the status and security of the towers in Sinai remains to be seen. TowerXchange will analyse the transaction in more detail when the deal is announced

Eaton Towers Egypt Limited registered

We start our Asia coverage with our usual summary of the region’s

tower counts, towerco penetration and tower news – including our

analysis of the potential sale of Crown Castle’s Australian assets.

Our special features open with an in-depth guide to the history,

current state and future of Asia’s ‘old growth’ tower market. 70%

of India’s 400,000 towers are owned by towercos – we speak to the

leaders of India’s three largest and most leased-up portfolios: Indus

Towers, Bharti Infratel and Viom Networks.

On our last stops in this edition’s tour of Asia, TowerXchange revisits

Indonesia for a closer look at the STP-XL Axiata deal, and we check in

on Myanmar for the fifth time to report on the structure of the third

phase of the rollout.

Asia special features

Read our coverage of the Asian tower market here:5 Asia tower market overview

11 Asia tower news

36 Crown Castle Australia for sale!

180 India special feature: Indus, Infratel and Viom!

196 Indonesia: focus on STP’s XL Axiata deal

206 The Myanmar tower dossier, part five


Regional coverage:

An introduction to the Indian tower marketWith the Indian telecoms market poised for continued growth, the tower industry stands ready to support it with the world’s lowest capex costs and healthy tenancy ratios

Tower counts and telecom infrastructure coverage

With an estimated 400,000 towers, the Indian telecom industry is the world’s second largest and continues to grow rapidly; to date, India has more telecom towers than the USA (~300,000), is second only to China (~1mn towers) and India has 950 million mobile connections. Over the past seven years, operators and independent tower companies have built an average of 50,000 new towers per year and coverage now extends to 90% of the Indian territory. The Indian tower industry has been supporting this growth since its creation in 2007 with the founding of Quippo SREI (now known as Viom Networks). It was the same year that an operator first spun off its towers into a fully-owned subsidiary when Bharti Airtel created Bharti Infratel and formed the joint venture towerco Indus Towers with IDEA and Vodafone (then Hutchison). The Indian tower industry was created to make the most of telecom infrastructure, 70% of which has been built or is now operated by the towercos, and helps them to keep up with growing demand for mobile voice and increasingly data connectivity.

The Indian tower ecosystem

The Indian tower ecosystem has several unique characteristics that differentiate it from that of other markets. India’s telecoms market is very much towerco-driven thanks to the unbeatable opex and capex savings they are able to provide. Strong relationships with local suppliers of steel and other raw materials and services mean that

Read this article to learn:< The size and breakdown of the Indian tower market

< The unique characteristics of the Indian tower ecosystem

< The impact of the 2012 regulatory restructuring in the Indian market

< Growth projections for the Indian tower market

< The development of the ESCO/powerco market in India

The Indian tower market has been growing and evolving steadily since its creation in 2007. With operators keen to cooperate to achieve rapid growth and with its unique reliance on local raw materials, the Indian tower market continues to support the telecoms industry with operational excellence at a competitive price as they make the most of new spectrum. It’s also helping operators to meet environmental targets set by the government as India continues the push towards 4G and connected cities.

Keywords: Asia, Research, South Asia, Indus Towers, Bharti Infratel, R-Jio, Vodafone, Tower Count, 3G, 4G, Asia, Asia Space, Capex, Co-Locations, Densification, Editorial, Infrastructure Sharing, India, Market Overview, New License, RANsharing, Regulation, Towercos


By Ian Ferguson, Head of Asia, TowerXchange

new tower sites can cost as little as US$25,000, much lower than the global average which is around US$100,000. This means that the Indian market is also quite price sensitive and lease rates and service price points are lower than other markets, averaging ~US$500 per month. Lease rates are however somewhat determined by what the MNO tenant can afford to pay, and diesel costs are passed through at the majority of sites (although around 10,000 sites in India are operated by powercos on fixed cost contracts). When a new tenant is added both they and the existing tenants receive a 10% discount on rent. This hasn’t been widely practiced in other markets, but has been a key incentive in


the Indian market since the early days of the tower industry, and Airtel are believed to have sought a similar discount structure in their African tower sale.

The tenancy ratios of India’s five largest towercos are at or approaching 2.0, and average ~1.5 across the country, reflecting the maturity of the market.

The legacy of the 2012 restructuring

Indian telecoms regulators have been forward-thinking and flexible as the Indian tower industry has evolved over the years. In 2012 the Indian

government restructured the telecoms industry and revisited a large number of licenses that had been previously awarded, resulting in the cancellation of 122 licenses. The number of licensed mobile network operators in each Circle dropped from an average of eleven to the five that currently hold 85% of the market share. The fallout for the tower industry was instant and brutal. In the short term the number of tower tenants dropped by a double digit percentage leading to a sharp decrease in revenues. In the longer term, the restructuring has made the market more transparent and less risky; the restructuring may have resulted in fewer operators, but they make for much better tenants. In addition, towercos were forced to focus on cashflow, and on reducing opex through increased efficency and new, lighter tower designs. Even single tenant cell sites had to be profitable in India, aiming for 56-58% EBITDA per site excluding pass through.

How fast is the Indian telecoms market projected to grow?

India’s finance ministry recently announced an increased GDP growth rate between 8.1% - 8.5% for the fiscal year starting in April 2015 and this is expected to contribute to increased growth in the telecoms sector. India is already one of the world’s fastest growing mobile markets with 941 million connections in Q4 2014, representing SIM penetration of 74% (source: GSMA Intelligence), and 8.87 million subscribers added in January of 2015 alone. Both mobile voice and data services are still growing; with data penetration estimated at 25%

Indian MNOs – less is more

< Bharti Airtel 22.74%

< Vodafone India 18.69%

< Idea Cellular 15.43%

< Reliance Communications 11.84%

< BSNL 9.32%

< Aircel 8.15%

< Tata DoCoMo 6.91%

< Uninor 4.50%

< MTS India 0.98%

< Videcon 0.64%

< MTNL 0.37%

and much of this 2G - 2.5G, the operators still have a long way to go. With mobile broadband penetration at 11% a large part of the network investment is expected to focus on 1800, 2100 and 2300 MHz rather than the 900Mhz spectrum. Some estimate that the Indian telecom industry will need to build as many as 400,000 more towers over the next five years to support this, while others predict that the same results can be achieved with increased operational efficiency, tower tenancy and a smaller rollout of new towers supplemented by small cells. The government in India has also created programmes to promote connectivity in the country and increase the energy efficiency of all industries, which are sure to have an impact on the tower industry. Currently urban mobile penetration is estimated at 125%, while it is at 42% in rural areas; the Digital India initiative aims to close this gap and is calling on mobile network operators to play a key role which will drive a significant amount of new growth.

The 4G era commences

While 4G penetration in the Indian market is currently miniscule, there is every indication that it will increase quickly. Huge investments have been made on spectrum with Indian operators spending close to US$50bn on auctions over the past 4-5 years; these auctions are ongoing and expected to continue until 2018-2019. The race to bring data connectivity and ultimately 4G to the Indian market has attracted new competitors to the market including R-Jio, a subsidiary of Reliance Industries Limited. R-Jio’s recent press releases indicate a

great deal of focus on the burgeoning mobile data segment. R-Jio’s licenses for 1800Mhz and 2300 MHz spectrum will require more BTS, and they are expected to lease towers rather than build to enter the market faster. Towercos will be watching closely to see exactly what R-Jio’s strategy is, which circles they will target, and what the opportunities are.

In the most recent auctions it was mostly incumbent operators that won spectrum and now a bidding war has begun with R-Jio over the 800 MHz and 900 MHz bands that will be needed for future 4G deployments. Industry experts had believed that only R-Jio would be interested in the 800 MHz band, but now the intense competition has pushed its price up by 60% from the base level, and the 900

MHz band prices have reached nearly 90% more than their starting levels.

The Indian powerco market

Technology, innovation and operational excellence are the keys for the independent towerco value proposition, and Indian towercos are shifting their focus to streamlining their operations and reducing costs.

Originally in the tower industry the cost of diesel consumption was passed on to the tenant, demotivating investment in energy efficiency. As the focus on providing a complete managed service increases the fixed-cost energy model is


Estimated breakdown of towers owned by Indian towercos

State owned MNOs Bharat Sanchar Nigam Ltd and Mahanagar Telephone Nigam retain 70,000 towers

Viom Networks*

GTL Infrastructure

American Tower*

Tower Vision

Ascend

Indus Towers

Bharti Infratel

Reliance Infratel

20,000 40,000 60,000 80,000 100,000 120,000

114,101

50,000

43,000

29,432

12,977

8,600

4,000

35,000 49,368 - 42% equity stake in Indus Towers

becoming more popular, which also incentivises towercos or partner ESCOs to invest in energy efficiency. The migration to green energy has been resisted due to the initial capex cost, as well as O&M and management challenges in rural areas. Currently only ~1% of India’s towers are powered by renewable energy; there are approximately 4000 solar powered sites in the country, but 60,000 run diesel free with widespread use of CDC battery hybrids. Batteries are widely used, including VRLA (lead-acid) and lithium-ion. Battery banks are now the primary power source on many unreliable grid


sites, with the diesel genset being used only as a backup.

The powerco / ESCO model is becoming more prevalent and there is increasing investment from end to end; legacy assets are maintained and managed, and then replaced as required. Its estimated that in total powercos manage around 10,000 towers in the Indian market, and they are seen as a small segment with a big role to play in the future considering projected growth and government targets. In its January 2012 “Approach

Towards Green Telecommunications”, the government originally set a target for 50% of rural and 20% of urban sites to be powered by renewable energy by 2015. These targets have since been revised, with a focus being put on improving the carbon footprint through reduction in the use of diesel.

What does the future hold for the Indian tower industry?

The big question is “when will the next major tower deal in the Indian market take place?”. The 2012 restructuring resulted in a halt to the M&A activity that took place between 2007 and 2012. It seems that this is slowly starting to pick up again and there have been rumours of one or two possible transactions involving Indian and international towercos. In addition to this it is also speculated that BSNL is in the process of a carve out of its ~45,000 towers into a new subsidiary with some industry figures claiming that this is a matter of time.

In the meantime some Indian towercos are already in the process of evolving from a basic infrastructure sharing model to a full multi-service model providing end-to-end support of both passive and active network elements. Towercos are looking for new ways to help operators minimise opex and capex and become their key partners for managed services including customised site planning, energy efficiency, access to fibre networks and white label WiFi services for end users. The Indian tower market continues to be vital and innovative, and a source of inspiration for the industry as a whole

Indian tenancy ratios approaching and exceeding 2.0

Source: Q3 2014 Quarterly and 2013-14 Annual Reports, TowerXchange research

1.0

1.2

Viom Networks

2.15 2.111.97 1.90 1.84

1.45

Indus TowersBharti

InfratelAmerican

TowerReliance Infratel

GTL Infrastructure

1.4

1.6

1.8

2.0

2.2

Special feature:

India is one of the world’s largest and most innovative tower markets. Operator-led and independent towercos own 70% of the country’s 400,000 towers. Despite the notorious problems with capacity and reliability of India’s grid power, towercos have enabled over 60,000 Indian cell sites to run diesel free, and over 10,000 are operated on fixed cost contracts by RESCOs. The innovation didn’t stop with energy, however, and Indian towercos are still at the forefront of the development of new business models including end-to-end service for MNOs, access to fibre network, small cells, street furniture and white-label IBS in metro areas.

For this special feature we’ve interviewed three of the founding fathers of the Indian towerco market: Akhil Gupta, Bharti Airtel, Umang Das, Viom Networks and Bimal Dayal of Indus Towers. All three share fascinating insights into the early days of towercos and a look ahead at what’s next for the tower industry.

India case study

Don’t miss:181 Akhil Gupta, Chairman, Bharti Infratel186 Bimal Dayal, COO, Indus Towers190 Umang Das, Chief Mentor, Viom Networks


Man on a mission: Akhil Guptaon the disarmament of operatorsTowerXchange’s exclusive interview with the visionary behind Bharti Infratel, and his quest to persuade MNOs worldwide to share towers through independent towercos

TowerXchange: Can you provide a brief introduction to Bharti Infratel and give our readers an idea of your history and footprint?

Akhil Gupta, Vice Chairman, Bharti Group & Chairman, Bharti Infratel Ltd: Bharti Infratel has about 35,000 towers in 11 of the 22 telecoms circles in India, plus a 42% share in Indus Towers, which operates in 16 circles, giving us a total of 85,000 towers. One of the world’s largest towercos, Bharti Infratel is a listed entity with a US$12bn market cap today. We maintain complete neutrality and are non-discriminatory vis-à-vis all Indian MNOs; all tariffs are transparent and are the same for all clients.

TowerXchange: Thinking back on the founding of Bharti Infratel, what motivated the carve-out of tower assets?

Akhil Gupta, Vice Chairman, Bharti Group & Chairman, Bharti Infratel Ltd: Many people think it was just to raise funds but this isn’t the case; I know because I was part of the top team that developed the strategy behind this move!

We realised that operators were fundamentally ill-suited to manage passive infrastructure efficiently. They are by very nature marketeers and thus best suited to do marketing, sales, brand-building and advertising. Managing passive infrastructure is a low technology engineering job; refilling diesel on-site is critical but can seem mundane; it was often not appropriately prioritised and operators were never able to optimise opex and maintain the

Read this article to learn:< The driving principles behind the creation of Bharti Infratel

< A view of potential consolidation in the Indian towerco market

< The progress of Bharti Infratel’s Green Towers P7 Programme

< How many new tenancies will be needed for 3G and 4G, and do towercos have the capital to

deploy hundreds of thousands of additional sites?

< Why Bharti sold rather than retained their African towers

< Akhil Gupta’s vision for the extension of the towerco model

Akhil Gupta is truly one of the founding fathers of the tower industry as we know it today. He was responsible for the separation of Bharti Airtel’s passive infrastructure and subsequent founding of Bharti Infratel, one of the world’s largest and most respected towercos. He is also a co-founder of Indus Towers, a joint venture between Bharti Airtel, Vodafone and Idea Cellular, which has become the largest tower company in the world. Akhil is Vice Chairman of Bharti Group and Chairman of Bharti Infratel. He is also Chairman of TAIPA (India’s Tower and Infrastructure Providers Association) and President of TSSC (Telecom Sector Skill Council of India).

Keywords: India, Bharti Airtel, Bharti Infratel, Deal Structure, Acquisition, Investment, Opex reduction, Infrastructure sharing, Operational excellence, Operator-led JV, Infrastructure funds, Carve Out, Regulation, Indus Towers


Akhil Gupta, Vice Chairman, Bharti Group & Chairman, Bharti Infratel

best uptime. At Airtel, we had earlier outsourced IT and network management on the principle that our partners had better domain knowledge, better economies of scale and could attract better human capital vis-à-vis the activity in question. We felt we must do the same for passive infrastructure (i.e. towers) since we as an operator did not have the requisite skill set and mindset for the same. The other reason of course was that we felt that this infrastructure would need to be shared extensively amongst operators to reduce cost, especially in low tariff countries like India, which was possible only with independent towercos. However, we realised that there were no companies with those skill sets and so we decided to create a company and outsource tower maintenance to it. This is how Bharti Infratel was formed. The basic principles for the towerco were to share towers on a non-discriminatory basis amongst all operators and to have a business model that would create a win-win scenario between MNOs and towercos. Accordingly, we designed a Master Service Agreement (MSA) whereby with the addition of a second or third tenant, it would result in a lower charge for everyone. Towercos make a lot more money with a second tenant, but the anchor tenant also gets approximately 20% relief on their lease rate and energy charge. This made it a true win-win situation for both and resulted in a unique situation where a company makes more money when its existing customers start paying less than before.

The principle of sharing benefits between MNOs as more tenants come on board is fundamental to this industry, and it also ensures operators will


never find it worthwhile to build their own towers. We’re on a mission of operator disarmament – to disarm their manpower and make it economically unfeasible for them to build their own towers. I’m pleased to say that today virtually no operator in India builds its own towers.

TowerXchange: Reflecting back on the restructuring of MNO licenses in 2012, how did that change the way the tower business was run in India?

Akhil Gupta, Vice Chairman, Bharti Group & Chairman, Bharti Infratel Ltd: Since the tower business has evolved on this basis of a strong, deep-rooted win-win business model, licensing and regulatory changes have made little difference.

TowerXchange: It seems like the Indian tower market has restructured to the extent that M&A deal flow is recommencing - do you expect to see

“ “We’re on a mission of operator disarmament – to disarm their manpower and make it economically unfeasible for them to build their own towers. I’m pleased to say that today virtually no operator in India builds its own towers

consolidation among the Indian towercos in the coming year?

Akhil Gupta, Vice Chairman, Bharti Group & Chairman, Bharti Infratel Ltd: Personally, I feel there are not too many towercos in India: Infratel, Indus, Viom and Reliance Infratel have sizeable portfolios. ATC has a little over 12,000 towers, and there are a few other small tower companies. Over 85% of the total towerco-owned towers are with top three towercos.

Consolidation in the tower industry is not an important change. Having too many operators in a market causes havoc, but in the tower business it doesn’t. If I don’t have a tower at a location and say Viom does, they can offer a second or third tenant rate much cheaper than what I could offer with a new tower; this fosters the automatic co-existence of towercos. Demand is high and there are long-term contracts with our clients with pricing protection.

As a result, no towerco can offer much lower rentals for incremental business, with the result that towercos do not typically witness price wars.

TowerXchange: What are the prevailing lease rates in India?

Akhil Gupta, Vice Chairman, Bharti Group & Chairman, Bharti Infratel Ltd: Prevailing lease rates are around 32,000 rupees per calendar month (approximately US$500) for a single tenant on a ground based tower, on top of which each state has a different energy charge depending on grid availability. This is discounted to 28,000 rupees with a second tenant and 24-25,000 with a third tenant. The rates for rooftop sites are lower but with the same construct.

TowerXchange: Are there any differences in network coverage and density between the different Circles, or is it a fairly mature network across India?

Akhil Gupta, Vice Chairman, Bharti Group & Chairman, Bharti Infratel Ltd: The whole country is pretty well-served now; Airtel for instance covers about 83% of the geography and towers are deeply distributed across every state. There is more density in some Circles than others, but there are no vast areas without towers. However, many more towers will be needed for the continuing increase in data demand.

TowerXchange: What do you think of the rumored towerco launch by BSNL?

Akhil Gupta, Vice Chairman, Bharti Group & Chairman, Bharti Infratel Ltd: This would be a welcome step and it has been in the works for some time now. The sooner they can launch a towerco and make all of those towers available to operators, the sooner we can stop building parallel infrastructure. We as towercos are not in this business to put a tower in a place where we might have a single tenant for five years; the return on capital invested and return on equity wouldn’t make sense. We do not want to put up single tenant towers unless we absolutely have to. As such, I’m happy if BSNL has towers that they make available to Bharti Airtel and other operators.

TAIPA has offered to co-operate with BSNL and help them bring their 35,000 to 45,000 towers to market sooner rather than later.

TowerXchange: Tell us about Bharti Infratel’s Green Towers P7 programme, the role RESCOs are playing and could play in the future?

Akhil Gupta, Vice Chairman, Bharti Group & Chairman, Bharti Infratel Ltd: One of the major costs to operators is energy. From our point of view this isn’t a part of the business we have to make a lot of money from; we’d love to work with partners to provide the lowest cost energy by putting capex into renewable energy.

Indian grid power is not always the best, which means our networks have a historical dependence on diesel generators. We are driven by environmental issues and cost reduction to speed

up the P7 initiatives and reduce energy costs below that of diesel generator-powered units.

Ultimately a towerco is designed to run passive infrastructure; we are not a power company and have no aspiration to be a power company. If Renewal Energy Service Companies (RESCOs) can provide an electricity connection 24 hours a day 365 days a year at a reasonable price or if our clients can put in their own connections and have their own meters, that’s the ideal scenario. Until then, power is an integral part of what we do, and we’ll do what we can to make energy more efficient, and to achieve uptime SLAs with our customers.

The RESCOs in India are currently very small; a lot of companies are thinking about it and trying to raise the required capital. In the meantime our aim is to make as many towers diesel-free as we can. Currently, 23-24% of our towers are diesel-free. We manage sites with 16+ hours of grid with large battery banks; we make extensive use of efficient lithium-ion batteries that charge very quickly and have deep discharge. We also use solar energy where we can and where the conditions are suitable.

TowerXchange: How achievable are the Indian government’s green energy targets for 2015 and 2020?

Akhil Gupta, Vice Chairman, Bharti Group & Chairman, Bharti Infratel Ltd: Green energy targets are under discussion, but our stance has been that it’s the government’s job to provide electricity.


It’s unreasonable to force the telecom industry to build out renewable generation capacity beyond the reach of the grid when the telecom industry consumes a small proportion of India’s diesel.

We’re happy to install renewables on a voluntary basis, but if the government is not mandating electric cars for the automotive industry why should they mandate solar energy for cell sites? The best way to reduce carbon footprints is to provide reliable grid power and that is the responsibility of the ministry of power. It is important to note that as per an independent study by Nielsen, the telecom industry in India only accounts for less than 2% of total diesel consumed in India.

TowerXchange: Some analysts have suggested that India will need twice as many towers for the 4G era, increasing from 400,000 today to 800,000. Do you agree with such a forecast?


Akhil Gupta, Vice Chairman, Bharti Group & Chairman, Bharti Infratel Ltd: Indian MNOs have overall invested close to US$50bn in spectrum auctions to date. Most of this spectrum will be used for data networks. As more investment goes into 3G and 4G using a lot of higher frequency bands, there will be demand for cell site densification.

I’m less concerned about the increasing number of towers, but more interested in the increasing number of tenancies. There are about 600,000 tenancies in India today, and we definitely expect that to double with the continuing 3G and new 4G rollout. In our view it is not a race to build more towers, but a race to increase the number of tenancies.

TowerXchange: How will this infrastructure growth be financed? What role will the towercos continue to play?

Akhil Gupta, Vice Chairman, Bharti Group & Chairman, Bharti Infratel Ltd: The operators have put a lot of money into spectrum and active infrastructure and they do not build towers. Towercos must invest in passive infrastructure going forward.

We must make sure that when the operator’s question is build versus buy that they always buy. Towercos do a better job achieving economic and capital efficiency.

Do towercos have capital to invest in networks to keep up with data demand? It would depend on each company. At Bharti Infratel and Indus Towers we have no limitations on capex – Infratel has over US$1bn in cash, and no debt; we have a huge capacity to build whatever is needed. In addition to this we have a host of ways to extend our business model and tap into this capital to do that.

We’re looking at opportunities to put more capex into connecting towers to local fibre and transport networks, as well as replacing single operator microwave networks with a common microwave network. There is also an opportunity to wire up buildings for IBS and Wi-Fi and offer this to operators as an add-on service. 80% of data is consumed in buildings, and we can provide IBS and Wi-Fi on a white label basis so customers see their operator’s network when they use it. From that building the traffic can then be transmitted over fibre. Projects like these are capital intensive, but towercos are ideally placed to carry them out. We are running some pilot IBS and Wi-Fi projects now

“ “Do towercos have capital to invest in networks to keep up with data demand? It would depend on each company. At Bharti Infratel and Indus Towers we have no limitations on capex – Infratel has over US$1bn in cash, and no debt; we have a huge capacity to build whatever is needed

and we feel these would have strong potential.

TowerXchange: Does Bharti Infratel have any plans for international growth or will you remain focused on the domestic market?

Akhil Gupta, Vice Chairman, Bharti Group & Chairman, Bharti Infratel Ltd: We have looked at Bangladesh, but there are some important regulatory issues which need to be sorted out first. There are three main issues; the taxation of tower asset transfers; the current policy whereby the operator must retain at least 51% of the towerco (experiences in other markets have proved that it should be other way round: towercos must own at least 51% and operators a maximum of 49% to make it non-discriminatory and not under control of the operator); in addition to this VAT has to be charged, but there is no pass through. We’re seeking to meet the regulator to discuss these issues.

TowerXchange: Could you reflect on the ongoing process to divest Airtel’s African towers - what was the thinking behind selling those assets as opposed to rolling them into your own towerco as you have done in India?

Akhil Gupta, Vice Chairman, Bharti Group & Chairman, Bharti Infratel Ltd: We seriously looked at taking over Bharti Airtel’s African towers, but we realised that Africa is not a mature enough market to accept a towerco whose group company runs operations in the same country, unlike India where it is accepted that operator-owned towercos are non-discriminatory independent towercos.

As a result the decision was made to outsource this to other towercos already operating in SSA. Deals have been agreed in all of Bharti Airtel’s largest African markets, but it’s possible that due to regulatory regimes the towers in two or three countries won’t be sold. That won’t be a problem for us.

TowerXchange: What were your experiences running the African tower sale process in-house?

Akhil Gupta, Vice Chairman, Bharti Group & Chairman, Bharti Infratel Ltd: I felt if the principles and objectives of the tower sale were clear, and the process was simple and clear, we could run it in-house. The moment the second tenant came I wanted a big relief on our rental and energy costs; once that principle was established, the process became relatively simple.

We’ve been running a towerco for seven years, so we definitely had the experience to do this in-house! The transaction was not motivated by raising a few billion US$; it was more important to relieve the ongoing burden of passive infrastructure capex and transfer that infrastructure into specialised hands.

TowerXchange: Please conclude by sharing your vision for how infrastructure sharing can create value for telecoms worldwide.

Akhil Gupta, Vice Chairman, Bharti Group & Chairman, Bharti Infratel Ltd: First of all, I think TowerXchange are doing a fantastic job in bringing the efficiencies created by towercos to the forefront

of everyone’s agenda. This is one area where telecoms can adopt a similar strategy in both the emerging and developed world, and it is a primary need around the globe.

I’m a supporter and proponent of the tower industry and business model. It has now been proven that since the model is based on sweating out existing assets, there is progressively higher growth between number of towers, tenancies, revenues, EBITDA, EBIT and PBT for a tower company. The other striking feature of the towerco model is our long term contracts and consequent predictable revenue stream and strong free cash flows.

Our vision for the next three to five years is to get all the passive infrastructure out of the hands of the MNOs. Infrastructure needs to be shared – gone are the days when owning towers conferred a competitive advantage. Nobody has ever been able to stop a competitor putting up a tower next door, but the efficiencies that can be achieved by sharing towers are undeniably compelling.

I do believe that outsourcing passive infrastructure to towercos creates significant value for telecom companies. While huge capex on towers by an operator is always a drag on its valuation, a towerco gets a multiple of the same as value due to better capital productivity


Akhil Gupta is the latest member of the TowerXchange “Inner Circle” Informal Advisory board.

Indus Towers on the implications of the spectrum auctions, plus how they made 40,000 cell sites run diesel-freeCreating optimised, environmentally friendly, shared infrastructure to support continuing skyrocketing demand for data and connectivity in India

TowerXchange: Indus Towers is the most famous example of a joint venture towerco in the world - looking back at the history of the company, how were Airtel, Hutchison (now Vodafone) and IDEA able to structure a joint venture where many other operators in other markets had failed?

Bimal Dayal, COO, Indus Towers: Firstly the purpose for which Indus Towers was formed was very clear amongst the shareholders from the outset and remains clear to this day. Indus Towers was formed to share expensive passive infrastructure. Transferring assets to a joint venture towerco represents a good method of taking cost out of the system.

As competition intensifies, passive infrastructure costs are becoming the biggest line item for MNOs. Total opex which the towercos represent is over 30% of Indian MNOs’ total costs; a very significant part of opex which needs to be constantly optimised. All the operators have achieved the optimisation we set out to achieve, and our stakeholders have recognised the same. We must give credit to our operator shareholders who brought together their operating teams and, also enabled the Indus Board to be distinct from the people who run operations within each MNO.

These ‘Chinese Walls’ are important – without them, Indus wouldn’t have reached where it stands today.

TowerXchange: We’ve seen many attempts to form joint venture towercos elsewhere in the world flounder due to boardroom politics –

Read this article to learn:< How to overcome common obstacles associated with creating a joint venture towerco< The challenges predicting new infrastructure required to support 4G data demand< The implications of recent spectrum auctions in India< Indus Towers’ vision for Smart Cities: supplementing macro sites with a heterogeneous layer< Indus Towers’ award-winning green energy project

The world’s largest and most renowned joint-venture towerco, Indus Towers has been hard at work efficiently providing passive infrastructure on a non-discriminatory basis to Indian telecom operators and wireless broadband service providers since its founding in 2007. The company is actively upgrading its portfolio to reduce its carbon footprint and increase its efficiency, and is also playing an important role in the development of India’s Smart Cities.

Keywords: Indus Towers, India, Towercos, MNOs, Operational excellence, 3G, 4G, Opex reduction, Managed services, Energy efficiency


Bimal Dayal, COO, Indus Towers

shareholders not being able to agree on equity ownership, assets injected et cetera. How did Indus Towers overcome such challenges?

Bimal Dayal, COO, Indus Towers: Leadership plays a vital role in this; I’d be lying if I said that the determination of which assets would be included in the venture, and the impact on the equity ownership of the company, was not an issue.

It was critical that the three parties looked at their own benefits rather than comparing with their competitors.

It came out as a big commitment from Indus shareholders, to go down this route of collaboration with competitors. It took about 6-8 months to arrive at a resolution to integrate certain assets and to transform them into equity.

TowerXchange: How will the latest round of spectrum auctions affect the Indian tower market in terms of capital?

Bimal Dayal, COO, Indus Towers: The auction concluded yesterday, and my colleague and I were speculating about the implications for Indian’s leading MNOs’ debt to equity ratio, and whether it would lead to dilution. Each MNO’s investment in spectrum has been particularly impressive given that it has been funded on their own balance sheets.

The way the auction has played out, each large player has consolidated its position, retained and added spectrum. Those with spectrum are set to


accelerate their rollouts, deploying capex to gain market share before their competitors ‘eat their lunch’. There will probably be further consolidation among the smaller operators left without spectrum.

2014 was a very good year for Indian towercos, and next year will be even better – demand for new sites will outstrip supply.

TowerXchange: Where is the bottleneck when demand for new sites outstrips supply?

Bimal Dayal, COO, Indus Towers: Site acquisition is always the biggest bottleneck. From our perspective, our capability to deliver sites is adequate, though at

a high level, it’s the policy framework that makes it difficult to acquire sites. Even though the big cities already seem cluttered with cell sites, there are hot spots where the operators need more capacity and therefore more sites. Today, it is becoming challenging to acquire new sites especially in city areas. The policy framework is still under evolution in most states, so it can be tough to complete due diligence and attain statutory compliances for acquiring sites. At the same time, landlords have become more knowledgeable and rental benchmarks are rising. The issues concerning EMF and other reservations from neighbors and societies further add to the challenges we face on the ground. TowerXchange: Some analysts have suggested that India will need twice as many towers for the 4G era, increasing from 400,000 today to 800,000. Do you agree with this forecast? How will this infrastructure growth be financed, and what role will the towercos continue to play?

Bimal Dayal, COO, Indus Towers: I must emphasise the growth of data in the Indian market, driven by competitive pressures and customers’ increasing willingness to pay for and consume data. Phenomenal like-for-like traffic growth means more towers are needed, but forecasting the number of new towers needed for 4G is challenging as the situation remains dynamic. If 4G is rolled out on 800 or 900 MHz spectrum that’s one thing, but if 4G comes in on 2.3 GHz we would need many more towers; it’s all down to physics. If the ball rolls in either direction we’ll still need more towers, but with more widespread cell splitting.

“

“

If 4G is rolled out on 800 or 900 MHz spectrum that’s one thing, but if 4G comes in on 2.3 GHz we would need many more towers; it’s all down to physics

TowerXchange: Indus Towers just announced a plan to use streetlights as towers; could you share some more detail on this?

Bimal Dayal, COO, Indus Towers: We have a variety of infrastructure going in at street level; the street furniture or street lights can all be used as sites for small cells. This change is happening as we speak for operator network rollouts and it represents a big change for the towercos.

This strategy must be viewed in the context of India’s ongoing plans to develop cities as Smart Cities. This is a major ambition of the country’s leadership and the ministries are trying to create their own definition of a Smart City. The way I’ve been trying to position the towerco’s role in the Smart City is straightforward; it’s not about bricks and mortar but about digital connectivity. Smart grids, Wi-Fi and smart signaling all need high bandwidth digital connectivity and that’s exactly what a towerco provides.

Our role in the Smart City is to take street infrastructure and strengthen it to give seamless corridors for Wi-Fi, 2G, 3G or 4G to any operator. We are operator agnostic – anyone can put up their antennas and equipment at our sites. This means transitioning from tens of macro sites to suddenly talking about 20,000 small cells and micro cells in one go; it completely changes the equation.

TowerXchange: What are the operational implications as towercos supplement their existing macro network with a heterogeneous network layer?

Bimal Dayal, COO, Indus Towers: At macro sites, our biggest operational challenge is keeping the sites on because of limited power availability; India is still an energy deficit country. The small cell rollout is at street level mostly in larger cities. We will not be powering any with diesel. These are low or no maintenance sites using specialised equipment and are concentrated in urban areas.

Personally I feel the operations and maintenance challenge of street furniture will ease relative to the macro network, and I look on it as a very positive development in terms of reducing the complexity of network management. It will reduce the time taken to maintain power systems and ensure uptime which requires maintenance of all sorts of equipment at a macro site. This is a great way to break that cycle and deliver energy efficiency.

TowerXchange: Do you have any idea how many micro cells and small cells are in Indian networks, or at least in Indus Towers’ network today, and how those numbers may increase in the coming two to three years? And do you anticipate the majority of such new sites being installed by towercos as opposed to MNOs?

Bimal Dayal, COO, Indus Towers: Though I may not have the exact number on the records, there should be a good number of micro/small cell sites installed in the country. These sites especially provide street coverage and we have a few installed in places like Ahmedabad. With the advent of 4G and the government’s focus on Smart Cities, I believe there is an opportunity to reach at least 15-20,000 small/micro cell sites across the country in the next three years.

The role of towercos is essential in the smart cities landscape. Being MNO neutral in providing services, towercos should see a good opportunity in this business in comparison to MNOs themselves. On the other side, MNOs may not be able to achieve the scale and efficiency against the levels of


“ “This means transitioning from tens of macro sites to suddenly talking about 20,000 small cells and micro cells in one go; it completely changes the equation

investment required for these projects.

TowerXchange: India has a very mature independent towerco market; do you expect to see consolidation in the near term or do you think the competitive landscape will remain stable?

Bimal Dayal, COO, Indus Towers: There have been many attempts at consolidation and there are ongoing talks, so I can’t say it’s not going to happen. The requirement for many more towers and many more tenancies on long term leases makes this business very attractive for people to pick up. Let’s watch this space together.

TowerXchange: Congratulations on Indus Towers’ recent GSMA Green Mobile Award. Tell us about your green energy project to transform 35,000 sites to zero diesel consumption, leveraging FCUs, smart batteries and other innovations.

Bimal Dayal, COO, Indus Towers: This is the 4th year in a row Indus Towers have been nominated for the GSMA Green Mobile Award, and the second time we’ve won the award, all for different initiatives.

The initiative for which we won the award this year was for converting existing sites from indoor to outdoor, switching off the air conditioning and using Free Cooling Units or other technologies. If we switch off air conditioning, power consumption falls by more than 25% like for like. When consumption falls by that amount, we can put larger battery


banks onto the site and remove diesel completely. Through this intervention alone, we have saved 35 million litres of diesel, and our customers have benefitted phenomenally and have appreciated this initiative.

The beauty of such investments is that you do it once and you benefit from savings over a period; the overall impact is nearly perennial. Across our portfolio, Indus Towers has converted 25,000 sites from indoor to outdoor – currently almost 40,000 sites run diesel free.

Our Green Site programme is a different project, focused on enhancing battery bank capacity so we don’t have to use diesel.

TowerXchange: You conclude by mentioning the Green site programme - can you talk to us about the energy storage technologies you have used to eliminate diesel from tens of thousands of cell

sites - under what circumstances are lead-acid batteries sufficient, and under what conditions is it worth investing in Lithium-Ion? And have you piloted any other advanced batteries?

Bimal Dayal, COO, Indus Towers: Indus has always been exploring innovative solutions to reduce diesel at sites. We have been using VRLA+ batteries to provide enhanced backup during power outages. We have also initiated installation of Li-ion batteries, especially in the areas where we have long power cuts with intermittent power supply. VRLA+ battery solutions take a long time to charge and are more suitable for sites with random power outages, whereas Li-ion support long outages owing to their fast charging capabilities. We have also initiated installation of a combination of both battery solutions to support our movement towards zero diesel at a site. Our technology team has designed innovative combo solutions with the one outcome being diesel abatement

“ “If we switch off air conditioning, power consumption falls by more than 25% like for like. When consumption falls by that amount, we can put larger battery banks onto the site and remove diesel completely. Through this intervention alone, we have saved 35 million litres of diesel

A history of the Indian tower industry, told through the lens of pioneers Viom NetworksScaling from 50 to 43,000 towers and an end-to-end infrastructure model

TowerXchange: How did the Indian mobile market develop prior to the launch of tower companies, and what was your experience of that evolution?

Umang Das, Chief Mentor, Viom Networks: I got into the industry in the year 1987, at the outset of the privatisation of Indian telecom. Prior to that year, everything had been controlled by the government’s Department of Telecommunications. We were taking baby steps towards introducing the first telephone instrument and data terminals. At that time, the policy had been introduced to allow Indian companies to form joint-ventures with foreign companies and there were licences given out for various product and service streams in telecom.

After pioneering the telecom business with Compton Greaves, we started initiating the GSM technology in 1994 and the cellular business started taking hold in the country. By this time, I switched over to the Modi Group, a leading venture group and investor in new technologies. The government issued the first ever eight GSM licenses in the four biggest cities in India. We partnered with Telstra to start Modi Telstra and secured one of the two licenses in Calcutta. At that time, we had limited knowledge about the industry, however, we were committed to introduce the mobile services in India.

Having secured the license at the end of November 1994, we enabled the first mobile phone call in India to be made just eight months later on 31 July 1995. This first mobile call was made between the then Minister of Communications of India and the then

Read this article to learn:< Tracing the origins of the mobile and towerco industries in India

< The development of India’s towerco model and the first steps

< How the Indian tower industry achieved scale

< How India’s first US$1bn tower transaction was funded

< How the capex cost for a greenfield tower in India decreased from US$200,000 to US$25,000

Umang Das is a man who needs no introduction in the tower industry in India. Starting out in 1987, Umang has been involved with the mobile communications industry in India since its inception, and was also responsible for the creation of India’s first independent towerco. All these years, guiding the fledgling industry past early obstacles until a tipping point in 2005 when scale was achieved. Now Umang focusses his energy on defining the next steps for the tower industry, and identifying new opportunities for the development of telecom infrastructure and its benefits for the society.

Keywords: India, Asia, Viom Networks, C-Level Perspective, MNOs, Towercos, Monitoring & Management, Investors, O&M, Construction, Capex, Opex Reduction


Umang Das, Chief Mentor, Viom Networks

Chief Minister of West Bengal.

Our TEC certification came through on 7 August, hence enabling our full commercial launch on 23 August 1995. This was the first commercial mobile launch in India.

By 1995 tenders opened up mobile telecommunications for the rest of the country, so in addition to Calcutta we won two more prime circles – Punjab, the “granary of India”, and Karnataka, which includes Bangalore, India’s IT hub.

Once again, we were the first to roll out in both new circles launched under the brand name - Spice Telecom, a Modi Group joint venture with Motorola and Distacom. The company was led by Dr. B K Modi and partnered with Rick Siemens, ex-Hutchison. I was appointed as the Managing Director of Spice, the first consumer oriented mobile brand in India. We completed in 1996, the launch of mobile services in Punjab and Karnataka – which were again the ‘firsts’ for these circles. However, the biggest obstacles remained in form of licensing costs.

The initial slow pace of rollout in India dramatically accelerated in 1999 when the government made a forward-looking shift from fixed license fees to a revenue share regime. With the fixed license fee frozen and thereafter a percentage of revenue shared with government, paying license fees out of what you earned made sense.

From 1999 onwards, Indian telecoms saw sharp


growth. The initial two operators per circle were joined by the mandatory government operators BSNL and MTNL, and joined in many circles by fourth operators including Reliance and other companies. Whereas prior to 1999 the business had focused on educating consumers on why to use mobile when it was more expensive than fixed line telephony, after 1999 the new entrants and fierce competition pushed down tariffs.

TowerXchange: Was this about the time you started to realise there was an opportunity to share infrastructure?

Umang Das, Chief Mentor, Viom Networks: All the operators needed a lot of infrastructure. India is a huge geographical area and to provide full coverage you needed around 45,000 towers. No operators were all-India at that time. We all had certain

“ “With a degree of natural comfort in dialogue among operators, we asked ourselves “why not share towers?”

circles and in the case of Spice Telecom, we needed 3000-4000 towers per circle. So, we needed more than 10,000 towers. Each individual site by itself would then cost around US$200,000; hence towers represented 70% of network costs.

Around this time, my friend, TV Ramachandran and I catalysed the formation of the COAI (Cellular Operators Association of India) with all of the MNOs (Mobile Network Operators). Mr. Ramachandran became the fulltime Director General, and Dr. B.K. Modi became the Chairman. With a degree of natural comfort in dialogue among operators, we asked ourselves “why not share towers?” However, the early days of tower sharing in 1999-2000 were limited to barters; these were not as successful because people kept their cards close to their chests. They treated towers like the family jewels, and the operations guys still thought differently from the shareholders. Those initial barters were un-invoiced exchanges and if one party had 500 towers in an area, and another 1,500, then 500 would be the most that could be shared.

TowerXchange: When did barters give way to commercial leases and the first independent towerco business models in India?

Umang Das, Chief Mentor, Viom Networks: The first breakthrough was in 2005 when I was still Managing Director of Spice. I told Dr. Modi that because we were restricted to just three circles while other players such as Airtel, Reliance and Hutchison had made acquisitions to be present in more circles and were looking like all-India

operators. To compete with them, we had to roll-out rapidly and be innovative. If 70% of capex goes into passive infrastructure, why not partner with one of the infrastructure companies that were not operator owned?

In the year 2005-06, we contracted with Quippo, the equipment leasing firm of SREI. SREI is driven by Hemant and Sunil Kanoria, two entrepreneurs renowned for infrastructure finance and leasing of equipment for construction, roads, ports, oil et cetera. Given the 15-20 year licenses the operators had signed, we proposed to the Kanorias to get into the long term contracts that the tower and telecom business represented. Sunil was very entrepreneurial and accepted the idea, and our first order for independent infrastructure led to the building of 50 towers in Punjab. Spice Telecom had converted the capex model to an opex model – instead of funding the towers with capex, we had to pay rental, but the rental was pretty high. Together with the Kanoria brothers, we encouraged other operators to share the infrastructure.

Our first target was Hutchison, whose CEO Asim Ghosh was a friend of mine. We asked Asim, why not share our 50 towers? His initial response was not positive as he preferred to build his own towers. However, we reasoned with Asim that time to market and revenue generation would negate the adverse effect on EBITDA of the rental costs, so he took a leap of faith and acquired tenancies on many of those first 50 towers. This suited Spice because we got a 10-15% discount on rental rates, and of course it suited Quippo SREI because they had

two tenants instead of one. Hutchison soon found it was good a idea – they suddenly had 50 towers providing new revenue and new customers with a lower rental rate, and they achieved this much faster than building their own.

Those first 50 towers represented the birth of the shared infrastructure, independent towerco business model in India. We took the idea to Bharti Airtel and met Mr. Sunil Bharti Mittal, and before long had both Hutchison and Airtel agreeing to the principle of co-location.

Meanwhile some UK private equity investors – Ashmore Group – and some partners from Israel started Tower Vision. Tower Vision had sites in Karnataka, so both of the original independent towercos were partners of Spice. We also brought Quippo into Karnataka – Quippo were agile and had a strong balance sheet, so could invest without advances. With the help of our local contacts they were able to get to market quickly.

TowerXchange: How did the tower industry reach scale in India?

Umang Das, Chief Mentor, Viom Networks: I distinctly remember TV Ramachandran and I meeting with the then Minister of Communications, whose enthusiasm for infrastructure sharing was critical to the creation of “Project MOST” (Multi Operator Shared Towers), a government supported programme created in late 2006 to early 2007.

This generated a lot of excitement about independently owned infrastructure companies backed by the government.

Around this time, Airtel, Hutchison and Idea started to set up their own towerco by pooling their existing tower assets. Indus Towers was conceived in 2006, and had an impact from 2007-08, starting with 70,000 towers from day one. As a 100% shareholder-owned entity, it was quite distinct from Quippo, which was 100% non-operator owned. While Indus


“ “Hutchison soon found it was good idea – they suddenly had 50 towers providing new revenue and new customers with a lower rental rate, and they achieved this much faster than building their own

was larger in volume, almost all their initial tenants were internal and there was limited external marketing of the towers for three or four years whilst they tackled problems with overlapping sites. Between 2006 and 2008, Quippo grew from those initial 50 to 5,000 towers through acquisition. The independent status of Quippo Telecom Infrastructure Ltd. gave tenants more comfort, so our tenancy ratio rose to 2.5 and beyond.

After the partners in Indus Towers hived off their 70,000 towers, Reliance and Tata followed. Reliance hived off assets into their own 100% owned towerco, while Tata Teleservices hived off their assets into 100% owned WTTIL. However, WTTIL invited the participation of another towerco to manage and run the entity, and Quippo bid for and won the rights to merge their 13,000 towers. Now, the Tata-Quippo joint venture portfolio grew to 18,000 towers. In doing so, Quippo became a significant entity and we decided being pioneers was not good enough unless we were growing!

Another seven or eight operators entered the Indian market in 2008, and several decided that the only way for faster rollout was to launch through independent towercos who would provide them with an existing platform and due focus as customer clients. In particular, Uninor, Telenor’s Indian opco, became the only company to proudly proclaim that they didn’t invest a dime in building their own towers. We were able to share the roll-out between Uninor and Tata Teleservices and provided them with a pan-India footprint. By sharing with each other, Tata Teleservices and Uninor were


able to become all-India operators. Our work with Uninor gave Quippo the opportunity to rollout 16,000 towers in a single year - a world record in its own right for the sheer scale of deployment across a massive geography like India. This made our tower count jumped to over 36,000 in 2009-10, with a tenancy ratio of 2.3.

TowerXchange: How did you finance India’s first US$bn tower transaction with WTTIL? What were the main challenges in integrating and scaling the combined Tata-Quippo business, and how were those challenges overcome?

Umang Das, Chief Mentor, Viom Networks: It was a big challenge to merge two distinct cultures in one merged entity. Tata were very process-oriented, whereas Quippo had a more entrepreneurial mindset. So, we hired McKinsey to advise on strategy, whereas KPMG was hired to advise on operationalising the integration. From these learnings, came the ‘War room’ concept which is a 360 degree approach towards ‘no surprises’ strategy wherein all key stakeholders, including customers, operations personnel and field workforce, periodically sit together to ensure transparency and speedy resolution of issues. Conceptualized and initiated by us, the ‘war room’ soon became a popular and well-accepted concept across the industry.

Our second challenge was figuring out how to roll out 1,500-1,800 towers per month, three to four times the volume we had been historically doing. The operational aspects of the rollout were best

understood by SREI Quippo, so the governance model ensured all operations were led by Sunil Kanoria as Vice Chairman. While we created accountability to timelines et cetera, our roll out capacity scale-up was driven by the Kanoria family, who leveraged their contacts with vendors to boost our output from 500 to 1,500-1,800 towers per month.

The third challenge was raising over US$1bn of acquisition capital. Raising even US$1bn is not difficult if you have a solid business model, and reliable shareholding partners. Tata had a tremendous brand, and SREI were very good at fund raising, financing and leasing. With all of that in their DNA, SREI could manage bank contacts to raise big capital.

TowerXchange: If the market entry and rollout for Uninor represented ‘the good times’ for Viom Networks, did the cancellation of 122 MNO licenses in 2012 represent ‘the bad times’?

Umang Das, Chief Mentor, Viom Networks: While the cancellation of 122 licenses had put the telecom industry in India on a stand-still mode with lot of uncertainty, the tower industry also faced a huge brunt with companies like us facing a set-back of close to 15,000 tenancies. As a company we decide to sit back and re-strategize the way business should be done and resultantly, we managed to record our maiden profit in one of the most difficult periods in the year 2012.

The loss of all those tenancies helped us focus on

cash flow, on reducing opex, and on consolidating our relationships with the incumbent market leading operators. Our profit margins have increased year on year ever since. It became critical that we could still make healthy IRR. Our idea is to exceed 20% IRR even with a single tenant on a tower. We developed tower designs for structures that were not necessarily shared at the outset, but which had a modular design so they could be easily upgraded for additional tenants. As tower designs became lighter and lighter, we became highly cost optimised.

TowerXchange: Given your economies of scale and accumulated experience, how far have you been able to drive down costs, for example the capital cost of a new tower which you mentioned was once US$200,000 at the outset of the mobile telephony era in India at the turn of the millennium.

Umang Das, Chief Mentor, Viom Networks: One of the key value adds of infrastructure sharing is bringing down costs. As a result of focusing on quality, innovation and cost reduction, towers which once cost US$200,000 to roll out each were brought to down to US$50,000, and today below US$25,000. India has the lowest cost tower rollouts in the world. In that context, I find it hard to understand US$200,000 per tower valuations in Africa. That high cost structure is going to prove difficult to sustain in the long term; the key to success will be the optimisation of costs.

We achieved this sizable reduction from US$200,000

to under US$25,000 per tower in India through five key strategies:

1. Using lighter, simpler tower structure designs, we went site to site evaluating the wind speed and wind load capacity. There is a big difference in the weight of steel one needs to deploy for 40kph compared to 200kph. Every new site was audited to determine whether an angular, tripod or four legged tower was needed. One of our key differentiators is strong R&D and design team in which we have invested US$25mn per year.

2. Optimising power management. We have managed to deliver a better outcome for every litre of diesel put into gensets by identifying and reducing over-consumption.

3. O&M is a big black box with lots of scope for cost optimisation, including site security.

4. Smarter negotiations with landlords, and equipment and service providers. Both of these relationships are based treating them as partners, not as suppliers.

5. We appointed hundreds of “Asset Managers” – business managers with total responsibility for 40 sites each. The Asset Managers use their local knowledge and resources to optimise each site under their responsibility.

Most important of all was to be more than just infrastructure suppliers to our customers; we had to understand them and develop deep relationships.

This may sound ‘soft’ but it delivered real financial results!

TowerXchange: Do you anticipate there being consolidation among India’s towercos in the near future?

Umang Das, Chief Mentor, Viom Networks: I don’t think small towercos with less than 5,000 towers will be able to survive and we see consolidation happening in the market. Increasingly, the threshold for scale is at 40,000-50,000 towers in India and smaller towercos are not able to secure customer confidence to grow so I don’t see many new players coming in.

India is largely driven by operator growth and in the latest auction, spectrum was acquired by India’s existing MNOs, strengthening their competitive position and getting them into the 800-900 MHz band.

TowerXchange: Should the towerco business model extend beyond passive infrastructure into active equipment?

Umang Das, Chief Mentor, Viom Networks: Yes, we should extend beyond passive infrastructure sharing. Expanding the scope of our offering is critical in the context of data demand growth.

As long ago as 2008-09, government policy permitted active and passive infrastructure sharing. My vision is to create an end-to-end infrastructure outsourcing strategy, a win-win partnership


between towercos and MNOs. This will enable MNOs to almost become MVNOs, focusing on VAS and customer care, while their towerco partners focus on infrastructure end to end. We might have been a bit soon for the market when we formed and took over Quippo Telecom Infrastructure Limited, and later became Viom Networks. This trend of ‘end-to-end infra solutions’ is now the way forward for all established mobile operators.

TowerXchange: What is the scale of the Indian tower industry and of Viom Networks today, and what does the future hold?

Umang Das, Chief Mentor, Viom Networks: With mobile coverage almost achieved in India, and over 400,000 towers in the country, the remaining requirements are for rural sites and urban infill sites. Viom Networks are looking at widening our portfolio, and entering new markets, while continuing to optimise costs. However, our core business remains our existing towers and


customers. Today Viom Networks owns 43, 000 towers with over 100,000 tenancies with a tenancy ratio of 2.4, the highest in the Indian tower industry. Our independent, shared model is a proven win-win for all operators. We reduce opex, eliminate capex and eliminate the management headache of managing passive infrastructure. I feel that towers are not just for the telecom industry – a tower can be an ‘oasis in the desert’ for the provision of financial, education, government, and other valuable end-user services. India’s towercos have been granted infrastructure status in recognition that our towers represent an integral part of the country.

The data revolution also creates opportunities to expand our portfolio and profile into fibre, the active part of the solution. We believe that any items we can share on a site: the tower, power, fibre and antennae should all be shared.

Both in my capacity as Chief Mentor of Viom

Networks and DG of TAIPA, we are interested in independent energy entities seeking to provide decentralised power solutions beyond the reach of electricity boards. Just like independent towercos helped MNOs focus on their core business, so the ESCOs can support towercos as their anchor tenants while also offering utility power, streetlights and other services to the local community.

My focus is now on creating new growth strategies and determining how Viom and the tower industry can add value through end to end service provision including passive infrastructure, power, fibre and other active infrastructure. From a multi-dimensional applications approach, one of the most recent and interesting examples in New Delhi is utilizing the 20 sq ft space of a street pole to offer services such as Wi-Fi, electronic surveillance, with fibre connectivity in addition to conventional street lighting.

In terms of international growth, as the only independent, non-operator-owned towerco of scale in India, Viom Networks is the only towerco who are developing markets overseas. We have looked at Africa, Myanmar amongst others with energy management as a unique entry strategy. We have already become a knowledge partner to several operators and are getting into the EPC and Managed Services model in Myanmar and Africa – a pioneering concept for emerging markets

“ “My focus is now on creating new growth strategies and determining how Viom and the tower industry can add value through end to end service provision including passive infrastructure, power, fibre and other active infrastructure

Umang Das recently joined the TowerXchange “Inner Circle” informal advisory board.

Special feature:

TowerXchange’s coverage of STP’s acquisition of 3,500 towers from XL Axiata prompted an interesting meeting with Nobel Tanihaha, President Director of STP, which provided fuel for an editorial exploring Nobel’s justification for the transaction, which was critical to STP’s recent successful first bond issuance. One of the analyst firms that had challenged the STP-XL Axiata deal, Moody’s Investors Service, puts their view of that deal into a broader context in the first of a new regular column from the renowned credit ratings and research firm. Nidhi Dhuruv compares the debt profiles of Indonesia’s three leading towercos, Protelindo, Tower Bersama and STP, and identifies the towerco with the greatest financial flexibility to make a significant debt-funded acquisition in the next 12-18 months. Readers will note a difference between Moody’s and STP’s evaluation of the proportion of STPs tenants from Indonesia’s ‘Big Four’ MNOs. This can be explained by the fact that STP includes Hutchison 3 as one of the Big Four, whereas Moody’s don’t. Also, STP may be referring to a pro-forma tenant composition reflecting full year revenues from the XL towers; given the transaction only closed on 23 Dec, the full year 2014 numbers are not entirely reflective. This special feature concludes with an interview with strategic advisory firm Detecon, veterans of several tower transaction due diligence assignments, who put the Indonesian tower industry into the broader context of the Southeast Asian tower market.

Indonesia case study, part 2

In this special feature:197 Why the STP-XL Axiata deal made sense for the towerco200 Moody’s compares the debt profiles of Protelindo, TBI and STP202 Detecon’s guide to the South Asian tower markets


Why the STP-XL Axiata dealmade sense for the towercoNobel Tanihaha met TowerXchange three months after the deal and clarified the rationale behind it

The December 2014 STP-XL Axiata deal consolidated STP’s position as number three towerco in Indonesia with 6,651 sites, behind Tower Bersama (with 15,195 towers) and Protelindo (11,216) but was criticised by commentators for terms such as discounted rental rates which could create a harmful precedent in the industry.

However, if we look at the consequences of the deal as explained by the company’s President, Nobel Tanihaha, it becomes clear that STP has created a lot of value through this transaction.

At the time of the transaction, Moody’s suggested that “the (XL Axiata) sale is credit negative for the Indonesian tower industry because it increases the probability of increased price competition”. On the other hand, Fitch said “Fitch does not view the XL/STP deal as setting a precedent for tower rental pricing, and should not lead to heightened price competition. In sale and lease-back transactions, low lease rental payments can be offset by larger up-front cash payments, so they do not necessarily act as pricing benchmarks for standard non-sale leasing agreements.”

Nobel’s commented on the topic during our meeting in Barcelona “I tend to agree more with the Fitch view. Just to add more on the topic, a sale and lease back deal should not be viewed in the same way as new build or co-location. Sale and lease back is about IRR on the deal which connects lease rate and sale price. It has nothing to do with new construction and co-location pricing. Greenfield projects have different dynamics of costs depending

Read this article to learn:< Why the STP-XL Axiata deal made sense for the Indonesian towerco

< Specific terms and conditions that created value for STP

< The positive outcome of the deal: the first company’s bond

< STP’s diversifying revenue streams

In December 2014, STP closed a transformational 3,500 site deal with XL Axiata, a deal which concentrated over 90% of STP’s revenue as coming from Indonesia’s Big Four operators from 2015 onwards, while consolidating their position in a competitive tower market. Despite these critical motivations, the deal has been criticised by some commentators and analysts due to the fact that XL Axiata unilaterally created many of the terms, initiating a bidding competition among towercos. During the recently concluded Mobile World Congress in Barcelona, TowerXchange sat with Nobel Tanihaha, President Director of STP, to discuss the deal in detail and get his take on why the deal made sense for the towerco.

Keywords: Editorial, Solusi Tunas Pratama, STP, Indonesia, Southeast Asia, XL Axiata, Tower Bersama, Protelindo, Towercos, Deal Structure, Valuation, Investment, Lease Rates, Due Diligence, Transfer Assets, Tenancy Ratio, Co-locations, Business Case, Hutchison, Indosat, Telkomsel, EBIDTA, Opex


Financial district, Jakarta

on the location and tower type, whereas co-locations have to do with location and speed to market.”

Successful bond issuance

In February 2015, STP sold a US$300mn, five-year bond on the international market - its first bond and a great step forward for the company. During our meeting, Nobel noted how the bond wouldn’t have been possible without the XL Axiata deal which contributed to scaling up the towerco to the desired level in order to issue a bond and become a credible player among the investor community.

Deal structure made sense for STP

Additionally, Nobel highlighted how the XL deal was right on track within STP’s acquisition EBITDA parameters, specifically at 8.2x versus the company’s 6-9x historical average. He admitted that XL Axiata designed the deal unilaterally, which was an unprecedented move in the Indonesian industry, and effectively selected the winner purely on the basis of its bidding price. However, the time was right for STP as TBIG was dealing with the PT Telkom deal and unable to bid and Protelindo simply didn’t put up a fight, allowing STP to close the deal at a reasonable price of US$460mn.

In fact, with an average price of US$131.4K per tower, the deal didn’t appear overpriced and the only substantial difference compared to standard sale and leaseback deals is the absence of an escalator for opex, which is on paper a bad deal


for STP. However, if we look closely, STP’s opex has been dropping steadily, allowing the company to maintain an EBITDA margin at or above 83%. Further, the co-locations on XL Axiata towers did come with escalators, and combined with escalators already included in STP’s existing tower tenancies, the inflation risk is fully covered. So even if the rental price set up by XL is lower than average, thanks to STP’s ability to keep its costs down while scaling the business up, the deal is still profitable, according to Nobel.

STP has been courting XL Axiata for quite some time now and Nobel recalls an attempted deal back in 2007 which didn’t materialise: “Since 2007, we’ve learnt a lot and we are now in a stronger position and were able to leverage the competency of an in-house team which includes a number of former XL

Axiata employees. Thanks to their past experience, this recent deal was a pretty fast one. They knew the assets and were able to read through the terms very efficiently. Minimal due diligence was needed, which is a plus!”

STP acquired a portfolio with an average tenancy of 1.66 with Hutchison as its main supplementary tenant. However, Nobel noted that Indosat and Telkomsel have historically avoided renting competitors’ sites, so now the towers are an independent towerco’s hands, STP can target them and hopefully acquire them as tenants on the former XL Axiata towers, leveraging its strong existing relationships with both MNOs.

In conclusion, Nobel highlighted how the deal might have not made sense for TBIG or Protelindo, but

“ “the deal might have not made sense for TBIG or Protelindo, but it did help STP to consolidate their position as the third towerco in the country, and was critical to their bond issue

company is looking at restructuring its debt and preparing a repayment plan for its creditors. As Bakrie Telecom had been STP’s counter-party in their second sale and leaseback in 2009, back in 2010 Bakrie Telecom represented a massive 53% of STP’s revenue. Thanks to the XL Axiata deal, Bakrie represents only 9% of revenue and will not be booked as revenue going forward, with previous debts now written off. Indeed post-acquisition and subsequent to excluding all of Bakrie related revenue, 92% of STP’s revenues come from Indonesia’s ‘Big Four’ operators (XL Axiata 45%, Hutch 23%, Telkom/Telkomsel 19% and Indosat 5%). This restructuring has a very positive effect on STP’s long term credit worthiness.

Diversifying revenue streams

In the meantime, STP continues to diversify its revenue streams and Nobel highlighted a few of their competitive differentiators during our chat.

“We are very involved in bringing fibre to the home and indoor right now. Thanks to the 20-year permit STP was granted, we have the right to dig and install fibre and this is a core expansion area for us at the moment.”

Additionally, STP is investing in micro-cells and Nobel explained the ratio behind this decision at the end of our meeting “we want to enter the density game, not only the coverage one. To solve density issues, you can’t rely exclusively on building macro-sites anymore, especially with the advent of 4G LTE. In-building solutions are critical as data will keep expanding indoor rather than outdoor.”

While wrapping up our chat, Nobel told me that STP is extremely satisfied with how things are moving and that since the bond, the price has been steadily trading up although the desired liquidity will take some time to kick in.

The conclusion we can draw from this is that the XL Axiata deal was a good match for the towerco and happened at the right time for both companies. STP has been able to leverage its stronger position while scaling up its portfolio considerably and according to its President Director, the deal’s unusual terms were still favourable for the towerco

it did help STP to consolidate their position as the third towerco in the country, and was critical to their bond issue.

Tenancy revenue increasingly concentrated on Indonesia’s ‘Big Four’ MNOs

“We were very busy cleaning our balance sheets,” Nobel told me. “In fact, we wrote off Bakrie from our books in order to eliminate bad debt. That resulted in our revenue dropping US$10mn per year but at least, we have cleared our books and any funds coming from that stream is actually a plus.”Bakrie Telecom is part of Indonesian giant Bakrie Group, which has been carrying a considerable debt load for quite some time now. Currently, the


92% of STP’s revenue post-XL Axiata deal comes from Indonesia’s ‘Big Four’ MNOs

XL Axiata

Hutch

Telkom/Telkomsel

Indosat

Others


45%

23%

19%

8%5%

Ownership change in Indonesian

tower industry to continue as

three major towercos strengthen their dominanceMoody’s compares the debt profiles of Protelindo, TBI and STP and the implications for future transactions


This trend, which is further indicative of a significant change in the telecommunications industry’s underlying dynamics, provides a strong opportunity for the independent tower operators, particularly the big three, to further increase their market share.

Moreover, their expansion will be boosted by organic growth as they build towers in response to the push by telecom operators to expand their 3G/LTE networks.

However, the three leading tower operators – Profesional Telekomunikasi Indonesia (Protelindo, Ba1 stable), Tower Bersama Infrastructure (TBI, Ba2 negative), and Solusi Tunas Pratama (STP, unrated) – currently have divergent financial profiles, leading to differences in their abilities to make large debt-funded acquisitions. Currently, the three own 45% of Indonesia’s 72,000 telecommunications towers.

Over the next 12-18 months, Protelindo has greater financial flexibility to make significant debt-funded acquisitions and still retain its credit rating. This situation reflects its relatively low debt-to-EBITDA ratio following several years of organic – rather than acquired – growth. After its recent ratings upgrade, Protelindo can acquire up to 4,000 towers – substantially debt-funded – and still maintain its adjusted debt/EBITDA at 3.0-3.5x and its Ba1 rating.

In comparison, TBI and STP have less flexibility. TBI’s financial metrics, with adjusted leverage at 6.0x, are still recovering from the company’s debt-funded acquisition of 2,500 towers from PT Indosat Tbk (Ba1 stable) in 2012. Therefore, TBI has limited headroom within its rating for additional debt-funded acquisitions. Nonetheless, its recent largely equity-funded acquisition of Mitratel (unrated) has improved its leverage profile.

And in the case of STP, it acquired the largest

By Nidhi Dhruv, CFA – AVP, Moody’s Investors Service ([email protected])

Read this article to learn:< A comparison of the debt profiles of Indonesia’s leading towercos, Protelindo, TBI and STP< How those divergent financial profiles affect their ability to make large, debt funded acquisitions< The impact of TBI and STP’s recent acquisitions of Mitratel and from XL Axiata respectively< An illustration of the importance of counterparty risk, using Indonesia’s Big Four telecom operators as an example

Keywords: Towercos, Investors, Market Overview, 4G, Market Forecasts, Bankability, Anchor Tenant, KPIs, Sale & Leaseback, Debt Finance, Infrastructure Sharing, Asia, Indonesia, XL Axiata, Mitratel, Telkom, Telkomsel, Hutchison, Indosat, STP, Tower Bersama, Protelindo, Moody’s Investors Service

Ownership changes in the Indonesian telecommunications tower sector will continue over the medium term – carrying over the trend of recent years – as the industry is at an inflection point with leading telecom operators looking to monetise additional tower assets over the next 12-18 months.


proportion of its portfolio from its acquisition of 3,500 towers from PT XL Axiata (Ba1 stable) in December 2014. However, while this deal improves its business profile and scale, additional debt-funded acquisitions of a similar size would strain its financial flexibility and credit metrics.

From a counter-party risk perspective, the Big Four telecom operators – Telekomunikasi Indonesia (Telkom, Baa1 stable), Telekomunikasi Selular (Telkomsel, Baa1 stable), Indosat and XL – have stronger credit quality than other telecom operators in Indonesia.

Thus, a greater proportion of revenue from these operators is credit positive. Generally, the Big Four should make up an increasing proportion of revenues for Protelindo, STP and TBI as they continue to invest in 3G and 4G network expansions.

In this context, TBI currently has the strongest tenancy mix, with over 80% of revenues attributable to the Big Four. Its acquisition of Mitratel will further improve its tenancy mix because the majority of Mitratel’s towers have Telkomsel as their anchor tenant.

By contrast, STP’s exposure to smaller and less creditworthy operators has weighed on its financial profile, with EBITDA margins declining since 2013 following write-downs in receivables.

In the case of Protelindo, a considerable portion of its tenancies is weighted towards Hutchison 3 Indonesia (H3I, unrated). Nonetheless, Protelindo’s high tower tenancy ratio supports its strong EBITDA margins because most incremental revenues from co-locations flow through to its operating profit

Exhibit 1: Protelindo has the strongest financial metrics of the three towercos as of December 2014

Exhibit 2: Protelindo’s rating can accommodate an acquisition of up to 4,000 towers

Exhibit 3: TBI has the strongest revenue tenancy mix among the three towercos

Protelindo TBI STPCorporate Family Rating and Outlook Ba1 stable Ba2 negative UnratedFinancial HighlightsLTM Revenue $346.4 million $279.0 million $90.4 millionLTM EBITDA $268.2 million $228.6 million $50.8 millionLTM EBITDA Margin 77.43% 81.96% 56.23%LTM Debt/EBITDA 3.0x 6.0x 17.1x(FFO+Interest)/Interest 5.1x 2.2x 2.2x*Protelindo and STP's latest financials are distorted by the large BTel receivables write off in H2 2014Sources: Company Information, Moody’s Financial Metrics, Moody’s Investors Service Estimates

2.0x

2.5x

3.0x

3.5x

4.0x

4.5x

5.0x

2014 2015F 2016F 2017F

Adju

sted

Gro

ss D

ebt /

EBI

TDA

4,000 tower acquisition Upward Trigger <2.5x-‐3.0x Downward Trigger >3.5x-‐4.0x

Neg

ativ

e→←

Posit

ive

23%

45%

20%

30%

14%

20%

6%

22%

5%

12%

10%

39%

28%

9%

21%

0% 20% 40% 60% 80% 100%

STP

TBI

Protelindo

Telkom & Telkomsel XL Indosat H3I Others

Note: 4,000 tower acquisition assumed in mid-2015 Sources: Moody’s Financial Metrics, Moody’s Investors Service estimates

Sources: Company filings for the year ended December 2014, Moody’s Investors Service estimateswww.moodys.com

Detecon’s guide to the SouthAsian tower marketsDetecon provides comprehensive due diligence for telecoms infrastructure

TowerXchange: Could you give us a brief introduction to Detecon and your role within the company?

Thomas Wehr, Managing Director, APAC Telecom, Detecon: Detecon is 100% owned by Deutsche Telecom and has international offices in Middle East, Africa, Russia, China, USA, and Thailand. I head up telecoms in Thailand with responsibility for the APAC region. We have roundabout 50 consultants based in Bangkok serving 15 markets in South East Asia. We also have an office in Beijing which focusses predominantly on the Chinese market. We look at towers on a global scale and cover due diligence, mobile and tower market analysis, tower market forecasts, and provide independent reports for investors, evaluating the quality of potential asset acquisitions. We have a 100% focus on telecoms and telecoms infrastructure is a specialist discipline within this.

TowerXchange: How many tower transactions and towerco investments has your team advised on to date?

Thomas Wehr, Managing Director, APAC Telecom, Detecon: At this point our APAC regional office advised more than ten; it can be difficult to classify separate engagements as full due diligence; sometimes we have responsibility for only a specific part of a project. Most of our engagements have been in Indonesia; where we did projects with all major independent towercos. We’ve also done some due diligence in Bangladesh, Malaysia and we’re currently engaged in several projects in Myanmar.

Read this article to learn:< Detecon’s approach to conducting due diligence on tower transactions

< The keys to effective evaluation of tower portfolios

< Detecon’s perspective on the Myanmar tower market

< The tower markets in Thailand and Vietnam

< Detecon’s previous projects in Indonesia

Detecon International is a consultancy in the field of information and communications technology (ICT). Detecon is a fully-owned subsidiary of Deutsche Telekom, created - from the merger of the two consulting firms Diebold (founded in 1954) and DETECON (founded in 1977). Detecon has advised on several tower transactions and towerco investments in Southeast Asia. In this exclusive interview Thomas Wehr, Managing Director, APAC Telecom and Jochen Merz, Managing Consultant share their views of the tower markets in Indonesia, Myanmar and Vietnam, and on why infrastructure sharing is not yet thriving in Thailand.

Keywords: Interview, Investors, Strategic Consultancy, Asia Pacific, Southeast Asia, Deal Structure, Acquisition, Market Overview, Valuation, Investment, Lease Rates, Valuation, Due Diligence, Tenancy Ratios, Risk, Market Forecasts, Market Entry, Business Case, Detecon


Thomas Wehr, Managing Director, APAC Telecom, Detecon

TowerXchange: What types of companies have you advised? Have you been more focused on the sell side, buy side or financing transactions?

Thomas Wehr, Managing Director, APAC Telecom, Detecon: We’re focussed mostly on the buy side / investor side. Although we’re owned by Deutsche Telekom we’re a fully independent contracting arm. We typically get subcontracted by investment banks, private equity firms and international development aid banks.

TowerXchange: Do you have a particular focus on any specific types of due diligence i.e. financial, legal, technical or commercial?

Thomas Wehr, Managing Director, APAC Telecom, Detecon: It’s mostly commercial and technical due diligence as our strength lies in our deep understanding of the Telco industry – we’re not legal advisors. We look into physical assets to determine their value and also provide market forecasts, terms of subscribers, and sites and towers applying our extensive market and operator knowledge acquired over 20 years in the region.

TowerXchange: What do you think should be the main priorities when evaluating a tower portfolio?

Thomas Wehr, Managing Director, APAC Telecom, Detecon: Being focussed on the buy side, we have to align the expectations of clients with the reality on the ground. The seller’s view of the value of assets can be ambitious, so we test these ideas and


concepts. We use our in-depth industry experience to evaluate major assumptions such as the CAPEX spend needed in the market and OPEX efficiencies that can be realized; then we match and align the buyer’s expectations and judge the right buyer price. We evaluate the Master Lease Agreement (MLA) structure, diagnose technical and commercial risks, assess competitive moves in the market, and anticipate the prospective impact of market changes over the next couple of years. In short, we provide a reality check for the investor.

TowerXchange: How do you solicit new business in tower due diligence?

Thomas Wehr, Managing Director, APAC Telecom, Detecon: In most cases there is a referral from parties involved in previous projects of ours as they already know the value of our knowledge and experience; they want us involved in other projects. We often get calls from investors based on the strength of our reputation. We also maintain a network of clients we’ve worked for in the past and make sure to keep in touch.

TowerXchange: How do you think things are progressing in Myanmar and what do you expect to happen over the coming years?

Thomas Wehr, Managing Director, APAC Telecom, Detecon: Myanmar is the last green field project and everyone is looking at this market; there’s definitely risk involved but it is also a great opportunity. The incumbent operator MPT is facing strong competition from the two new private

operators which come with significant international experience, Telenor and Ooredoo. A fourth mobile license is likely to be handed out soon and this is raising further speculation as Yatanarpon Teleport had difficulties in finding the right international partner due to mismatch of valuations which resulted in lengthy discussions with potential partners. Sustaining 3-4 MNOs will be challenging in Myanmar; the environment in this country is very complicated, but like any green field markets speed matters most. Ooredoo and Telenor have both contracted two independent towercos so they could focus on their core business and outsource a lot of the risks and difficult tasks. Both Ooredoo and Telenor took a different approach to outsourcing with Telenor including power in its outsourcing agreement while Ooredoo wants to manage power itself. The joint entry of two companies is unusual and in previous greenfield rollouts was there was only one new entrant; the sequence of actions in this case makes the process fascinating.

TowerXchange: Our view is that in phase one and two, concentrated along the Irrawaddy River and in Yangon, Naypyidaw and Mandalay, Telenor and Ooredoo’s infrastructure was rolled out aggressively and competitively, with little infrastructure sharing – exacerbated by the incompatibility in power strategy that you mentioned. Does the latest issue of a joint RFP signal a shift to focus on shared infrastructure in Myanmar?

Thomas Wehr, Managing Director, APAC Telecom, Detecon: I think so, based on the information we

have at the moment; both were initially pretty much looking at their own rollouts because of failed initial collaboration attempts. Infrastructure sharing mechanisms have been facilitated by the regulator in the early days; both companies had to submit their site coordinates and maintain a minimum distance between sites to protect the landscape and avoid overbuild. Both Telenor and Ooredoo are realising how difficult and cumbersome it is to establish wholly independent infrastructure and now they’re engaged in joint discussions on coordinated transmission rollouts and efforts to share existing towers with each other via their towercos. At the beginning there was a bit of ego involved but now they have realised the inherent challenges and are looking for a more cost-effective approach together now that the initial rollout is complete. Sharing infrastructure in the countryside also helps both companies meet the geographical coverage targets required by their licensing agreements.

TowerXchange: Do you foresee consolidation in the number of towercos in Myanmar?

Thomas Wehr, Managing Director, APAC Telecom, Detecon: We’re looking at four major ones which received large numbers of towers from Telenor and Ooredoo. I don’t think consolidation is happening yet, but we anticipate a development scenario similar to that of Indonesia where there were thirty towercos in 2005-6; these have since consolidated to four big and two smaller towercos.

TowerXchange: Moving on to other markets in

southeast Asia, Thailand seems to be a natural market for future tower transactions. Do you anticipate TRUEGIF being acquisitive? Do you foresee the other operators divesting assets?

Thomas Wehr, Managing Director, APAC Telecom, Detecon: Thailand is a difficult market to implement infrastructure sharing; the three largest providers True, AIS and DTAC are not used to co-operating. The two incumbents CAT and TOT play an important role when it comes to towers due to the concession regime and corresponding ownership battles about the towers. Both CAT and TOT are having plans or are in the process of setting up their own towercos. A few independent towercos were interested in entering the market last year but their attempts were both unsuccessful which sends a pretty clear signal. The Thai market is definitely big enough and there is a potential opportunity for network operators, but at this point they lack the will to begin the process. As for TRUEGIF they’re more of a financial mechanism and were set up to create an infrastructure fund to get access to financial markets; we don’t regard them as a real towerco per se.

TowerXchange: Considering the focus of some of your previous projects, what is your take on the tower market in Indonesia?

Thomas Wehr, Managing Director, APAC Telecom, Detecon: We know how professional Tower Bersama, Protelindo, IBS and STP are; we’ve done work with them all. Tower Bersama did very well to acquire Mitratel and gain access to PT Telekom.

Tower Bersama gets a headstart on any future Telkom / Telkomsel deals and Tower Bersama Infrastructure Group is focussing exclusively on Indonesia right now. They had been interested in other market opportunities in the region - but it seems they gave up on their international ambitions for the time being; the Mitratel deal makes that a wise move. Protelindo on the other hand went into Myanmar and is now looking at more of a multinational game which bears completely different opportunities and challenges. Towercos such as IBS and STP are looking at enriching their infrastructure portfolio to gain additional revenues.

TowerXchange: Do you see an opportunity to roll up some of Indonesia’s smaller regional towercos?

Thomas Wehr, Managing Director, APAC Telecom, Detecon: Most of the small towercos have been acquired, but the small players have good tenancy ratios, and are privately owned with an old established base. The tenancy ratios are at two and above; the companies didn’t acquire and expand so the portfolios are mature. Some of these small local towercos might have just 5-10 towers but they use a good business model and are family owned. They have a limited interest in selling and it’s tough to get information about these firms; they’re in a different league from the big towercos. The hierarchy in this market is: Protelindo, Tower Bersama, then STP and IBS, then a group of smaller towercos who could be acquired or do small acquisitions themselves, then the small regional towercos with a handful of towers who don’t want to sell. Some infrastructure


was built by telecom construction companies and then rented to MNOs.

TowerXchange: How do you see the future for the Indonesian tower market? Towercos own 51% of Indonesia’s towers, with Telkom / Telkomsel retaining the majority of the operator-captive assets, with XL Axiata and Indosat each retaining a few thousand more. What is the remaining addressable market for Indonesia’s towercos?

Thomas Wehr, Managing Director, APAC Telecom, Detecon: Telkom and Telkomsel hold the majority of remaining MNO-captive towers. As the incumbent operator they naturally see infrastructure as a core discipline and Telkomsel may not want to sell. There is, however, a potential supply from Indosat; they sold 2000 towers to Tower Bersama in the past. The quality of Indosat’s locations is good; they’re older towers in locations where it’s now difficult to get build permits so interest in these is remaining. XL Axiata have been trying to sell some of their portfolio for years; perhaps there is an opportunity for a carve-out to edotco?

TowerXchange are tracking a couple of medium sized towercos in Vietnam; VINACap has rolled up three towercos to a portfolio of 1,930 towers, Golden Towers (backed by Alacazar Capital, who are also engaged in IGT in Myanmar) has around 600 towers. But towercos have 10-12% of Vietnam’s towers. Do you have any observations about the tower markets in Vietnam?

Thomas Wehr, Managing Director, APAC Telecom,


Detecon: We did quite a lot of business for VNPT, Mobifone and Vinaphone but infrastructure is a sensitive topic in Vietnam and we’ve done nothing in the tower space yet. We have done some infrastructure sharing studies for VNPT as they were keen to understand the potential of commonly utilised network infrastructure. Vinaphone and Mobifone are both dominated by the state; as a result business decisions are not made in the simplest of terms and infrastructure sharing would definitely be a challenge. At the end of the day the government slows down many processes. Even with the intent to share infrastructure assets, it

“

“

Detecon is one of the very few consultancy companies purely focusing on telecoms and able to combine and cover the strategic, commercial and technical views of tower transactions at an exceptional level of detail

can be difficult to put a plan into action as a result. A lot of this also depends on impending market liberalization; as long as VNPT remains unclear on what to do with its two mobile arms which both have the largest amount of mobile assets, it’s difficult to see how towercos can acquire substantial portfolios in Vietnam.

TowerXchange: Please sum up how you would differentiate Detecon from other tower transaction advisors?

Thomas Wehr, Managing Director, APAC Telecom, Detecon: Detecon is one of the very few consultancy companies purely focusing on telecoms and able to combine and cover the strategic, commercial and technical views of tower transactions at an exceptional level of detail; our team of due diligence experts all have 15-20 years of telecoms experience.

They are experienced technicians who know how to model a rollout, model markets and understand the technologies employed. Their knowledge doesn’t come from a textbook but from years of practical experience. We can look at a tower portfolio and get a feel for its quality. We look at each portfolio from an MNO point of view, evaluating the standard of the towers and tower locations. When we perform due diligence on a portfolio we also try to judge the owner’s operational environment including processes, product planning, how they manage risk, and the tools they have to control the business – you need experience to evaluate all of these aspects. Methodologies and models are important to sell a product, but experience matters most

Special feature:

In the February edition of the TowerXchange Journal, I wrote an

editorial critiquing the incompatibility of Telenor and Ooredoo’s

power strategies, but had to make hasty amendments as an RFP for

a coordinated third phase rollout was issued days before we went to

print!

Well, that RFP is no more, and it seems we’re back to Telenor and

Ooredoo building their own towers. This does not represent the most

efficient approach to achieving the MCIT’s aggressive coverage targets,

and the pressure the MNOs are applying to lease rates is making it

difficult for their towerco partners to raise the necessary capital. Our

editorial also covers the latest mobile market share and tower counts

for Myanmar, the issue of NSF(C) licenses and the award of phase three

rollout contracts.

Meanwhile, our friends at Mott MacDonald share their experiences

from a recent visit to Myanmar and a couple of engagements they have

undertaken in the country.

The Myanmar tower dossier, part five

In this edition of the Myanmar tower dossier:207 The next phase of the Myanmar tower rollout

212 Coverage versus capacity: MottMac examine the drivers of the

Myanmar rollout


The next phase of theMyanmar tower rolloutJoint rollout abandoned, Telenor and Ooredoo award separate contracts for phase three of rollout

Phase one and two of the rollout finally complete After delays caused by a lack of bureaucratic capacity, delays caused by a lack of capital, delays securing build permits and land registration, and delays caused by monsoon rains, the 4,650 towers in phase one and two of Ooredoo and Telenor’s Myanmar rollout are nearing completion – all the towers will probably be lit by the time you read this article. Phases one and two took around three months longer to rollout than anticipated. Incumbent operator MPT, boosted by KDDI and Sumitomo Corporation capital and management expertise, supplemented their existing tower network with several hundred towers built by a variety of Chinese contractors. This brings the total count of lit towers in Myanmar at the start of Q2 2015 to around 6,850. MPT remain market leaders in the race for subscribers At the end of Q4 2014, Ooredoo Myanmar had 2.2mn customers, and their population coverage was approaching 50% (25/51.4mn). At the same end of Q4 timeline, Telenor Myanmar had 3.4mn customers and ARPU around US$5, having deployed around US$200mn in capex and opex to date. However, perhaps the biggest news on the MNO front is that MPT claim to have surged to 11mn subscribers, which would represent over 66% market share. According to GSMA Intelligence, 40% of Myanmar’s

Read this article to learn:< Phase one and two finally complete; ~6,850 towers now lit in Myanmar< MPT market share holding up against competition< Award of next phase of rollout restructures Myanmar towerco market< High capex and opex combines with moderate leaseback rates to make capital raising challenging< MIC finally issues towerco licenses

Yet another change of direction within the Myanmar rollout – for a couple of weeks it looked like the heralded co-ordinated rollout might finally take place, with Telenor issuing an RFP for 1,105 sites on which Ooredoo were to co-locate, but now our sources tell us phase three of the rollout will again be undertaken separately, albeit with a new alignment of towercos to operators that is set to reshape the fledgling tower industry in Myanmar.

Keywords: Editorial, Towercos, Lease Rates, Tenancy Ratios, Network Rollout, Bankability, Country Risk, MLA, Private Equity, Debt Finance, Project Finance, Stakeholder Buy-In, Infrastructure Sharing, Asia, Myanmar, Flexenclosure, Leap Power Solutions, TPG, Pan Asia Tower, PAMEL, Apollo Towers, Irrawaddy Green Towers, Alcazar Capital, Myanmar Infrastructure Group, Square1 Infrastructure, Digicel Myanmar Tower Company, Eco-Friendly Towers, Young Investment Group, MTC, Digicel, MPT, KDDI, Sumitomo Corporation, Telenor, Ooredoo



subscribers at the end of 2014 were mobile broadband users. Award of next phase of rollout leads to restructuring of the Myanmar towerco market With Myanmar’s towerco contractors geared up to build as many as 200 towers per month, they have ramped up staff numbers and cannot afford to sit around waiting for phase three of the rollout to begin. Experienced tower builders and climbers are a rare breed of nomadic mercenaries, and they go


where the work is. So when the joint RFP for 1,105 sites, issued by Telenor with Ooredoo as co-locating tenant on the majority of sites, fell through, it was a relief to learn that another tranche of separate awards have reportedly now been made. TowerXchange’s sources suggest that Ooredoo has commissioned around 2,500 towers in phase three, including Myanmar Infrastructure Group’s first 500 tower builds in the country, and a further 800-1,000 towers awarded to IGT. The identity of the company to whom the remainder of the phase three Ooredoo

towers have been awarded has not been revealed, although we would be surprised if PAMEL hadn’t been awarded some Ooredoo towers. Telenor has reportedly awarded 800 towers to Eco-Friendly Towers, a quantity which undoubtedly draws Eco-Friendly Towers beyond Shan State, where they appeared to be the only tower company prepared to build. There will inevitably be consolidation among Myanmar’s six towercos. For example, TowerXchange understands from multiple

Estimated tower counts in Myanmar, Q2 2015 Estimated Myanmar mobile market share at end Q4


MPT / KDDI Summit

2,500

2,000

1,500

1,500

1,000

PAMEL for OoredooIGT for Telenor Apollo for Telenor MTC for Ooredoo

Note: Eco-Friendly Towers has commenced construction of an initial 200 of 800 contracted towers, MIG is already managing several towers as well as installing DAS. Both have been awarded substantial builds in phase three.

MPT Telenor Ooredoo

Sources: Telenor and Ooredoo Quarterly Reports, WSJ / Myanmar Times

66.6%

20.5%

13.3%

2,200

1,5001,250 1,100

800


sources that the assets of Digicel Myanmar Tower Company, MTC, are for sale. Having successfully executed the build of ~800 sites per the original rollout plan developed in support of Digicel’s MNO license bid, and with all the MTC towers having Ooredoo as anchor tenant, thus currently provided under a simple ‘steel and grass’, power excluded arrangement, it seems Denis O’Brien is seeking to “cash in the chips” on his first tower venture. A speedy, profitable exit may be a consolation prize compared to the full operator license Digicel coveted in Myanmar, but O’Brien’s insatiable appetite for entrepreneurial telecom ventures may have been whetted, so we don’t expect Digicel MTC to be his last towerco venture!

Towercos take on power… Phase three of the rollout finally sees both Telenor

and Ooredoo’s towercos take on responsibility for acquiring and operating power systems. The dimensioning of a typical Telenor and a typical Ooredoo site remain fundamentally different however, primarily due to the large, power-hungry (but ultimately efficient) equipment Ooredoo is deploying. The future of the power systems on Ooredoo’s ~2,050 phase one and two towers remains uncertain – an RFP reportedly led to the award of an energy services contract to Leap Power Solutions, but there has been no confirming announcement from either MNO or vendor. … but the towercos don’t seem to have the balance of power Why is the Myanmar rollout not fulfilling the

promise of being a genuinely co-ordinated, shared rollout? One explanation could be that the MNOs seem more motivated by lean procurement and cost control than by marketing, coverage and the QoS. An opportunity to create genuine, shared value is in danger of being missed if Telenor and Ooredoo continue to co-locate only for infill capacity, not building shared towers as they extend coverage. Towercos are a proven platform for creating and sharing efficiencies. But the key word is sharing, and whilst tenancy ratios remain much nearer one than two, Myanmar’s towercos won’t be able to generate the value their MNO counterparts, and their investors, are seeking. High capex and opex combines with moderate leaseback rates to make capital raising challenging for Myanmar towercos Lease rates in Myanmar have been driven to challengingly low levels. While a reported US$1,000-1,500 per month might seem rich by Southern Asian standards (lease rates are typically US$500 in India), economies of scale mean Indian tower companies can rollout a new site for less than US$25,000. In Myanmar, the capital outlay for a greenfield site is nearer US$100,000, with premium energy solutions such as Flexenclosure’s eSite being widely deployed. Not that we’re questioning the selection of eSite – it’s a highly efficient solution designed for multi-tenant sites, and Flexenclosure were able to contribute significant vendor finance. Lease pricing is critical to tower companies’ ability

“ “An opportunity to create genuine, shared value is in danger of being missed if Telenor and Ooredoo continue to co-locate only for infill capacity, not building shared towers as they extend coverage

to raise capital. The key determinant in evaluating the investibility of a towerco is the pricing in the Master Lease Agreement or MLA (sometimes known as the Master Service Agreement or MSA). When moderate leaseback rates and high capex and opex are combined with the perception of high country risk in Myanmar, raising capital becomes a major challenge. A significant proportion of the capex burden is being transferred from MNOs, with strong credit ratings, to towercos with less established credit ratings. Private equity houses have invested more cautiously into Myanmar towers than many expected. TPG put capital into Apollo Towers, PAMEL secured a US$85mn cross-border, non-recourse corporate loan, but we haven’t seen many other sizable cheques cut for Myanmar towercos. Raising debt finance has been even trickier, complicated by further delays securing authorisation to draw down the debt from the Central Bank of Myanmar. With so little credit available, with the MMK not convertible, and with minimal US$ reserves in Myanmar, the mechanics of servicing a debt deal have proved extremely challenging in Myanmar. MCIT finally issues towerco licences On the 3rd of February 2015, one year and three days after Ooredoo and Telenor were granted their coveted Nationwide Telecommunications Licences, the towercos who rolled out the phase one and two towers finally received their licenses. Among the companies to receive a “Network Facilities Service


(Class)” or NFS(C) license were: < Pan Asia Majestic Eagle Co. Ltd (also known as Pan Asia Tower or PAMEL)< Digicel Myanmar Tower Company (MTC)< Irrawaddy Green Towers Ltd (IGT)< Apollo Towers Myanmar Ltd KDDI Summit Global Myanmar Company Limited, the joint venture between MPT, KDDI and Sumitomo Corporation, also received an NFS(C) license as did Eager Communications Group Co.,Ltd; Global Technology Co.,Ltd; and Myanmar Fiber Optic Communication Network Co.,Ltd. The licenses were each valid for 15 years. The fees payable for an NFS(C) license in Myanmar are currently MMK 12.5mn per year (~US$12,000), plus 0.5% of relevant revenues and a MMK 2.5mn application / registration fee (~US$2,400). The “Network Facilities Service (Class) Licence” or NFS(C) is effectively an infrastructure service provider license designed to allow a tower company or fibreco to construct, deploy and maintain passive infrastructure and to lease it to holders of full telecommunications licences, known as a “Network Facilities Service (Individual) Licence” or NFS(I). Quoting directly from the Myanmar Ministry of Communications and Information Technology application form, the “Network Facilities Service (Class) Licence” or NFS(C) authorises the licensee to < construct, deploy and maintain passive

Telecommunications Network infrastructure and to lease such infrastructure to an NFS(I) Licensee . An NFS(C) Licensee is not restricted from leasing its infrastructure to multiple entities on a shared basis, to a single entity or to third party non-Licensees provided that such leasing is permitted under the laws and rules of Myanmar.< construct, deploy and maintain telecommunications networks solely for the self-provision of telecommunications services and not available for sale or hire. The activities authorized by the NFS(C) License relating to the deployment and maintenance of: < any type of passive network infrastructure

“

“

The fees payable for an NFS(C) license in Myanmar are currently MMK 12.5mn per year (~US$12,000), plus 0.5% of relevant revenues and a MMK 2.5mn application / registration fee (~US$2,350)


for civil engineering elements and other telecommunications equipment to enable end-to-end telecommunications infrastructure solutions for NFS(I) Licensees include, but are not limited to: towers, masts, ducts, trenches, poles, dark fiber and radio equipment installed to send, receive and route communications, provided that the NFS(C) Licensee does not offer telecommunications services other than self- provided telecommunications services.< telecommunications networks and the self-provision of telecommunications services used solely for internal communications are limited to network facilities and telecommunications services that only permits internal/intra-organizational communications and does not provide interconnection with any other network. The latest round of licensing also included the

issuance of NFS(I) licences to Shwe Than Lwin Media Co.,Ltd, Elite Telecom Public Company Limited and Yatanarpon Teleport Public Company Limited. The latter, widely known as YTP, remains Myanmar’s principal (only?) ISP, and is expected to become Myanmar’s fourth MNO when a foreign investment partner can be secured. Those responsible for towerco regulation or with a vested interest in the Myanmar rollout might care to read Myanmar’s full set of licensing rules at: http://www.mcit.gov.mm/sites/default/files/1%20-%20MCIT%20-%20Final%20Licensing%20Rules%20-%20122013%20CLEAN.pdf Myanmar’s towercos have been able to trade for the last year thanks to letters granting permission to proceed from the MCIT, and because each secured

an MIC Permit from the Myanmar Investment Concession allowing them to apply for import and export permits, lease land for a period of over one year, while also granting access to certain tax incentives. Conclusion The delays to the issuance of towercos’ licenses didn’t hinder the rollout and reportedly didn’t significantly hinder their capital raising efforts, although the license delays were just one example of the bureaucratic issues, beyond the control of Myanmar’s towercos or MNOs, which slowed the rollout timeline. Building towers in Myanmar requires the application of the old Nike slogan “just do it!” In order to “just do it” in a more timely manner, Myanmar’s MCIT and MNOs alike must better understand and support their tower companies’ efforts to raise capital, capital to be invested in the government’s, Telenor’s and Ooredoo’s vision of ICT connectivity. A successful partnership between MNOs and towercos should not be defined solely by achieving the lowest possible lease rate. Myanmar was supposed to be the great the last greenfield network AND the first network designed to be shared from the outset. The more Myanmar’s MNOs and towercos can work together to create and share value, the more capital will flow into the country and the more satisfied all the stakeholders will be; towercos, tenants, Ministry and citizens

“ “Myanmar’s MCIT and MNOs alike must better understand and support their tower companies’ efforts to raise capital... A successful partnership between MNOs and towercos should not be defined solely by achieving the lowest possible lease rate

Coverage versus capacityWhat is the primary driver behind the Myanmar rollout?

TowerXchange: Please introduce yourself, Mott MacDonald and your experience in Myanmar. Andy Grey, Consultant, Mott MacDonald: Mott MacDonald is a diverse £1.3 billion global management, engineering and development consultancy. We are one of the world’s largest employee-owned companies, with over 16,000 staff, 180 offices in nearly 50 countries and projects in 150. We were named Global Consultant of the Year 2014 and International Consultant of the Decade 2003-2013 by the UK’s New Civil Engineer/Association for Consultancy and Engineering and we were also named Global Technical Advisor of the Year 2014 by Europe’s Infrastructure Journal for the fifth time in six years. I’ve been part of Mott MacDonald’s digital infrastructure team for 18 months and have worked on a number of tower deals. Overall we’ve been involved in over 30 tower deals across nearly 20 countries over the past few years. Based on our widespread experience of analysing tower opportunities in similar developing markets, we were engaged by a potential investor that was considering investing into one of the Myanmar towercos. This would be their first investment in the country and into the tower sector. TowerXchange: Having recently returned from studying the Myanmar tower rollout, please share some of your observations

Read this article to learn:< The challenges of forecasting demand in a country with a paucity of data sources< The phenomenon of ‘hidden towns’ with tremendous pent-up demand for mobile service< The evolution from low time to market in the initial rollout, with incompatible power strategies, to a more co-ordinated approach< Coverage versus capacity< Permitting and licensing challenges – the reality on the ground

Mott MacDonald has extensive experience of studying and evaluating digital infrastructure and has advised on several emerging market tower deals. The consultancy was recently appointed by a potential investor to evaluate an opportunity with one of Myanmar’s towercos. TowerXchange spoke to Andy Grey, a telecommunications consultant in Mott MacDonald’s digital infrastructure team, to get a first-hand account of tower rollout in the country.

Keywords: Strategic Consultancy, 3G, New License, Lease Rates, Urban vs Rural, Tenancy Ratios, Co-locations, Infrastructure Sharing, Fuel Security, Foundations, Market Forecasts, Network Rollout, Exit Strategy, Bankability, Densification, Leasing & Permitting, Regulation, SLA, Unreliable Grid, Greenfield, Logistics, Site Surveys, Private Equity, Fencing, Southeast Asia, Myanmar, Telenor, Ooredoo, Mott MacDonald


of the country’s under-developed transport infrastructure. Andy Grey, Consultant, Mott MacDonald: There are plenty of paved roads in Yangon and dual carriageways on some arterial routes, however congestion and a lack of effective traffic management systems means traffic moves slowly


quite often, even outside of rush hour. The congestion isn’t helped by the infrequent circular train line or the fact that motorcycles have been banned from the road in Yangon, except for government officials. Locals told us that the increase in traffic has been notable over the last couple of years and is illustrative of increasing disposable income and lowering prices.

We visited a variety of locations during our work, including a site in the middle of a marketplace where locals had to collapse several stalls to get our 4x4 past. It must have taken us over half an hour to drive 200m to the tower! Outside the big three cities and off the main routes roads quickly give way to dirt tracks and you see far less traffic. One of the sites, which serves a small community, was only accessible down a lengthy, narrow dirt road. A 4x4 was almost mandatory! TowerXchange: As well as under-developed transport infrastructure, another logistical challenge to the rollout is the monsoon season which affects the second half of the calendar year.

Andy Grey, Consultant, Mott MacDonald: It seems that the towercos have encountered problems in working during the rainy season and lessons were quickly learnt. For example, there are challenges in pouring concrete foundations which mean that these are being scheduled around the rainy season, although steel erection can continue provided the steel is delivered to site before the rain hits. There is also a requirement to build on raised platforms in areas where flooding is susceptible.

TowerXchange: It must be challenging to forecast demand in Myanmar with such a paucity of existing performance data and reliable third party sources. Andy Grey, Consultant, Mott MacDonald: There

View from rooftop site under construction


wasn’t even a recent census when rollout commenced. Although significant demand from cities was expected and formed the focus of the initial roll-out, network planners often deployed single cells in outlying areas to see what happened and learned on the job, in several cases having to roll-out cell-on-wheels to supplement demand in the short-term. The census has now been completed but the lack of detail means it has limited value beyond population statistics. What isn’t always apparent from the limited data available is that Myanmar is dotted with hidden towns. When you are on the ground you might think you’re in the middle of nowhere but as you drive along a dirt track you come across houses and even villages that seem to go on forever hidden amongst the trees. These seemingly rural are in reality good-sized towns and in some cases operators told us that within a day of putting up a tower the capacity is maxed out. Under another contract, Mott MacDonald is building a tower/tenancy demand model for Myanmar for which there is a lack of data and a lack of benchmarks. We normally model one new market entrant in relatively established markets, not several in a greenfield market. So we have had to adapt our model to modify inputs and anticipate different scenarios. We’ve had to rely on various data sources, from the US government’s night-time light levels to Google Maps, however each month more data is becoming available and we have a good grounding in terms of what’s been done so far.

TowerXchange: Most people we’ve spoken to have suggested that tower sharing has been minimal during the first two phases of the rollout, concentrated in the big three cities, Yangon, Mandalay and Napyidaw and along the Irrawaddy River. We understand this has much to do with the incompatibility of Telenor and Ooredoo’s power strategies. The coming third phase of rollout may start to push deeper into rural areas. Andy Grey, Consultant, Mott MacDonald: It depends on your definition of rural. Myanmar is a relatively rural country, with only a small percentage of the population living in urban areas. The next rollout phase will include a lot more of the smaller towns. The first two phases of rollout were concentrated on the big three cities and the routes out of them. Ooredoo and Telenor have largely proceeded with separate orders to two different towercos each. However, I understand they are sharing site databases to meet demand for infill sites. The grid is not very extensive in Myanmar. Where it is available, it can vary between 90 and 240v, so can be very unreliable. In the initial phases, Ooredoo sought a tower solution that didn’t include power, using its own solution instead, while Telenor’s did. This clearly introduced an additional challenge to sharing and it is not clear how this will be resolved. Ooredoo may seek to offload to an energy service company or towerco the energy solutions that they retained in the

initial phase. We believe that Myanmar’s fourth mobile network operator may be more likely to co-locate than build their own sites, although much depends on whether they can secure a financial partner. TowerXchange: So what are the most pressing drivers, coverage or capacity? Andy Grey, Consultant, Mott MacDonald: A greenfield market creates pressures on deploying coverage, however there is also pressure on capacity, with a need for infill sites where capacity is quickly exceeded. Therefore there is a demand for infill sites and a need to continue rolling out the network, pulling the operators in both directions. TowerXchange: What have been the main challenges around zoning and permitting in Myanmar? Andy Grey, Consultant, Mott MacDonald: There is inevitably an element of uncertainty about the enforcement of restrictions on the distances between towers, particularly in situations such as in Myanmar where a new Ministry has been created to regulate the industry. However, I didn’t see any blatant examples of parallel infrastructure in Myanmar. I believe the restriction on urban permitting requires that sites be 160m apart. Getting permit applications processed in a timely

manner may have been a bottleneck early on in the rollout, however the authorities seem to be getting quicker at processing permits. The number of sites we studied which ran into issues with permitting wasn’t unusually high. There might have been some initial concern about whether it would be possible to build towers on land adjacent to Myanmar’s many religious sites, yet that does not seem to have had an impact on the tower build. We actually visited a site under construction within the grounds of a pagoda. Ooredoo has had to be sensitive about dealing with some landlords and subscribers given their origins from a Muslim country. There have also been a few isolated instances where permits have been issued but the military has vetoed the sites. I recall one example of a site in proximity to a military base which led to an objection.


Identifying who holds the lease on a given parcel of land can also be a challenge. However, the bigger challenge is that local landlords are now catching on to the value of their property, particularly in city centres and demanding lease prices beyond operator expectations. Those expectations may have to be tempered as the market settles down. Nevertheless, perhaps the biggest challenge has been that the towerco license applications have taken a remarkably long time to be processed. The towercos appear to have secured the required authorisations, yet it’s another illustration that with a new Ministry things can take time. TowerXchange: How are the citizens of Myanmar responding to the rollout - what anecdotes can you share illustrating demand for and take up of mobile devices?

Andy Grey, Consultant, Mott MacDonald: Affordability had been a concern. However the price of SIMs has plummeted from a reported US$200 to US$2 and we’ve consistently found that citizens are prepared to spend a larger percentage of their income on mobile than Westerners are used to. There has been voracious demand for mobile and, particularly in the big cities, technology has skipped a couple of generations and people have moved directly to smartphones. It will be interesting to see how Ooredoo’s 3G focused play is received in rural areas where mobile may be more focused on necessity as 2G could provide all the required functionality. One thing everyone who visits Yangon notices is that everywhere is plastered with Telenor and Ooredoo adverts, with only a couple of adverts for the incumbent operator. TowerXchange: Summing up your experiences, what do you think the future will be for the six towercos vying for business in Myanmar? Andy Grey, Consultant, Mott MacDonald: Current demand for towers promises continuing growth, however that may be confined to fewer towercos. We expect a degree of consolidation among Myanmar’s towercos, each has their exit strategies, which could be played out successfully. In the long-term we believe that Myanmar might sustain two towercos of scale, perhaps keeping one or two small local towercos to focus on more remote areas like Shan State

Special feature:

azeti Network has partnered with Cisco Systems to offer azeti’s SonarWise software for download onto Cisco’s IoT gateways and routers. Among other benefits, this enables “Intelligence @ the edge”, which means 95% less monitoring traffic need be sent back to the NOC. Our second interview reveals another potentially game-changing innovation: Qowisio have introduced Ultra Long Range technology – with a 35km radius, one controller can now be shared between multiple sites, cutting the cost of RMS by 30%. Finally, we introduce TowerXchange readers to a new RMS vendor, Digant Technologies, who propose an end to end solution encompassing remote monitoring hardware and site management software.

From RMS to ILM and Site Management platforms, part 11


Abloy in issue 11Accruent in issue 7Acsys in issue 11AIO in issue 11AKCP in issue 6azeti in this issueBroadnet in issue 3Caryon in issue 8Digant in this issueGalooli in issue 4HMS in issue 5Inala in issue 3

Infozech in issue 7InfraSTAT in issue 6Invendis in issue 4NAAP in issue 7NeXsysOne issue 9Qowisio in this issueQuintica in issue 4Tarantula in issue 11Telemisis in issue 3WebNMS in issue 10Westell in issue 7ZNV in issue 11

Download FREE back issues of the TowerXchange Journal at www.towerxchange.com/publications

Cisco and azeti join forces toconnect an “Internet of Towers”“Intelligence @ the edge” reduces monitoring data traffic by 95%

TowerXchange: Please reintroduce azeti Networks for readers not familiar with your company. Thorsten Schafer, CEO, azeti Networks: azeti was founded in 2006. From those early days we were dedicated to the monitoring and management of remote assets, focusing on the telecom tower, WAN hubs and utility substation market. We used to deliver our solution the same way other vendors in the market do – on proprietary hardware. We found that this approach limited the awareness of our solution in the market, and meant our resources focused on digital and hardware aspects of the solution. In 2014 we made a distinct choice to focus our resources on being the world’s best embedded software provider to global IoT (Internet of Things) gateways like Intel and Cisco. We now combine our remote site management software excellence with their global systems integrator network, IoT-ready hardware, extensive experience and reputation for network computing excellence. TowerXchange: How does azeti’s partnership with Cisco enable “intelligence @ the edge”? And why is this important in the context of managing remote cell sites? Thorsten Schafer, CEO, azeti Networks: The big deal about “intelligence @ the edge” is that it enables data to be analysed and processed locally – like at the remote cell tower or manned site – reducing the amount of preprocessed data

Read this article to learn:< “Intelligence @ the edge” protects data against service interruptions and reduces monitoring traffic by 95%

< Data traffic reduction allows the NOC to focus on those alarms which require action

< Diagnostics can predict operational risks, like measuring remaining battery lifetime down to the minute

< Cisco’s Energy Management suite eases comparison and optimisation of energy management site by site, or

the evaluation of ESCO proofs of concept

< Industry grade pre-cabled, plug-and-play enclosures can maximise “deployability”

azeti’s SonarWise, the Remote Site Management Software, is now formally on the global price list of Cisco Systems. This partnership means azeti software can be downloaded on Cisco’s IoT gateways and routers, and there are three important benefits for the telecommunications tower industry. First, by enabling “intelligence @ the edge”, 95% less remote site monitoring and management traffic is sent back to the NOC, freeing up capacity that can be sold to customers. This means more minutes and megabytes with the same telecoms assets. Second, the combination of azeti SonarWise and the Cisco Energy Management suite enables tower owners to conduct deep, granular energy consumption analysis and optimisation. Third, managers can predict maintenance needs and efficiently deploy support resources before incurring costly downtime.

Keywords: Who’s Who, Access Control, Monitoring & Management, Installation, Opex Reduction, Batteries, Fuel Security, Energy Efficiency, Air Conditioning, ESCOs, Site Visits, NOC, RMS, Site Management System, Asset Lifecycle Platform, Job Ticketing, Cisco Systems, azeti Networks


Thorsten Schaefer, CEO, azeti Networks

sent back to the NOC by 95%. By only sending the important data back to the NOC, the really important alarms don’t disappear in “white noise”. Think about how much data can be generated at a remote site from both legacy assets like HVACs and generators, but also all the modern IP driven assets such as video cameras and smart meters. Why tell the NOC every minute that a door to the remote site is still shut, when it is only opened a few times over the course of the year? Our software is able to filter out the irrelevant data, freeing up bandwidth for the sale of minutes and megabytes to clients. That’s a double win for management because it ensures visibility and control, while delivering more top line business value from the same infrastructure. On top of this, azeti SonarWise interfaces with market leading platforms like Jasper to enable dynamic update of the bandwidth plan depending


on the actual situation. For example, somebody enters a remote site and the motion detection sensors recognise this. Then azeti is able to activate the video cameras and to upgrade the bandwidth for live video streaming via the Jasper platform. “Intelligence @ the edge” also provides protection against communications interruptions as data is stored locally until the network is restored and the data can be returned to the NOC. With this comprehensive solution we believe we are the best at providing our clients a whole range

of business benefits that really add up, like:< Visibility into the energy consumption of specific assets< Multi-tenant energy management< Integration of Cisco’s surveillance tools including cameras, motion detectors and even “exotic sensors” like gun shot detection< Improved access control management (using chipcards, SMS PIN codes or phones)< Improved control and visibility of re-fuelling processes and re-fuelling contractor performance< Visibility of fuel or equipment theft or

Cisco cloud infrastructure

azeti SonarWise Remote Site Management solution

Sensors (daisy chained, two wire cable)

Cisco IR910/819 azeti SonarWise Intelligence@the Edge

Cameras Digital I/O

MODBUS RS485 Ethernet

MODBUS RS485

azeti cloud middleware

Ticket link

NOC SW Alarms, Traps, Tickets

azeti Control Panel Configuration, Control

Cisco Energy Management Analytics, Reporting

Configuration update

“ “Why tell the NOC every minute that a door to the remote site is still shut, when it is only opened a few times over the course of the year? Our software is able to filter out the irrelevant data, freeing up bandwidth for the sale of minutes and megabytes to clients

vandalism< Verification that aircraft warning lights are functioning< Fine granulated battery management TowerXchange: Tell us more about the granular detail of visibility and control you are able to provide into battery management. Thorsten Schafer, CEO, azeti Networks: We recently undertook a hands-on study of battery management for a client of ours.

The managers found that while batteries at remote sites looked ‘ok’, when grid power went down often those batteries collapsed or did not last as long as expected. They wanted to know down to the minute the remaining battery capacity in case of a grid failure. We configured an automated process that completely changed the game, and runs directly on the Cisco gateway in the cell site. While quite complex, the basic idea is that every couple of months the solution will briefly take the tower off the grid, and monitor the behavior of batteries until discharged to critical status, based on which we can predict the remaining lifetime to the minute based on the real energy consumption of the battery. We also have a mathematical model to predict declining performance as the cells age, but we recommend that the client recalibrate every six months – we do this all remotely and fully automatically. The azeti Cloud middleware (developed over

many years in conjunction with researchers at the University of Berlin) sends the collected data to the NOC, the azeti control center and to the Cisco Energy Management tool via MQTT, the most modern standard for IoT messaging. The azeti Cloud can run on customers’ premises or on Cisco Cloud infrastructure. TowerXchange: How does the integration of SonarWise and Cisco EnergyWise enhance dashboards and reporting? Thorsten Schafer, CEO, azeti Networks: By pre-integrating the Cisco Energy Management Suite into the overall solution we help our customers get an easy-to-deploy solution that can measure and manage the energy use of all the connected IT and non-IP devices across their entire network. This enables historical and actual data analysis, and granular predictions. For example, based on energy usage analysis our clients can predict that an air conditioning unit has a filter problem. Or by comparing the performance of site A and site B we can tell that the air conditioning system in site A has run out of cooling fluid as it’s running more less 24/7. Cisco Energy Management can compare energy consumption site by site, or from one O&M contractor to the next, for efficiency purposes. We can analyse different configurations of towers, and we can compare the energy consumption of different tenants, enabling towercos to add value to their services by recommending which of their tenants’ equipment is more efficient.

The improved reporting enabled by SonarWise and Cisco Energy Management is especially valuable to towercos evaluating energy as a service. If towercos want to give an ESCO a handful of sites to conduct a proof of concept, we can provide accurate, independent data on the quality and availability of power, and the exact reduction in energy consumption. TowerXchange: How proven are these solutions in the field? Thorsten Schafer, CEO, azeti Networks: azeti has deployed several hundred remote asset management solutions at scale and Cisco obviously has thousands of references illustrating the success of their gateway technology inside cell sites operated by companies like Verizon and AT&T. The joint solution is currently being piloted by five major global MNOs. TowerXchange: One of the most common complaints we hear from towercos about RMS is ‘deployability’ – that advanced technical solutions are too complex for the average field engineer to install and configure. How have you maximised the ‘deployability’ of your solution? Thorsten Schafer, CEO, azeti Networks: The azeti SonarWise software is completely configured remotely. So the local installation firms need not know anything about the operation or configuration of our systems. We have made installation as easy as possible.


Easy%to%deploy%Package%

Keypad%

I/O%Modules%

Power%Meter%

MODBUS%Sensors% Cisco%IR%910%%

Cisco%IE%2000%POE%Switch%%

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By working with Cisco technology at the edge, we leverage proven security mechanisms, network capabilities, network protocols, and remote configuration tools. Working with Cisco’s global network of partners means we can now provide a complete service, including installation, in every country of the world. We provide pre-cabled enclosures with easy to connect standard interfaces – it’s a “bullet proof” solution that is also easy to roll out.

TowerXchange: Does azeti’s partnership with Cisco open up a new channel to market? Thorsten Schafer, CEO, azeti Networks: Yes. azeti is now an official software vendor available to all current and potential clients of Cisco. We’re right on their global price list, so any Cisco partner worldwide can order our joint remote asset management solution – with azeti SonarWise software basically offered as a value-added app on the Cisco gateway router. TowerXchange: Please sum up how azeti’s partnership with Cisco differentiates you from other remote monitoring and site management vendors? Thorsten Schafer, CEO, azeti Networks: Through our partnership with Cisco, azeti now has global support in every country of the world. Wherever you are, we have a local system integrator ready to deploy and support Cisco gateway routers with azeti SonarWise software embedded like an app


and Cisco Energy Management for fine granulated energy management. By enabling azeti SonarWise to run on a market leading IoT gateway, pushing intelligence to the edge, we are able to segment and analyse data locally, preventing the transfer of unnecessary data to the NOC, and in turn reducing the ‘noise’ of data in the NOC. I’ve seen too many NOCs integrate RMS, receive hundreds of “alarms” on day one, and start ignoring RMS alarms on day two! Many proprietary remote monitoring and site management solutions only monitor the assets in their own portfolio – that has been a real bottleneck in the market since it means you never really get a holistic solution but rather are held hostage by proprietary systems that only tell part

of the story. They have limited extensibility and rely on expensive proprietary sensors and other technology components. The standard alarm systems we see deployed on many cell sites today, for example, may support only one or two sensors, may be configurable only onsite, and many have unidirectional communication – they can only monitor pieces, not manage entire remote cell sites. azeti SonarWise has multiple interfaces to connect to virtually any type of sensor at the cell site. We enable bi-directional communication for the remote monitoring AND management of assets. Robust analysis and reporting enables efficient workforce planning and predictive maintenance, which in turn reduces site visits, increases service life of equipment, and reduces instances of vandalism and theft

Qowisio’s Ultra Long Rangetechnology cuts the cost of RMS by 30%Proven RMS vendor enables towercos and MNOs to share one controller between multiple sites, and to provide new VAS within the IoT ecosystem

TowerXchange: First, what is your background Cyrille – how did you come to be running an innovative remote monitoring and energy management company?

Cyrille Le Floch, CEO, Qowisio: My background is as a radio engineer and designer of mobile networks for Bouygues Telecom, Orange and latterly T-Mobile. In particular with Orange, who operate in a number of markets where the electricity grid is incomplete or unreliable, I often faced challenges to secure power and ensure QoS. I took those experiences in the field into designing a remote monitoring system that could meet the needs of mobile network operators, while being robust enough to function in challenging markets such as SSA.

TowerXchange: Please introduce Qowisio’s ultra long range radio communication technology – why could this be a game changer in remote monitoring of cell sites?

Cyrille Le Floch, CEO, Qowisio: With the emergence of the independent towercos, who often buy towers from different operators, sometimes towers are only a few hundred meters apart. Similarly, network densification for 4G will require cell splitting – more sites, closer together. In the past, remote monitoring systems had needed a controller on each tower to consolidate data and transmit it back to the NOC. However, Qowisio realised we could share one controller between

Read this article to learn:< How many sites and sensors can be controlled from one QowisioBox controller?

< How ultra long range technology saves both capex and opex

< How improved tamper-proofing adds even more savings

< Opening up new opportunities to create VAS within the IoT

< ‘Plus and Start’: Improving ‘deployability’ by making the system wireless, easy to install and

remotely configurable

TowerXchange has seldom come across a remote monitoring competitive differentiator in as significant as Qowisio’s Ultra Long Range radio communication technology. Whereas once upon a time, every remotely monitored site had it’s own controller with a finite number of ports to add extra sensors, Qowisio’s Ultra Long Range communication technology, combined with the wireless, ‘plug and start’ design of their solution, means that several sites within a 35 kilometer radius can share a single controller, consolidating data from up to a thousand sensors. Capital cost savings: 30%. Opex cost savings: priceless!

Keywords: Who’s Who, Monitoring & Management, QoS, Operational Excellence, Off-Grid, Unreliable Grid, Site Visits, Skilled Workforces, RMS, Africa, Europe, France, Tanzania, Qowisio

Cyrille Le Floch, CEO, Qowisio


multiple sites, increasing the security of an already robust solution, while reducing capex and opex. TowerXchange: How did your R&D team come up with the idea of using ultra long range communication technology to share one controller between multiple sites?

Cyrille Le Floch, CEO, Qowisio: First you have to understand that communication between sensors and the QowisioBox controller has been wireless from the beginning. We encountered several sites where the BTS was on a rooftop, with the genset and fuel tank at ground

level. To avoid expensive cable connections, our R&D team extended the wireless communication range of the controller to 100-300m. We realised if we extended the range still further, one controller could serve multiple sites.

TowerXchange: How many sites and how many sensors can be managed from one QowisioBox controller?

Cyrille Le Floch, CEO, Qowisio: Because ours is a fully wireless system, the capacity of a QowisioBox is over 1,000 sensors. Unlike competitive wired solutions, there is no limit in terms of the number of ports on the controller. We can connect to any new piece of equipment installed in the field directly from the NOC – so it’s easy to extend the sensor network, and the field technician doesn’t have to connect and configure the solution onsite.

TowerXchange: It seems to us that a tower owner can pay anything from $500 to $10,000 per site for RMS depending on the quality and functionality of the solution they select. What are the potential cost savings enabled by Qowisio’s Ultra Long Range radio communication technology, and how does that give you an edge in the higher quality end of the market which you address?

Cyrille Le Floch, CEO, Qowisio: Using one centralised controller instead of multiple RMS controllers on each of several nearby sites is efficient from both a capex and opex point of view. Sharing one controller between three of four sites


can save more than 30% on capex. With each controller having two SIM cards, if you have three towers within a couple of kilometers, you need three controllers and six SIM cards with other RMS, but you need only one Qowisio box with two SIM cards, thus reducing transmission opex costs, which can be substantial. We generate even more savings as a result of making sites more secure. While wired RMS solutions are easier to tamper with to disable fuel monitoring and steal diesel, for example, by simply cutting the wire (even with internal power, the vandalized sensor will need a maintenance visit). With the Qowisio solution, not only may there be no wires but no

controller onsite to even attempt to tamper with! TowerXchange: How proven is the solution in the field? Cyrille Le Floch, CEO, Qowisio: Qowisio’s Ultra Long Range communication technology has been successfully deployed on over 1,000 sites in France. We have signed some contracts with towercos already as our long range, wireless communication technology gives us a genuine competitive advantage over classical, wired RMS solutions. As a result, we’re able to supplement towercos’ core business, becoming more of a partner than a supplier.

TowerXchange: How can Qowisio supplement the towerco’s core business? Cyrille Le Floch, CEO, Qowisio: Qowisio’s Ultra Long Range communication technology enables towercos to access the IoT (Internet of Things) ecosystem and provide new services. As well as monitoring their own and their tenant’s assets, towercos could monitor third party assets within the controller’s radius, like refueling stations’ monitoring sensors, providing more data deeper into their own supply chain, but also transmitting sensor data as a value added service to other businesses, opening up telemetry / M2M revenues beyond towercos’ locations. With a range up to 35km, it would enable towercos and MNOs using our equipment to connect to any object with an embedded sensor, providing a myriad

of data to other companies. TowerXchange: TowerXchange has profiled 27 different RMS and Site Management Systems, and spoken to hundreds of towercos about their experiences with RMS. For the last three years it has seemed like no single solution has yet been able to meet all the towerco’s requirements. What do you see as the primary challenges to making remote monitoring and energy management work and how are Qowisio working to overcome those challenges? Cyrille Le Floch, CEO, Qowisio: Many competitive RMS solutions have been developed from industrial monitoring, using wired controllers linked with an Internet or GSM modem, and developed for countries where grid power is stable. Qowisio’s solution has been designed from an emerging market tower operator’s point of view. We recognise the challenges of making advanced functionality simple to deploy, making it remotely configurable, and making it tamper-proof. Qowisio’s solution is easy to install and maintain. With no cabling, it’s all ‘plug and start’ –the field technician doesn’t need expertise to configure the system. Everything is in the cloud; settings can be changed remotely from the NOC. We’ve been pushed to design a solution that is robust against tampering, which is especially important when monitoring cell sites in remote areas where diesel is effectively a local currency, and where pilferage is widespread


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Qowisio’s solution is easy to install and maintain. With no cabling, it’s all ‘plug and start’ –the field technician doesn’t need expertise to configure the system. Everything is in the cloud; settings can be changed remotely from the NOC

End to end remote monitoring hardware and site management software for cell sitesDigant Technologies delivers unrivalled accuracy to help customers minimise opex and avoid unnecessary capex

TowerXchange: Please introduce Digant to our readers - where do you fit in the telecoms infrastructure ecosystem? Sai Kamalesh, Director – Sales and Marketing & Operations, Digant Technologies: Our company offers end to end solutions to passive infrastructure firms. As well as the remote monitoring of various key parameters, we automate switching the load between the different power sources on a cell site (both conventional and renewable) while accurately measuring the fuel consumption at the site, combining to help towercos minimise downtime and avoid SLA penalties. The mix of solutions we offer is derived from teams dedicated to hardware, firmware, application development and software. Everything is designed in-house in Bangalore by our team of electrical, electronics and telecom engineering experts. Robustness in design and final product means we are able to plug into customers’ profitability gauges. This enables us to measure energy / fuel usage at tower sites, and enable timely alarm reporting and thereby help customers achieve operational excellence. TowerXchange: TowerXchange tracks 27 different suppliers in our cell site monitoring who’s who - some are focused on hardware, some on software - why does it matter that one company provide both?

Sai Kamalesh, Director – Sales and Marketing & Operations, Digant Technologies: When we buy

Read this article to learn:< Why it is important for site monitoring and management companies to provide hardware and software< How Digant’s solution has been proven at 3,000 cell sites and 5,000 petroleum retail outlets across India< Monitoring and minimising manual overrides to automatic load transfer< How accurate remote monitoring helps identify and reduce pilferage, and prevents contractors running multiple energy sources concurrently to run up invoices< How effective RMS avoids re-investing capex by extending the lifespan of equipment

Digant’s end to end site monitoring and management solution extends from hardware to software, and has been proven at thousands of cell sites across India. Creating real time visibility of cell site performance isn’t just about technology – it must also be about understanding and optimising operational processes, whether it be predicting equipment failures before downtime and SLA penalties are incurred, or setting a manual override back to automate power source selection and minimise DG runtime.

Keywords: Who’s Who, Monitoring & Management, Capex, Opex Reduction, Batteries, Fuel Security, Energy Efficiency, Operational Excellence, Air Conditioning, SLA, Uptime, DG Runtime, KPIs, Site Visits, Skilled Workforces, RMS, Site Management System, Job Ticketing, Asia, Africa, India, Digant Technologies

Sai Kamalesh, Digant Technologies


electronic gadgets, it is apparent that some suppliers are good at hardware and others are only good at software. Digant believes that the ability to design and develop both hardware and software leads to tighter integration and a more robust solution. Quality is critical at remote cell sites. The techno-operational benefits of using our end to end solution helps our customers maximise return on capital invested. We believe we have a clear advantage over many global solution providers on this basis. TowerXchange: Will you sell just the hardware to a customer who has committed to a software platform, or vice versa? Sai Kamalesh, Director – Sales and Marketing & Operations, Digant Technologies: We prefer to deliver the end to end solution. When you consider the importance and the variety of KPIs monitored – energy monitoring, measuring electricity consumption and uptime, channelling, accounting, air conditioning, fuel tanks, and the opening and closing of alarms – it is difficult to have hardware from one vendor and software from another. However, where customers already have a software solution but want hardware, we’ll integrate by identifying any technical and operational gaps to make the solutions compatible. While we don’t mind integrating with another vendor’s software, we must understand the package, and the suitability to our robust hardware platforms. We will work hand in hand with the

software firm to evaluate and then submit a report on required changes to be made in the software by the software vendor. While we do integrate our hardware with third party software, we are not interested in integrating our software with third party hardware.

TowerXchange: The first question our readers usually ask is “how proven is the solution in the field?” Please tell us about your proof of concept trials with Indian towercos. Sai Kamalesh, Director – Sales and Marketing & Operations, Digant Technologies: The NDAs we have with some of our customers means that we cannot give you their names. We have undertaken proof of concept trials with five towercos in India, with one of which our solutions are now deployed across 3,000 sites, including a few green towers where renewables such as solar are used.

Digant started providing remote site automation systems to petroleum retail outlets eight years ago. One client from an India-based oil company has been monitoring and measuring their operations remotely at 5,000 petroleum retail outlets across India for many years now. The remarkable accuracy of our solutions means we are winning business consistently. TowerXchange: What do you see as the main challenges to be overcome in the monitoring of remote cell sites, and how do you overcome those challenges? Sai Kamalesh, Director – Sales and Marketing & Operations, Digant Technologies: Seeing alarms in real time enables our customers to respond in time to resolve problems, avoiding paying SLA penalties where operations function below performance thresholds. We are often able to


“ “When you consider the importance and the variety of KPIs monitored… it is difficult to have hardware from one vendor and software from another

foresee malfunctioning of existing power or load automation technologies. Existing automation technologies, often integrated into conventional controllers, are prone to going faulty. This forces the tower operator to default to manual operations. An example of this is that grid power outages require switching on the DG, or overriding the automatic load transfer to avoid downtime. Existing technologies are prone to tampering – the customer may not know for hours, days or weeks. This leads to extended outages, and enables malpractice such as fuel and equipment theft. Our robust solutions provide more than remote monitoring, they also take care of power source automation in an integrated solution. They switch between the three phases of power and select the power source via the cheapest and qualitative source available, including both conventional and renewables, where available. We make sure the battery bank gets as fully discharged as possible, minimising DG runtime while avoiding deep discharge of the battery bank to keep it in good health. With the health of these two important assets secured, lifetime is extended. The two primary challenges we see are to minimise DG runtime and to arrest fuel leakage, which we can help to achieve. Unfortunately we often encounter situations where contractors are running multiple energy sources concurrently to run up invoices, to disguise theft, or simply because they don’t realise

there’s enough charge in the battery bank. The solutions we offer remove the operational hazards of manual power source selection. It is not easy for towercos to understand what power sources are running on their cell sites, what is running efficiently and the health of their equipment. Using an end to end solution like ours minimises unwanted capex reinvestment. We monitor batteries at cell level so towercos are able to know which cells are faulty, and can replace only those cells. Finally, we can help combat the theft of equipment such as batteries and battery banks. This can be done by identifying the movement of an asset on the site and alerting field staff. TowerXchange: How do you tamper proof your solution? Sai Kamalesh, Director – Sales and Marketing & Operations, Digant Technologies: Tamper proofing depends on the accuracy of operational parameters, as well as the timeliness of alarms. We use sensor-level architecture; everything is integrated within our main unit. The alarm multiplexers at sites are connected via SNMP. The equipment we use also has a good number of on-board alarms which feed directly into our customers’ dashboards. Nothing is destruction proof, although the customer will be able to see any untoward incident instantly. This is possible whether it is a sensor that has been destroyed, or a battery bank stolen, or if

the DG mode has been manually overridden to enable fuel pilferage. Any tampering alert is sent instantaneously to field staff, giving them the best chance to confront the person tampering with the equipment. The accuracy of our fuel monitoring means tower owners can evaluate the performance of refuelling contractors. This allows them to identify how much diesel has been consumed or pilfered, and reconcile accounts to identify excessive fuel claims by the contractor. As a result they will reduce opex, arrest leakage, and improve EBITDA. TowerXchange: What do you see as the KPIs for the monitoring of remote cell sites? Sai Kamalesh, Director – Sales and Marketing & Operations, Digant Technologies: The most important KPI is always to maximise site uptime. Automating the power source selection and load without any manual intervention is also a key indicator of performance. It enables towercos to manage and compare the energy generated to the energy required by the load on the site. This highlights any energy leakage. Monitoring remote sites is also beneficial in measuring and preventing pilferage. These solutions can also monitor and manage the performance of batteries and DGs to ensure longevity. They reduce opex on a month to month basis by eliminating false alarms, unwanted site inspections, rectification issues and overrides of the automation controller on the existing conventional


automation equipment. The importance of these KPIs illustrates the importance of accurate, trustworthy site data from RMS. If an organisation does not use these types of tools, they may be faced with inaccurate information and decision making could suffer. Customers must be able to identify the best field engineers, refuelling vendors, O&M people and they should be recognised and rewarded. TowerXchange: How do you translate data into actionable intelligence? Sai Kamalesh, Director – Sales and Marketing & Operations, Digant Technologies: There are three key steps an organisation must take to translate data into actionable intelligence efficiently. 1. Alarms raised on a site need to be instantaneously sent to field technician without delay – escalating to managerial layer as appropriate. Any closed alarms must also be accessible to technicians and the managerial layer. 2. Visibility into any manual overrides of automatic load transfer – between the grid, battery bank, DG, and renewables (where available), as well as air conditioning or climate controls. This enables, where appropriate, arrest of manual overrides and restoration of automated operations. This avoids unnecessary opex. 3. Understanding your consumption per hour (CPH) enables customers measure unnecessary

DG runtime and diesel consumption. This helps our customers understand how much diesel is burned and how much diesel is pilfered on a daily basis. This arrests excessive claims by diesel filling companies, which can make a huge dent on profits.

Without actionable RMS data towercos have to have fixed fuel consumption agreements; with effective site intelligence they are able to bill for the actual fuel burned. TowerXchange: The number one challenge most towercos report with RMS is ‘deployability’ - complex solutions are difficult to install and maintain in the field - how does Digant propose to overcome this challenge? Sai Kamalesh, Director – Sales and Marketing & Operations, Digant Technologies: Our RMS solution is designed with a minimalistic interface; almost everything is contained within the hardware. Most alarms have no dependency on external equipment. The installation / commissioning engineer who installs all passive infrastructure at site should be more than capable of installing our hardware. We also provide training to installation and commissioning personnel. TowerXchange: Finally, please sum up how you would differentiate Digant from competitive RMS and ILM solution providers. Sai Kamalesh, Director – Sales and Marketing & Operations, Digant Technologies: There are four key factors that differentiate us from other RMS and

ILM solution providers: 1. Less sophisticated RMS are little more than a modem with controllers and a dashboard and they are prone to not meeting the towercos’ remote monitoring and measuring objectives. Digant understands this aspect and the techno-operational issues and challenges at telecom tower sites, thus attained the capability to bring out solutions that are operationally rather than technologically focused. 2. Through our experience in providing site monitoring and automation, we have become an industry benchmark for accuracy of data. Our customers rely on our data, and when they check sites they find their performance exactly matches what they can see on our system. 3. Towercos are trying to make cell sites man-less by fully automating day to day operations, except for the manpower required for diesel refueling. Towercos are also operating loads on green energy sources where feasible. Our solutions are the right fit to these requirements. This avoids the costs involved in both the maintenance as well as the associated long drive times of field level engineers / technicians. 4. Securing the health of energy meters, DG and other electronic equipment by managing sites and anticipating problems based on the intelligence coming from our solutions – moving from scheduled to predictive maintenance. This will minimise opex, avoid unnecessary capex and ultimately improve EBITDA


Special feature:

TowerXchange resumes our search for credible “powercos” – business partners who can invest in AND operate and maintain the power systems at thousands of distributed cell sites. In this special feature, we reconnect with an old friend of TowerXchange, Sairam Prasad who is the former CTO of Bharti Infratel and edotco, Sairam’s new role is as CEO of Lineage Power, part of Pace Group. Pace already manage O&M for 36,500 towers and provide a full RESCO service for 500 more in India. Similarly credible, AST operates nearly 3,300 cell sites in India and has recently commenced a five site pilot with Helios Towers Nigeria. And we hear from the world’s largest RESCO, SunEdison, on their partnership with OMC Power to electrify 5,000 Indian villages.

Panasonic has a trusted brand, robust balance sheet, proven energy storage product range, and a partnership with PowerOasis to draw upon to create a new ESCO solution – read all about it here. Finally, we speak with leading power conversion manufacturer Unipower about the needs for backup power in the global telecom industry.

Towerco or powerco?Part three

Don’t miss:229 Pace Group’s Sairam Prasad asks “When will towercos need energy services?”

235 AST’s turnkey energy management as a service

239 SunEdison combine RESCO and community power propositions

243 Drawing on Panasonic’s global competencies to create a new ESCO solution

247 Unipower on the ever-changing shape of the tower power game


When will towercos need Energy Services?And what are the four critical ingredients of a credible energy services proposition?

TowerXchange: Good to speak to you again and congratulations on your new role – please introduce us to Pace Group.

Sairam Prasad, CEO, Lineage Power, part of Pace Group: Pace Group is arranged into three verticals. 1) Our product-focused business Lineage Power is an acquisition from GE Power Electronics, which has good technology, systems, processes, people and manufacturing facilities. Thanks to this acquisition, we could significantly strengthen our product portfolio and offer end-to-end site solutions. 2) Pace Power, which is handling our services business, has scaled from nowhere in the O&M space in 2012 to provide comprehensive site O&M services to 36,500 towers as we speak. Services being manpower intensive, today we are proud to say we have a workforce of more than 600 for product services and more than 2,000 for O&M services. 3) Pace Renewables is our energy services business wherein we have invested capex with close to 500 solar sites on long term contracts under an opex model from Indus Towers and Vodafone. In addition to this, we are a “unique energy services provider in the telecom space offering end to end energy management solutions like solar hybrid, battery hybrid et cetera on capex, semi opex and full opex models” to a variety of customers like ATC, Bharti and Viom. Pace Group has entered Myanmar and Africa

Read this article to learn:< How telecom energy capex and opex has changed in the last five years

< What are the addressable markets for VRLA and lithium ion batteries?

< The five stages of maturation of the tower industry toward energy services

< A comparison of readiness for energy services in India, Myanmar and SSA

< The four key ingredients of a credible energy services proposition

There are few people in the world who know more about planning and powering shared tower networks than Sairam Prasad, former CTO of Bharti Infratel, edotco group and WTTIL. Sairam also has many years of experience with mobile operators like Tata Communication (JV of TATA, Bell Canada International), Birla Tata AT&T and Idea Cellular. For the last couple of months, Sairam has been getting comfortable behind a new desk, as CEO of Pace Group’s Lineage Power. Sairam shared his vision of the energy services proposition, and explained why, where and when towercos will want to partner with energy services providers.

Keywords: Energy, Investment, Capex, Opex Reduction, Batteries, Energy Storage, Lithium, Loading, Energy Efficiency, Pass-Through, Fixed Price, Air Conditioning, SLA, Uptime, Off-Grid, Unreliable Grid, On-Grid, ESCOs, Solar, Greenfield, DG Runtime, Dimensioning, Skilled Workforces, Multi-Country Partner, Small Cells, Private Equity, C-Level Perspective, Microgeneration, Site Management System, Infrastructure Sharing, Southeast Asia, India, Africa, Nigeria, Tanzania, Pace Group, Lineage Power, Pace Renewables

Sairam Prasad, CEO, Lineage Power


with our products and services businesses. We entered the African market in 2011-12, when Airtel introduced a few selected Indian vendors with the right equipment capabilities into the Africa market for their rollout. Since then we strengthened our relationships with other customers as well. In 2014, we expanded our operations to Myanmar when telecom licenses were issued and towercos were being formed. I consider Myanmar to still be a virgin market with very high growth potential in years to come. We now see good drivers in all three markets to scale up in to energy services. TowerXchange: What has changed to make energy services more compelling? Sairam Prasad, CEO, Lineage Power, part of Pace Group: When energy services were first trialled in India in 2009, it was difficult to drive to scale. There were no regulatory norms. Technology risk was

not yet fully understood. Lithium-ion was at a high price point of over US$1,000 per kWh and the diesel price was very low – US$0.50 in India. Diesel costs have since exceeded to US$1, Lithium-ion now costs US$500-600 per kWh, the price of grid power has increased and the price of renewables have fallen. While solar previously costed US$1.50 per watt, it’s now around US$0.70 per watt. Tenancy ratios in India have increased from around 1.35 in 2008 when large towercos were formed, inching towards 2.0 today. This is increasing the electrical load on sites, and we know how technology can be scaled as load has increased further with the 3G overlay.

We are now reaching an inflection point toward energy services wherein all the aforementioned drivers are converging. According to some reports, Indian telcos are burning around two billion litres of diesel every year, prompting regulations to reduce carbon footprints with aggressive targets to be met by 2020, and with the first major milestone compliance scheduled this year. Fortunately, the misconception that solar could achieve high penetration has been set aside. We now understand that the addressable market for solar in India is around 15% of sites. Many sites simply don’t have shadow free space for a solar array. Solar is better suited to off grid sites with outdoor equipment and load within a given band.

TowerXchange: What is the “given band” within which solar might be the optimum energy source? And is solar an option for multi-tenant sites?

Sairam Prasad, CEO, Lineage Power, part of Pace Group: Any load beyond 3kW is generally a challenge for solar. But one can accommodate one or two, or sometimes even three tenants with 3kW, depending on the type of equipment. TowerXchange: You’ve emphasised the importance of the affordability of lithium-ion energy storage – how would you break down the balance of sites where VRLA is the best option compared to those where the extra investment in lithium-ion batteries can be justified? Sairam Prasad, CEO, Lineage Power, part of Pace Group: Given that the price of lithium-ion may not fall much further, the main trade offs between VRLA and lithium-ion remain on price, charge discharge rates, cycle life, and power density.

The superior power density of lithium-ion enables light weight energy storage for the metro cells providing street level coverage on small poles. Metro cells and micro cells are becoming a market requirement as users migrate from voice to data and as new technologies increase speed, network planners need street level coverage in dense urban areas. You cannot put mammoth battery banks on concealed sites without compromising aesthetics and making those sites more difficult to permit. Everything has to be integrated into the pole – including limited energy storage. Metro cells typically have a 500W equipment load, and these are typically located in urban areas where the grid is generally good. Considering the scale required, and the need for perhaps two to four hours of


“ “We are now reaching an inflection point toward energy services

backup power, the metro cell market will be a good fit for lithium-ion. At good grid and medium quality grid macro sites, VRLA batteries remain a good option purely on a commercial basis, because of their price point and longevity when used in float. At off grid and poor grid sites, VRLA batteries need 8-12 hours to charge, which limits the DG runtime reduction that can be achieved. In comparison, lithium-ion batteries charge much faster, can cycle for multiple charges in a day, and still offer a good life. In summary, VRLA often remains the best choice in good grid and medium grid environments. For metro cells, poor grid and off-grid cell sites lithium-ion may offer the best energy storage technology. To express that in terms of addressable markets, approximately 15% of India’s cell sites are off grid,

25% are on poor grids and the rest are medium and good grids. So the addressable market for lithium-ion is around 40% of India’s 350,000 macro towers (400,000+ sharable structures). And there are perhaps 50,000 sites that are candidates for solar power. TowerXchange: Are the majority of India’s new build sites likely to be urban infill sites, like those metro cells you mentioned, or are there further rural network extensions to come? Sairam Prasad, CEO, Lineage Power, part of Pace Group: The new build drivers are more focused on enabling data growth, rural penetration is more or less achieved in India. The USO has awarded some funds for rural builds, but most of the MNO capex is concentrated in urban areas.

TowerXchange: You were slightly less bullish about energy services when I last spoke to you as CTO of edotco group – was that just the cautious procurement strategy of a new company, or do you feel edotco’s footprint is currently less suited to energy services? Sairam Prasad, CEO, Lineage Power, part of Pace Group: edotco currently operates in several markets where energy is a less immediate concern. 97% of Malaysia’s cell sites are on the grid – at the time I left, edotco had very few off grid sites in Malaysia. Similarly well over 90% of Sri Lanka’s cell sites are on grid. Microgrids are predominant in Cambodia, and those microgrids tend to burn a lot of diesel.

The most attractive market for energy services among edotco’s current footprint is Bangladesh, where around 15 to 20% of cell sites are off grid, and the grid is very unreliable. However, the towerco concept is still at nascent stages in the country and towercos are still focusing on operational efficiency before they progress to focus on energy efficiency. TowerXchange: Given that the Bangladesh tower industry is too immature for energy services, please explain the phases of maturation until tower markets are ready for energy services. Sairam Prasad, CEO, Lineage Power, part of Pace Group: I see the maturation of the tower industry as a five step process. 1. MNOs focus on their own rollout, retaining


“ “VRLA often remains the best choice in good grid and medium grid environments. For metro cells, poor grid and off-grid cell sites lithium-ion may offer the best energy storage technology... So the addressable market for lithium-ion could be around 40% of India’s 350,000 macro towers (400,000+ sharable structures)

towers for as long as they are seen as a competitive differentiator.2. Once the rollout is complete, the MNO optimises costs through infrastructure sharing, initially through bi-lateral swaps before divesting or carving out towers into a towerco.3. The towerco’s initial priority is to optimise efficiency in network operations – implementing systems and procedures to improve network uptime. In the early stages for towercos, power and fuel costs often start as a pass through.4. In an intermediate phase you might move to an indexed power pass through or semi fixed energy models like in India.5. Eventually, often under pressure from their MNO tenants who want fixed cost energy contracts from towercos, the towerco starts exploring energy services, moving from proofs of concept to full scale pilots and then to a shift to the energy services model. This maturation has already taken place in India. After the complete rollout, we saw the formation of several carve out and joint venture towercos. Power costs were initially passed through to the tenant, before the fixed cost energy contracts were proposed, leading to energy services pilots. Network uptimes and other operational efficiencies have been realised to the maximum level over last few years. Further optimisation in costs can come only through effective use of technology services. From this context, India is now ready to shift to the energy services business model. Myanmar is also approaching readiness for energy

services. The towercos have been in Myanmar since day one unlike other markets – the Myanmar tower industry effectively started from phase three being a late entrant to mobile services. Most of Myanmar’s towercos are private equity backed firms deploying the majority of their capital to build more towers required for coverage. Given that most of Myanmar’s towercos are new to this field, they have finite expertise in terms of optimising field operations and energy costs. However, Myanmar’s towercos remain subject to stringent SLAs on costs and uptime. Added to this, the grid situation in Myanmar tilts to more off grid and poor grid with very little good grid scenario. So the tower industry in Myanmar has every reason and incentive to

embrace energy services faster than other markets. TowerXchange: In a recent editorial “How to resolve the Mexican standoff on tower power in Myanmar”, TowerXchange noted that the incompatibility of Telenor and Ooredoo’s power strategy in phases one and two of the rollout compromised efficiencies. It now seems that phase three of the rollout will be led in a more co-ordinated manner, with Telenor issuing an RFP for over 1,100 sites with the power to be provided by the towerco and with Oordeoo to co-locate on many of those sites. Sairam Prasad, CEO, Lineage Power, part of Pace


Group: Ooredoo initially retained and managed power through their active equipment managed services partner, but seem to have realised that separate focus drew attention away from their core business. So while Ooredoo is looking for partners who can deliver good O&M and energy services for their sites from phases one and two of the rollout, it will be interesting to see how the new co-ordinated third phase of the rollout takes shape. For example, there needs to be a commonality in lease price structures; at the moment Telenor benefits from more aggressive pricing with their towercos, whereas Ooredoo is paying a higher pricing but asking for higher scope. I feel Ooredoo may need to come closer to Telenor’s price. So the towercos may find it difficult to adapt to this change. There is also the complexity of identifying over 1,100 shared sites in a virgin market where both mobile operators are fighting fiercely for market share. Despite these challenges, I feel that the co-ordinated rollout is a good move to achieve the objective to work together and speed up the rollout while managing sites effectively. This also helps to avoid duplication of towers in the nearby vicinity. One of the challenges for energy services companies to reach scale in Myanmar is the fragmentation of the local ecosystem of O&M subcontractors. However, I feel the shift to an energy services model is inevitable in Myanmar because a high percentage of the cell sites are going to be off grid or on poor grids. Also, Myanmar’s operators already know the

towerco model – in India, for example, Telenor has leveraged co-location extensively, so they know the benefits of setting stringent energy uptime SLAs – as knowledgeable customers, they may reject the power pass through model within the next two to three years. TowerXchange: What’s your view of the maturation of the sub-Saharan tower market toward energy services, particularly in markets like Nigeria and Tanzania where towercos now own the majority of tower assets?

Sairam Prasad, CEO, Lineage Power, part of Pace Group: The proportion of cell sites that are off grid or on bad grids in SSA will increase with the rollouts over next six years. African cell sites have a long way to go to reach their energy efficiency potential. There are some renewable energy, and even a couple of energy services, pilots and trials. But most African MNOs and towercos have done little more than rollout CDC batteries – the first efficiencies are being created but there is still a long way to go before efficiency is optimised.Nigeria is an interesting market as it is both SSA’s biggest market and has a high proportion of off and poor grid sites. Although Tanzania has a smaller footprint compared to Nigeria, both markets have good potential for energy services as both have tower companies in consolidation mode. Even in a small country like Burundi, with a high percentage of cell sites off grid, virtually the entire network could be converted to energy services. It is simply not sustainable for African MNOs and

towercos to spend over US$2-3,000 per month per site on O&M, power and fuel alone – that’s too high by any standards. So African MNOs and towercos are interested in energy services, but they want to see an African proof of concept to demonstrate execution excellence and a business case backed by the funds to scale the energy services company. TowerXchange: What are the key ingredients of a credible energy services proposition? Sairam Prasad, CEO, Lineage Power, part of Pace Group: There are four key ingredients of the energy services proposition. 1. Technical solutions: a credible energy services company needs to be able to install and maintain their own or third party products including solar, lithium-ion or VRLA batteries as appropriate, integrated power management, high efficiency, variable speed DC generators, and free cooling systems that can be seamlessly combined using a controller into at least four or five different solutions according to grid and load conditions.2. Ground and field operations knowledge is critical to ensure execution excellence.3. Solutions must be scalable and modular. One achieves scale by applying energy management to the whole network in clusters, rather than in scattered bits and pieces.4. And the energy services company must have the financial capability to invest in capitally intensive technologies. Pace Group is an aspiring energy services company.


We have grown as a product company until 2012, since when we have made a strategic shift to provide and scale our O&M services. We have completed successful proof of concept pilots in energy services, and now we’re in a position to provide the aforementioned four key ingredients. The Lineage acquisition gives us a DC power solution, Pace Group has it’s own AC power products. We have partnerships for lithium-ion batteries, for RMS and solar with quality brands. And we have our own controller and network management system that can connect to other

products to offer complete site solutions. TowerXchange: One of your key ingredients was having the financial capability to invest in capitally intensive solutions, how does the blended capex requirement for energy services compare on a per site basis between India, Myanmar and SSA? Sairam Prasad, CEO, Lineage Power, part of Pace Group: Obviously the capital investment requirement varies significantly according to the

quality of grid available and the load on the site. For example, in India we might invest around US$10,000 to bring an off grid site up to standard for energy services, compared to US$5,000 for an on grid site. There are two capex models for Myanmar: for the greenfield sites being rolled out over the next two to three years, if they were built for energy services from day one, the capital invested into energy equipment might be around US$25-30,000 per site, whereas adding solar or additional batteries to legacy sites might require an investment of US$5,000 to US$10,000 per site at a blended rate. In contrast, the capital investment in an African green field site, where you may still need to buy a DG, could be as high as US$40,000 per site, whereas legacy sites might need an investment of under US$25,000. TowerXchange: Given the substantial capex required to scale energy services, I must conclude by asking how Pace Group is financed? Sairam Prasad, CEO, Lineage Power, part of Pace Group: We will be touching around US$ 100mn revenue this year on a consolidated level. Pace Group today is a privately owned organisation with healthy blend of EBITDA. We have a good mix of products, solutions and services with visible individual growth drivers coupled with presence in three geographies. We are currently updating our vision and concluding our strategic action plan, then will look into our resource requirements, including investment, in the next quarter


Turnkey energy managementas a serviceApplying AST’s expertise learned in India to demonstrate execution excellence in Nigeria

TowerXchange: Please reintroduce our readers to AST, your business model, your balance sheet, and your footprint in India and Nigeria. Sanjay Deshmukh , President, AST International: AST provides energy as a service using a combination of renewable, grid and DG power for critical applications – where reliability is important. We have been in this business since 2008 and today are managing several thousand tower sites in India and five proof of concept sites in Nigeria. The primary renewable source of energy we have deployed to date is a solar PV based off-grid hybrid power solution for telecom towers. AST designs, builds and operates these solar installations and takes over the energy supply management of each site. We use a combination of solar PV, battery back-up, diesel generators and grid power, where available, making it a hybrid energy solution that optimises the usage of various energy sources through the AST power controller. The optimal usage of these sources results in decreased diesel consumption, increased battery life, reduced diesel generator maintenance and replacement costs resulting in savings for AST’s customers. Our business model is based on long term take or pay contracts wherein all of the capex requirements for the entire hybrid solution are borne 100% by AST with zero capex invested by the customer. AST provides turkey energy services comprising of the assessment of energy systems at each site to ensure optimal energy usage, design and

Read this article to learn:< AST’s footprint in Nigeria and India, and their zero capex business model

< AST’s minimum contract size and typical contract duration

< How AST is funded and their capacity to rollout additional energy systems immediately

< Comparing the capex cost per site in India with that in Nigeria

< Initial successes from AST’s five site proof of concept with Helios Towers Nigeria

There are very few ESCOs with the credibility and experience of Applied Solar Technologies (AST), which operates nearly 3,300 cell sites in India, and which has a proof of concept under way at five cell sites in Nigeria. To illustrate the transferability of the ‘turnkey energy management as a service’ business model from India to Africa, and emphasise how it must be adapted to ensure successful execution, TowerXchange spoke to Kapil Kathpalia, CEO of AST’s domestic Indian business and Sanjay Deshmukh, President of AST International.

Keywords: Who’s Who, Energy, O&M, Opex Reduction, Batteries, Business Model, Energy Efficiency, Operational Excellence, Fixed Price, SLA, Uptime, ROI, ESCOs, Hybrid Power, Renewables, Solar, DG Runtime, Dimensioning, Site Visits, Skilled Workforces, Multi-Country Partner, Project Finance, RMS, Asia, Africa, India, Nigeria, Helios Towers Nigeria, Applied Solar Technologies, AST

Sanjay Deshmukh & Kapil Kathpalia, AST


deployment of efficient and cost effective energy systems, and comprehensive operations and maintenance services including fuel filling and site security with assured Service Level Agreements (SLAs). We make investments in energy systems and enter in to long term 10-15 years fixed fee contracts with our customers, providing savings of 10%+ over current opex levels. AST is adequately funded for rolling out of energy systems on nearly 5,000 telecom sites on an immediate basis, and has ability to raise further funds as required by the business.

TowerXchange: Can you share some detail on your company’s business model and footprint in India? Kapil Kathpalia, CEO, AST: We provide Energy as a Service for critical applications, where uptime is a critical issue, like telecom towers, ATMs et cetera. We bring in all the additional infrastructure to the site and take over the operations and management of the existing infrastructure equipment on the site. We maintain ownership of all equipment and handle all installations, maintenance and site management in India.

Generally, we enter into ten year contracts with our customers. This is a win win for both parties as the customer gets savings from day one without having to incur any capital cost, and monthly payments by the customer to us are fixed, stabilising opex. Currently we have our solutions deployed in

approximately 3,300 towers in India, where we’re currently working with Bharti Infratel, Indus Towers, MTS, American Tower Corporation and Idea Cellular. The majority of our clients in India are towercos; we have approximately twice as many towerco sites as MNO sites. TowerXchange: Please compare the range of capex an energy services company needs to deploy per site in the Indian compared to the Nigerian tower market? Kapil Kathpalia, CEO, AST: In India, the capex cost

per site for our solution ranges from US$15,000 up to US$40,000 per tower. Sanjay Deshmukh, President, AST International: In Nigeria the typical capex range is from US$50-75,000. At our initial five sites we have deployed AST energy systems comprising of 6 KW of solar panel, 1200 Ah battery and a rectifier system of suitable capacity with the remote monitoring system of AST. We are using existing diesel generators at these sites. Whether it’s in India or Nigeria, the capex required


AST site in Oyo State, Nigeria

for deployment of solar hybrid system at sites depends on many factors like DC load, AC load, site conditions, availability of grid power, period of autonomy desired and site location. TowerXchange: How do you achieve economies of scale and realise efficiencies with a diversity of different site designs for different environments? Kapil Kathpalia, CEO, AST: Opex varies a lot across the full portfolios of towers; the cost of maintenance and site visits varies depending on where sites are located, how close they are to the teams we have deployed, time taken to reach the site and what they need to do to access the site. In India, the main key to achieving scale with our solution is by having a minimum number of sites per client, which is 300, then we build from there. The largest number of towers we have equipment on for one client is 1,248. TowerXchange: What would you say are the main challenges facing a renewable ESCO to drive to scale in the Indian market? Kapil Kathpalia, CEO, AST: Growth of the renewable ESCO business model has so far been concentrated in the States with poor grid connectivity like Bihar and Uttar Pradesh. The off grid and poor grid sites are scattered in other States owing to the better grid conditions. This lack of concentration tends to make operations economically inefficient if only the renewable energy sites are under the ESCO. For

further growth of the renewable ESCO business model, the approach of contracting the renewable ESCO to manage all the sites in the cluster with off gird and poor grid sites needs to evolve. The industry is moving in this direction. TowerXchange: How is AST’s balance sheet funded, and how would you describe investors’ appetite for putting capital into ESCOs? Kapil Kathpalia, CEO, AST: We have different investors including some local Indian companies, international organisations such as the IFC, and some loans from financial institutions. Interest in renewable energy is definitely increasing as the business case becomes clearer and the long-term benefits of the technology are proven over time; as a result the capital available for investment is increasing. TowerXchange: How has the market for renewable energy in the Indian tower industry changed since you began operations and how do you see it continuing to evolve over the next two to five years? Kapil Kathpalia, CEO, AST: The Indian market has changed a lot since we started out in 2008; at the outset there were no renewable energy solutions for telecoms towers. Now in 2015 we estimate that there are over 5,000 towers with hybrid energy solutions and this number is only going to increase as the long-term benefits these solutions become apparent. In addition to this, regulators called upon MNOs in 2012 to meet targets for carbon footprint

reduction and they are now under pressure to meet these targets. Regulators and MNOs are still looking for new ways to reduce emissions, and renewable energy sources will play a key part in this process going forward. TowerXchange: I understand AST’s systems have been up and running in Nigeria for three months now – how many cell sites are using your solutions? Where are the sites located? What is the load? Sanjay Deshmukh, President, AST International: AST systems have been operational in Nigeria for the last three months. We had selected five Helios Towers Nigeria sites for a proof of concept wherein the model is to deploy AST energy systems with remote monitoring systems, managing the energy systems at the site to demonstrate the benefits on the ground. These sites are located in the Oyo and Kwara states which range from six to ten hours’ drive time from Lagos. Load on these sites ranges from 1 KW to 5 KW. TowerXchange: How is the equipment serviced in Nigeria, and on what basis is power provided to tenants? Sanjay Deshmukh, President, AST International: We have entered into a service contract for comprehensive operations and maintenance of all the energy system components at these five sites


including AST energy systems, diesel filling and site security. We have a local partner in Nigeria with experience of managing telecom sites. We bring the technology and the business operations know-how, our partner brings local knowledge and on the ground operations. AST along with our local partner have capability to provide comprehensive services at telecom tower sites in Nigeria. This being a proof of concept, the energy systems are owned by our customer with the objective to prove that AST systems deliver performance as per design. TowerXchange: What has been the performance of the five sites in Nigeria since AST’s equipment was installed? Sanjay Deshmukh, President, AST International: AST systems are working as per design. Key benefits achieved are:< A 66% reduction in diesel consumption per month on these five sites.< The corresponding enhanced life of the DG sets thanks to reduced DG runtime.< Reduced DG runtime also means a reduction in DG maintenance costs. TowerXchange: What have been your key learning points in terms of the potential to scale up AST’s Nigerian operation to a larger portfolio? Sanjay Deshmukh, President, AST International: The actual on the ground performance of AST systems has reaffirmed our confidence in the efficiency and

capability of our systems in Nigeria. It has proven our capability in terms of technology as well as execution on the ground in Nigeria. Along the way we have learned key Nigeria specific attributes related to execution and it will help us substantially in large scale rollouts. Learning pointss are essentially in two areas. The first one is related to the execution on the ground for the deployment of systems from the point of view of roads, availability of local manpower for work, dealing with local communities, and feeding and accommodating the project team. Challenges vary from area to area and site to site. The other learning is with respect to the practice and methodologies followed in Nigeria for carrying out operations and maintenance activities at telecom towers from the perspective of team location, team formation, beat plan for diesel filling et cetera. These are essential learnings to ensure the ability to execute projects on the ground at large scale. AST has already established in India that large scale deployment of solar does work and makes a good business case for the telecom tower company as well the ESCO. This proof of concept has established that deployment of solar does make sound business sense in Nigeria and similar countries. The key attributes for ensuring successful deployment of solar are: the necessity of energy system design for individual sites; the importance of product and execution quality; and most importantly efficient operations and maintenance of energy systems. TowerXchange: Finally, what differentiates AST’s

offering from that of other ESCOs? Kapil Kathpalia, CEO, AST: There are eight or nine ESCOs in the Indian market, but there are only two or three other companies that provide a full managed service. We were the first renewable energy ESCO to appear in the Indian market back in 2009, and being the first company has helped us build a lot of expertise and helped us to maintain our edge. We focus exclusively on increasing margin and maximising uptime in our clients’ towers; we have an average uptime of 99.9%. The secret to maintaining this level of service and increasing margin lies in the balance between the solar, battery, grid and diesel power included in our hybrid solution. Sanjay Deshmukh, President, AST International: There are four key differentiators between AST and the other aspiring ESCOs seeking to reach scale in Africa: 1. We have over six years of unmatched experience in the energy as service business in India, which means we have robust technical and operational capabilities.2. We have experience of design, deployment and operation of energy systems in Nigeria.3. We have the ability to deploy and manage operations of energy systems at a large scale.4. And we have access to funds for immediate rollout and the ability to raise further funds as required by the business


Combining the RESCO and community power propositions to electrify 5,000 Indian villagesCommunity power leverages telecom towers for bankability, but generation assets should not be co-located on cell sites to ensure scalability

TowerXchange: Please introduce SunEdison to our readers – where does your company fit into the telecoms infrastructure ecosystem?

Alakesh Chetia, President of Social Innovations, SunEdison: As the world’s largest renewable energy development company, SunEdison is seeking to transform the way energy is generated, distributed and used.

SunEdison has a presence in 35 countries worldwide. We finance, install, own and operate solar and wind power plants, enabling us to provide predictably priced electricity to residential, commercial, government and utility customers.

SunEdison now manages over five gigawatts of solar and wind assets. Our development side of our business has grown at a compounded annual growth rate of 94% since 2009. Last year alone, we developed over 1 GW of projects and we anticipate the business will double this year. In terms of strategy, we have had a shift in philosophy whereby we now retain a majority of the projects we develop versus selling them to third parties. With this shift, we primarily see ourselves as an energy company – developing and holding long term, low risk, high quality assets and selling energy. SunEdison has been part of the telecom infrastructure ecosystem for some time through our distributed generation and communication business, for example, we installed solar on MSC sites for Bharti Airtel in 2013, saving 26,000L of diesel per year. We are extending our scope of work

Read this article to learn:< Transforming renewable energy from capex into opex using PPAs< Managing development risk by separating SunEdison from TerraForm, a dividend yielding company with more predictable returns< SunEdison’s partnership with OMC Power to extend electrification to 10mn Indians living in rural villages< The criticality of building solar generation assets outside the cell site compound< The main challenges to driving RESCOs to scale

SunEdison is the world’s largest renewable energy development company, currently managing over five gigawatts of solar and wind assets worldwide. Under SunEdison’s Social Innovation business unit, the company seeks to bring renewable energy to the 1.3bn people in the world without access to electricity by solving the technical and financial equations, whilst understanding the social and cultural aspects. The business has two arms; the foundation, which is a strategic charity, and a for-profit rural electrification business. SunEdison recently announced a partnership with community power pioneers OMC Power in India, leveraging cell sites as anchor tenants.

Keywords: Who’s Who, Energy, Opex Reduction, Business Model, Bankability, SLA, Uptime, Off-Grid, Unreliable Grid, ESCOs, Renewables, Solar, Wind, Next Billion, Debt Finance, Project Finance, Microgeneration, Community Power, Asia, India, OMC Power, TerraForm, SunEdison

Alakesh Chetia, President of Social Innovations, SunEdison


to support telecom towers in off grid and under-electrified areas, reducing the cost of energy to operate these towers.

TowerXchange: Under what business model do you feel the RESCO proposition is most compelling?

Alakesh Chetia, President of Social Innovations, SunEdison: SunEdison is the pioneer of the Power Purchase Agreement (PPA) business model for solar generated electricity. A PPA allows operators to sign a contract to buy electricity at a specified rate for a fixed period of time (at a saving versus what the operator is paying today). Once the PPA is signed, SunEdison will do the rest: build, design, and finance the systems at no upfront capital expenditure to the PPA counterparty. This model has provided a very compelling value proposition (savings plus no upfront expenditure) and has driven the growth of our renewable business.

TowerXchange: Please explain SunEdison’s unique financial model, why it was set up, and how you see current attitudes to investment in cleantech.

Alakesh Chetia, President of Social Innovations, SunEdison: SunEdison’s success is illustrative of current positive attitudes to investment in cleantech. Having built 1,000s of MW, we’ve moved from an initial phase in which the customer had to invest in us, to figuring out our own way to raise project financing. To date, SunEdison has raised more than $10bn in capital to execute these projects.

Today, SunEdison is publicly listed on the New York Stock Exchange with a current market US$7bn+ valuation. In addition, we control another publically traded company called TerraForm Power, which has a market capitalization of US$5.3bn. The structure divides our business into two distinct pieces. At the parent company, SunEdison, the focus is on the development of new renewable projects and providing ongoing asset servicing of those projects. TerraForm focuses on acquiring highly quality operating projects with long term contracted cashflow, which it passes along to its investors in the form of dividends. As an owner and sponsor of TerraForm, SunEdison receives a large portion of TerraForm’s dividends which allows us to reinvest and growth the business

TowerXchange: How has the cost of clean energy come down relative to the cost of diesel for distributed energy networks such as cell sites and community power initiatives?

Alakesh Chetia, President of Social Innovations, SunEdison: Even with the recent fall in oil prices (which I believe is a temporary blip), the cost of distributed solar generation in off grid, rural remote areas is almost always cheaper than diesel. The total cost of diesel power is a lot more than the cost of diesel burned in DGs – delivery costs, pilferage, equipment maintenance and replacement – the operating costs soon add up.

In the past three years the cost of solar energy has nearly halved. For example in large scale

generation contexts, where we’re selling power to the grid at a kWh rate, we’ve seen a 40-50% drop in prices depending on local market conditions. TowerXchange: Congratulations on your recently announced partnership with OMC Power to develop 5,000 rural projects across India, representing 250 MW of electricity. What is the vision behind this project? What are you seeking to achieve? Alakesh Chetia, President of Social Innovations, SunEdison: OMC Power has piloted a model which we like and which fits with our PPA business model for telecom towers combined with community power. As with many community power initiatives, OMC Power’s pilots were built with equity, but to scale you need to bring in debt. SunEdison will use our project financing expertise to scale OMC Power’s model to 5,000+ power plants, reducing the cost of energy for off grid and under electrified towers and reducing the cost of energy to over 10mn Indians who live near these towers. TowerXchange: I understand OMC Power’s business model uses a mobile phone tower as the “anchor tenant”. With over 70% of India’s mobile phone towers owned by independent tower companies rather than MNOs, how can solar energy be scaled for a business model that is predicated on the predictability of peak load at a site, whereas the demand for community power is notoriously difficult to predict?


Alakesh Chetia, President of Social Innovations, SunEdison: SunEdison built our first rural mini grid in India in 2011. The plant has operated continuously since then, and we’ve built dozens more since, so we’ve learned tremendously. We understand the community side of these projects, we’re better able to anticipate their power needs, but that strategy is aided by the modularity of solar – we don’t have to be able to accurately predict peak load 10-15 years from now. When you build a mini grid, you can only have certainty about demand at a certain time – technology can give us the required flexibility. TowerXchange: Quoting one of the towerco CEOs on TowerXchange’s advisory board “The problem is that there is a finite amount of GLA (Gross Leasable Area) at a site. A hybrid solar array already needs ~35sqm to supply a single tenant, add a second tenant and the space savings are minimal – you still need ~66sqm, 97sqm for a third.” How can solar power be made scalable and space-efficient so that towercos can add multiple tenants? Alakesh Chetia, President of Social Innovations, SunEdison: This comment seems to be predicated on the premise that the solar generating asset needs to fit inside the cell site compound, whereas SunEdison’s approach is to acquire land and build a plant in close proximity to maybe two towers within 500m to 1km. So we acquire our own land and we retain our independence – we’re not limited by the area the telcos or towercos have in their cell sites. Co-locating generation with the cell sites

causes problem for RESCOs, and makes it difficult to provide community services. TowerXchange: Please sum up SunEdison’s value proposition to towercos, telcos and to the community.

Alakesh Chetia, President of Social Innovations, SunEdison: We have different value propositions for towerco/telcos and for the community.

For towercos and telcos, the primary benefit is economic – we provide energy at a lower cost than diesel at off grid or under-electrified sites (sites receiving less than three hours of usable electricity per day). Another benefit to towercos/telcos is that we help them meet their own sustainability quotas and targets. We are not only going to reduce costs but reduce the logistical headaches of diesel. Power is core for towercos and telcos, but it is not their core business. Power is SunEdison’s core business


– we take away the complexity and offer reliable, cheaper power under Service Level Agreements (SLAs) guaranteeing 99.5% uptime or above – indeed our partnership with OMC Power has a 100% uptime operating history.

SunEdison’s value proposition for off grid and under electrified communities is focused on the replacement of kerosene and diesel generators to meet their electricity needs. Kerosene is not just expensive, but the smoke and solid pollutants can cause health problems. We can provide a cleaner source of energy at a lower cost than communities are spending on kerosene and diesel. In addition to the economic and health benefits, electrification helps with education, enabling children to study after dark, enabling entertainment, and powers small commercial endeavors such as milling and machine-handicrafts. TowerXchange: What are the main challenges to be overcome in driving to scale a RESCO project like SunEdison’s with OMC Power? What needs to change to enable similar rural electrification projects of scale to succeed in Africa? Alakesh Chetia, President of Social Innovations, SunEdison: The main challenges driving a RESCO to scale are site acquisition, zoning permits, recruiting and retaining skilled staff, and the day to day logistics of organisation. Sometimes we encounter enabling regulatory and policy environments, sometimes the regulations can be more challenging. A positive example is

India, where rural energy is unregulated so anyone can setup distribution and generation plants without requiring a license, and the tariff is not regulated. Often, the cost of renewable energy must be higher than national grid electricity or grid-tied solar, but if it can still be provided at a lower cost than kerosene and diesel, then we can create tremendous economic value. Where RESCO pricing is tied to grid prices, we encounter more difficulties. TowerXchange: Finally, please sum up how you would differentiate SunEdison’s proposition from the many other RESCOs trying to achieve scale. Alakesh Chetia, President of Social Innovations, SunEdison: One of our key differentiators as far as TowerXchange’s readership is concerned is that SunEdison has no captive model of co-location within cell sites, which enables us to provide other services and scale whilst not adversely affecting

tower companies’ GLA. SunEdison’s RESCO proposition is combined with community power. PPAs with towercos and telcos enable us to raise project finance as such entities are considered bankable customers whereas rural domestic users typically are not. On the other hand, the addition of community power reduces the price of electricity for towercos/telcos. Each customer group is making significant savings compared to kerosene and diesel and one is helping the other. SunEdison is making a commitment to rural electrification, driven by economics but also driven by the desire to have a positive social and environmental impact. So when we look at new business models and partnerships like the one we have announced with OMC Power in India, we’re driven by a combination of economics, social, and environmental considerations – a triple bottomline


“ “We can provide a cleaner source of energy at a lower cost than communities are spending on kerosene and diesel. In addition to the economic and health benefits, electrification helps with education, enabling children to study after dark, enabling entertainment, and powers small commercial endeavors

Drawing on Panasonic’sglobal competencies to create a new ESCO solutionPanasonic and PowerOasis launch a new ESCO focused on energy use at wireless sites

TowerXchange: What inspired your partnership with PowerOasis? Phil Herman, Chief Energy Engineer, Panasonic Enterprise Solutions Company: Panasonic Enterprise Solutions Company is an integrator of enterprise energy applications. We source internally and externally to provide best-in-class solutions for our clients.

When we started looking for tower power solutions, we identified PowerOasis as having high levels of expertise and service, making it a natural fit to join forces with them. As in any partnership, we have a working relationship where we look at projects and networks and determine the level of engagement from each party. However, Panasonic takes the lead and is the responsible party. Depending on the project, we’ll use different components from different places, so the technology requirements will drive the mix that we need. We’re also integrated at a product level – Panasonic lithium-ion batteries have been present within PowerOasis labs for many months.

TowerXchange: Tell us about the scope and footprint of your current offering. Jason Scharfspitz, Vice President, M&A, Strategy & Structured Finance, Panasonic Enterprise Solutions Company: Green Tower is a comprehensive management and control solution for energy and energy infrastructure on wireless sites – cellular, Wi-Fi hotspots, and two-way, land mobile radio. It integrates across various forms of energy

Read this article to learn:< How Panasonic has structured their relationship with partner PowerOasis< What drove Panasonic to choose to enter the ESCO space< Why mobile network operators are the biggest consumers of power solutions in the USA< How an opex-based pricing structure allows operators to invest in long term energy efficiencies

Combining competencies in the lithium ion battery market and the in-flight entertainment sector might not jump out as an immediate fit for many, but Panasonic has taken their expertise in these diverse areas and created a new ESCO offering which aims to utilise sophisticated techniques to dramatically reduce power consumption for telecoms towers. Buoyed by a partnership with proven energy equipment and service provider PowerOasis and with a clear opex-based pricing model, Panasonic’s Phil Herman and Jason Scharfspitz feel their Green Tower solution offers something new to the market.

Keywords: Interview, Energy, North America, Green Tower, Panasonic, Power Oasis, United States of America, O&M, Construction, Installation, Opex Reduction, Batteries,, Energy Storage, Lithium, Capacity Enhancements, Fuel Security, Energy Efficiency, Off-Grid, On-Grid, ESCOs, Hybrid Power, Renewables, Solar, Fuel Cell


Phil Herman, Chief Energy Engineer, Panasonic Enterprise Solutions Company

from grid to battery, generator and renewable power, with integrated monitoring. It controls the infrastructure to optimise the amount of power it consumes and cycles equipment in a way that extends its lifecycle. The whole thing can be remotely controlled off site through a server-based software platform potentially accessible from any device with Internet connectivity.

TowerXchange: What inspired Panasonic to enter this space?

Phil Herman, Chief Energy Engineer, Panasonic Enterprise Solutions Company: It leverages a number of our capabilities. For example, Panasonic is among the largest manufacturers of lithium-ion batteries in the world. Lithium-ion batteries


are a far superior solution to lead acid in terms of size, weight and control. We’re also a large manufacturer of solar cells, and we manufacture security cameras which can be integrated into the Green Tower solution. In addition, we’re a major supplier of in-flight entertainment, meaning we subscribe to a large amount of satellite capacity, so

Green Tower has access to satellite communication when the network is down for transmission of equipment status, as well as for cellular back-haul.

We’re also offering ‘energy as a service’ which enables operators to transform up front capex into stabilised opex. We offer both models of spend

“ “We’re offering ‘energy as a service’ which enables operators to transform up front capex into stabilised opex

historically a capital expenditure and turning it into an operating expense with year-to-year predictability.

TowerXchange: When we ask TowerXchange members why no ESCO propositions have reached scale, two of the most common explanations are trust and capital. MNOs and towercos don’t want to trust partners unless they have substantial and proven O&M teams on the ground in their target countries; and they don’t believe most aspiring ESCOs have the balance sheet to invest in hundreds or indeed thousands of capitally intensive renewable and hybrid energy solutions. Who will provide the field services in your business model? And who provides the capital to enable an opex-only offering?

Jason Scharfspitz, Vice President, M&A, Strategy & Structured Finance, Panasonic Enterprise Solutions Company: Panasonic is a stable, almost 100-year-old company that leverages its scale to secure favourably priced financing. Within its related, solar development business, Panasonic provides a 20-year guarantee on the energy output of its installations, which enables the projects to obtain cost-effective debt. The company expects to utilize these same affiliated banking relationships to provide Green Tower as an Energy-as-a-Service, opex model. While Panasonic will provide engineering, project management, and construction management services, it will contract with its trusted partners to provide ongoing, local support services.


and sell the solution outright if requested, but our primary business model is to sell from opex.

TowerXchange: Tell us what geographies you’re targeting with the new solution.

Phil Herman, Chief Energy Engineer, Panasonic Enterprise Solutions Company: With respect to the markets, our initial focus is North America as that’s our home ground, then we’ll quickly expand where customers need us and according to market demand. But as a global enterprise, we’re looking globally. Once we get farther down the road, we will determine which locations work well since many operators spread across several countries or even continents.

In developing countries, the needs are different and we would need to provide a different mix of assets. For example, more photovoltaics and batteries to reduce fuel consumption. We can actually reduce fuel usage by 80 percent or more and we aim to ultimately eliminate diesel entirely on site. On grid we can provide different services with the assets to maximise power use where available, not only to reduce opex costs for an asset on a month-to-month basis, but also to supply and sell power under the feed-in tariff or energy arbitrage – storing surplus energy to enable the site owner to reduce purchase costs when power is more expensive.

TowerXchange: Do you have any example of trials of Green Tower in the field yet?

Jason Scharfspitz, Vice President, M&A, Strategy & Structured Finance, Panasonic Enterprise Solutions Company: Not yet. We’ve been developing these solutions for two years, making sure we understand how they perform so we can model service level agreements with the operators. It’s a work in progress as the industry grows and other parts of the value chain work to drive the power levels of these sites down. Today, the average telecom site consumes between two and 10 kW. As outdoor, energy efficient equipment drives site energy consumption down to one to three kW it becomes practical to reduce dependence on diesel.

Although the solution is just coming to market, all the components we employ have been proven in the market place for several years. What we’re doing is taking proven, proprietary components and capabilities and integrating them into a unique offering. TowerXchange: Under what business model do you propose to provide energy as a service?

Jason Scharfspitz, Vice President, M&A, Strategy & Structured Finance, Panasonic Enterprise Solutions Company: What’s generating significant interest in Green Tower are the performance enhancements and operational savings that can be achieved, providing the operators with net-net cost reductions without the need to invest capital. The intent is to save the operators between 10 to 20 percent on energy and operating costs annually. These new models are changing the way wireless carriers spend on energy, taking something that’s

TowerXchange: What would you say is Green Towers’ main differentiator?

Jason Scharfspitz, Vice President, M&A, Strategy & Structured Finance, Panasonic Enterprise Solutions Company: The buzz is all about enterprise energy management. Operators are thinking about it at the moment but they’re not prepared to address it themselves. What we offer is a robust, enterprise-level energy management system. Given the tower assets are small and distributed across large geographical areas, it’s traditionally hard to cover them with one efficient solution. Green Tower is designed to allow the operator to manage the network themselves. We’re not just managing sites, we’re actually controlling them. We can manage and optimise the assets.

The industry is still capital strapped in terms of willingness to spend on energy infrastructure but


we’re here to change that. That’s the reason we’re doing this through an ‘energy as a service’ model.If you look at existing solutions in the marketplace, they don’t cover the full range of energy infrastructure. We believe this is a more comprehensive solution. It lowers costs by reducing energy consumption and can reduce maintenance site visits as it cycles the equipment more efficiently. It also improves reliability of equipment and reduces time on site. In addition, we’ve improved communications with the satellite, freeing customers’ business assets to focus on what they do best – optimize wireless network coverage.

TowerXchange: Who do you see as your primary customer – towercos or operators?

Phil Herman, Chief Energy Engineer, Panasonic Enterprise Solutions Company: In North America, the towercos act mostly as real estate companies

and their models are leasing models where they sell space to operators. Those operators put their own equipment on the sites. They don’t share equipment and they have their own batteries, wire and antennas on each site. Telcos fully control their destinies in North America. In a very few cases, regulation means only one generator is allowed on each site in which case the towerco will step in, but otherwise it’s all individual. Energy management is not a core competency of the U.S. towercos. Our aim is to focus on the customer who controls the energy asset and in the U.S., that means MNOs.

In other regions there are all sorts of different models. Markets where MNOs have more control of energy than towercos will be an interesting market for us of course. When we get to Africa, we’ll look at the towercos as real strategic partners and look to layer our offering to help them do it better, but we’re not there yet.

TowerXhange: When do you see Green Tower rolling out globally?

Jason Scharfspitz, Vice President, M&A, Strategy & Structured Finance, Panasonic Enterprise Solutions Company: It’s hard to say when we’ll look at Africa and beyond. 2015 is about establishing the North American market and creating some demos elsewhere in the world to understand the intricacies of those markets better than we do today. That being said, Panasonic is a global company with a presence in all major regions of the world, so we’re well prepared to expand our offering

“ “The buzz is all about enterprise energy management. Operators are thinking about it at the moment but they’re not prepared to address it themselves

The ever-changing shape of the tower power gameA leading power conversion manufacturer Unipower on the needs for backup power in the global telecom industry

TowerXchange: Please tell us about Unipower’s footprint in the telecom industry.

Larry Hamilton, VP Systems and Sales, Unipower: Unipower has been focusing on power conversion systems and solutions for the past twenty-five years, that is our core competency and strength. We are also involved in high voltage and other parts of the power world but power conversion is our primary focus.

These solutions have been trending in the broadband space over the past couple of years and we have been able to provide equipment to thousands of sites thanks to our varied offering of systems.

Lately, Unipower acquired the Network Power Systems Division (NPS) of Bel Fuse Inc., which was previously part of Power-One, as well as the Integrated Power Systems division of C&D Technologies Inc. These acquisitions will contribute to further expand our brand as well as our customer base.

Kai Hennum: PowerOne has gone through a series of acquisitions over the past couple of years and is now part of Unipower which I believe is a great move which will be beneficial for all our global customers. We primarily engage with system integrators at a regional and local level and do not deal with carriers directly.

TowerXchange: How can site owners optimise and automate power source selection?

Read this article to learn:< Unipower’s footprint, customer base and legacy

< What do customers need and how are their requirements changing

< The evolution of power solutions and telecom equipment

< The changing dynamics of the industry since the arrival of towercos

Unipower is Florida based manufacturer of power conversion products with offices in the U.S., the UK and China. Active for over twenty-five years, the company is now a leading producer of power solutions for the telecom industry.

In this interview, Larry Hamilton, VP of Systems and Sales and Kai Hennum, Senior Product Manager NPS, share their views on the company’s recent developments and restructuring as well as their insights on the future of the energy and power business.

Keywords: Interview, Unipower, Bel Fuse Inc., C&D Technologies Inc., Power-One, SLA, Central America, South America, North America, 3G. 4G, Batteries, Loading, Off-Grid, Unreliable Grid, ESCOs, Hybrid Power, DG Runtime, OEMs

Larry Hamilton, VP Systems and Sales, and Kai Hennum, Senior Product Manager NPS, Unipower


Larry Hamilton, VP Systems and Sales, Unipower: You see, originally lots of emphasis was on automation in the most traditional sense such as managing power loads and thanks to companies like Emerson great progress was made years ago in this field. Nowadays, companies are looking at protecting their voice and data channels, securing devices, internet access et cetera and in the meantime, ensuring downtime is minimised as they select optimal alternate power solutions.

In regions like CALA, we are increasingly involved in bringing power to sites connected to unreliable grids or off-grid. Unipower is a market leader and a large component of our strength relies on the ability to select the best alternative source of energy while allowing carriers to directly control

the battery cycle, power usage, the status of gensets et cetera. Evolution means allowing them to access information themselves while protecting their data.

Kai Hennum: Part of our value proposition is to offer organisations the intelligence to manage their sites and take care of their power equipment, no matter where the sites are located. Being able to receive constant updates on the efficiency of the chosen power solution is key nowadays. It’s a form of enhanced intelligence smart customers require and we are able to offer.

TowerXchange: How can site owners ensure that their equipment is protected? And how can they minimise downtime by leveraging back-up energy sources?

Larry Hamilton, VP Systems and Sales, Unipower: We are seeing a growing trend of towercos shifting to a site by site type of management of tower portfolios. In fact, towercos are now carefully looking at their energy requirements on a site by site basis to avoid downtime as well as unnecessary expenditure.

For us, this is a great improvement and allows us to tailor our offering directly for each site, which ultimately helps towercos adhere to their SLAs with carriers.

TowerXchange: How have the requirements for these types of products changed? How much research is required to understand what products are best suited for the different types of sites?

Larry Hamilton, VP Systems and Sales, Unipower: The trend is towards downsizing. This affects most equipment as the goal is to reduce the load on sites. For example, cabinets tend to be smaller now and equipment providers need to adapt to the change.

On the energy front, we are involved in bringing in alternative power solutions, assessing and bringing to market new energy sources such as hybrid energy solutions.

A lot of focus is on the active component of the business at the moment with 4G LTE and everything around it being at the centre of attention. That is where the highest spending is being made.


We, as power providers, are part of the ecosystem and need to understand its dynamics. Decisions with regards to a solution provider tend to be made at a relatively high level and take into consideration characteristics such as the company’s reliability, type of offering, specific solutions and their controllers and number of channels.

Kai Hennum: In terms of hybrid energy, we have experienced a tremendous learning curve over the past five to six years. We have tested new solutions and technologies and we are constantly evolving to keep up with changes.

On the customer front, they are definitely more aware of their options and bring to the negotiating table more awareness and understanding of available solutions and their characteristics.

TowerXchange: What else has changed since you started dealing with tower companies?

Larry Hamilton, VP Systems and Sales, Unipower: One factor that changed overtime is the actual use of the tower. In many parts of the world, we’ve seen a shift from microwave to fibre and copper and from 2G all the way to 4G LTE and now, even 5G. So we are seeing new equipment, new load necessity and also, new designs. In fact, tower operators tend to respond to the growing need for aesthetically pleasing sites, especially when built in metropolitan or other landmark areas.

We need to ensure our systems and solutions meet the ever changing requirements of the industry, be

they traditional or hybrid power systems. On that note, Unipower has been able to adapt and serve the industry regardless of what their requirements were - this is the great advantage of being a global company with a long standing legacy of expertise and product research.

TowerXchange What is Unipower’s value proposition?

Larry Hamilton, VP Systems and Sales, Unipower: I think our strength lies on the fact that we are mainly focused on offering micro, small and medium DC power solutions to the industry with a growing focus on options for backhaul, servers et cetera. Thanks to the recent integration between Unipower and our acquisitions, we are even more capable than before to offer our expertise to a variety of customers in the telecom industry.

To give an example, we are increasingly interested in data centres, the market for which we expect to grow by 40% in the near future in the CALA region alone and we foresee our solutions being optimal to go hand in hand with that growth.

At the same time, the wireless business is still expanding in CALA and we are ready and equipped to be part of that growth.

Kai Hennum: I would like to stress that our hybrid and power solutions are really optimal products to serve the telecom industry. Along with that, we are extremely customer oriented, flexible and able to assess any customer need in a highly reliable way


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Special Feature:

We start this special feature by speaking to two companies ideally positioned to minimise the 30-40% of the greenfield site capex represented by steelwork and logistics. Ambor Structures leverages a manufacturing base in China to distribute high quality monopoles worldwide, while KGP explain how they evaluate and optimise sourcing and supply to reduce cost and accelerate time to market. Next, we hear from another high quality Chinese exporter NANHUA Electronics, whose lights have been installed on 150,000 towers worldwide.

The CTO of Delmec explains the most common hurdles faced by tower owners in terms of updating and maintaining an asset register, and how to bring an asset register back up to 100% accuracy. We conclude with an interview with Tim Romanowski, who introduces the CellBoat. Deployed as a boat sitting on a trailer, in dry dock or, with modifications, on open water, CellBoat gives site developers the ability to gain coverage where it was previously unavailable.

Rooftops, masts and towers, part six

Don’t miss:251 Ambor Structures: A global tower manufacturer254 KGP explain how to optimise the flow of material through your supply chain256 Introducing NANHUA Electronics’ obstruction lights258 Delmec explain ‘the truth behind your assets’261 CellBoat sails through site development roadblocks

The competitive advantages of choosing a global tower manufacturerAmbor Structures discusses emerging trends among its global towerco and MNO clientele

TowerXchange: Please tell us about Ambor Structures’ footprint and activities.

Louis Chang, President, Ambor Structures: Ambor Structures, headquartered in St. Paul, Minnesota, is a global supplier of monopole towers and related structures to wireless telecommunications, renewable energy, lighting and utility customers.

Ambor engineers comprehensive monopole solutions. We’re known for collaborative engineering designs, superior customer service, our quality monopoles and patented QuikBase™ foundations, which ship worldwide from our manufacturing facility in Shanghai, China.

Our China facility supports our customers and sales in Asia and Australia. Our U.S. headquarters spearheads relationship management and sales to a growing customer base in the Americas, Europe and Africa.

TowerXchange: Who are your main clients in the Americas? Which countries drive more business for you?

Louis Chang, President, Ambor Structures: At this time, the U.S. market drives the largest portion of our business. We are fortunate to count on a diverse network of wireless telecom companies as clients, including American Tower and Stealth Concealment.

We’ve leveraged our logistics infrastructure and experience exporting our monopoles to wind energy clients in Latin America to expand our wireless

Read this article to learn:< Ambor Structures’ footprint and activities

< What do towercos require from a tower manufacturer?

< The growing demand for concealed towers and aesthetic solutions

< The tax regime in CALA and how Ambor Structures’ secures savings to its clients

< Ambor’s QuikBase™: the latest in non-penetrating steel foundation

Ambor Structures is a manufacturer and supplier of custom-made towers and is renowned as a trusted partner by leading towercos in the U.S., Africa, Europe, Asia and Australia. In this interview, Ambor’s President Louis Chang shares his views on the company’s competitive edge, its growing relationship with towercos and the emerging needs of the global tower industry.

Keywords: Interview, Ambor Structures, Central America, South America, United States, Asia, Africa, Europe, China, Steelwork, Foundations, Multi-Country Partner, Masts & Towers, Towercos, Loading, Tax, Logistics


Louis Chang, President, Ambor Structures, Inc.

telecom business there. We’re building strategic relationships in several South American countries to offer high quality monopoles.

TowerXchange: How much business comes from towercos compared to carriers?

Louis Chang, President, Ambor Structures: The majority of our active business comes from towercos. Our clientele includes tier one, two, and three carriers, but we have found that the vast majority of steel sourcing is initiated directly by the tower owners.

TowerXchange: What is the typical capacity of structures being ordered by towercos in terms of the number of tenants they can accommodate?

Louis Chang, President, Ambor Structures: The current model for tower owners is to build structures that can handle future loads of up to four, five or even six carriers. Acquisitions are forcing


owners to find ways to modify existing structures in order to accommodate additional necessary equipment. As a result, we have seen the industry move towards larger poles that have enough capacity for additional loading in the future.

TowerXchange: Are you experiencing significant demand for concealed structures? And if so, in which countries are they adopting these solutions the most?

Louis Chang, President, Ambor Structures: We have definitely seen an increased demand for concealed structures. As carriers seek to build capacity in large cities, the need for concealed structures has become a key focus. These structures include monopines, monopalms, flagpoles, unipoles, lighting poles, and a variety of adaptations to blend wireless telecom sites with the existing local environment. We are seeing this trend play out in the U.S., as well as in Mexico, Colombia, Peru, and other Latin American countries.

TowerXchange: What have been your experiences of exporting structures to South and Central America in terms of how taxation regimes affect your ability to compete with local manufacturers?

Louis Chang, President, Ambor Structures: The cost and quality advantages achieved by our Shanghai manufacturing facility and U.S. design team enable us to better compete with both U.S. based and local suppliers around the world. In addition, certain tax treaties between China and a number of Latin American countries allow us to pass on savings to our customers in South and Central America. One of Ambor Structures’ solutions

“ “We have definitely seen an increased demand for concealed structures. As carriers seek to build capacity in large cities, the need for concealed structures has become a key focus

TowerXchange: Tell us about the QuikBase™ foundation: in what use case scenarios can it be utilised? And what are its USPs compared to traditional solutions?

Louis Chang, President, Ambor Structures: Ambor’s QuikBase™ foundation is an above grade, non-penetrating steel foundation that replaces concrete and requires no digging. The initial concept was to provide a portable monopole and foundation solution that would meet the needs of temporary wireless telecom sites. While the QuikBase™ is still used as a temporary option, we have also designed and deployed the foundation in permanent situations where installation time, concrete access, or environmental concerns are an issue.

The QuikBase™ can be assembled in as little as two hours, allowing for a complete installation of both the foundation and pole within one day.

The QuikBase™ is not a replacement solution for all telecom sites. In many cases, a traditional concrete installation will be the better option, especially for larger poles designed to hold a larger number of carriers. The QuikBase™ is an ideal solution for poles with heights ranging from 20’ to 120’ for a wide range of applications including temporary wireless telecom sites for a special event, drop-and-swap sites and permanent solutions (macro cell sites, small cell, rail, cameras, et cetera).

Compared to other temporary wireless telecom site solutions, the QuikBase™ offers a cost-effective and robust option that can meet the requirements of

both short-term and permanent installations.

TowerXchange: Finally, please sum up how you would differentiate Ambor Structures from competitive tower manufacturers.

Louis Chang, President, Ambor Structures: Ambor Structures focuses on meeting the unique needs of each of our individual customers. We don’t just supply a monopole; we strive to be the best at engineering design, product quality and customer service.

We manufacture our monopole towers and other related structures in an ISO 9001 facility in Shanghai, using ASTM GR 65 steel and AWS-certified welders, and following strict quality control procedures. As a result, we offer the highest quality products on the market.

We have also proven that we can support international markets just as well as the U.S. market. Frankly, the logistical and price advantages we achieved from years of experience in manufacturing and shipping products from China have driven our expansion. Today, we are a trusted supplier for towercos wanting to advance their reach into new markets


Ambor structures will be exhibiting at the TowerXchange Meetup Americas, taking place at the Westin Diplomat Hotel and Spa on April 28 and 29, 2015. For more details, visit www.towerxchange.com/meetups/americas

Please feel free to contact the TowerXchange team

Kieron OsmotherlyFounder & CEOE: [email protected]: +44 7771 148001

For editorial & speaking enquiries regarding Americas: Arianna NeriHead of AmericasE: [email protected]: +39 338 111 2103

For editorial & speaking enquiries regarding Africa or Europe:Frances RoseHead of EMEAE: [email protected]: +44 7793 045718

For editorial & speaking enquiries regarding Asia: Ian FergusonHead of AsiaE: [email protected]: +44 (0)7908175087

For advertising opportunities & event participation:Annabelle mayhewChief Commercial OfficerE: [email protected]: +44 7423 512588

Toya SmithBusiness Development ManagerE: [email protected]: +44 7967 441110

For media partnerships & to request additional subscriptions:Harpreet SohanpalHead of MarketingE: [email protected]

For the designers of the TowerXchange Journal & brand:Jon WhittySenior Designer & Brand DevelopmentE: [email protected]

The TowerXchange Journal is published by Site Seven Media Ltd.


How to optimise the flow of material through your supply chain to reduce costs and accelerate time to marketAT&T Supplier of the Year KGP Logistics propose a more efficient approach to supply chain management and logistics

TowerXchange: Please tell us about KGP’s footprint and services for the telecom tower industry.

Kimberly Morrison, Director, International Markets, KGP Logistics: KGP offers a full turnkey solution of engineering, supply of material and installation services through KGP Logistics and BlueStream Professional Services. KGP Logistics is the largest distributor in the telecom industry supporting over 1,500 different manufacturers.

KGP Logistics supplies all material needed on tower or DAS projects as well as offers inventory and warehouse management on large scale projects. BlueStream Professional Services offers installation and maintenance tower services as well as DAS engineering, design, and installation services. Together the two divisions of KGP offer a full turnkey solution.

TowerXchange: Who are your main clients?

Kimberly Morrison, Director, International Markets, KGP Logistics: KGP services customers in all segments of the telecom industry. Our history of servicing tier one carriers dates back to the seventies when we started working with AT&T. Since then KGP has partnered together with all of the major OEMs in the telecom industry to service the tier one carriers, rural carriers, utility companies, MSOs, and data centres. This is true both in the U.S. as well as in the CALA region. Custom advanced supply chain solutions have been created for customers across all segments.

TowerXchange: Can you tell us about one success story where using KGP has produced substantial

Read this article to learn:< KGP and BlueStream offer a full turnkey solution from engineering and supply to installation

and maintenance

< How KGP studies and optimises the flow of material to improve cost and time efficiency

< Creating custom supply chain solutions to engage with OEM partners and address specific

project needs

< Extending VMI programmes beyond the U.S. and beyond macro structures to include DAS

< Contrasting the sourcing model in North and South America

Kimberly Morrison is the Director of International Markets for KGP Logistics, a multi-awarded logistics supplier with a great reputation in the U.S. and beyond. In this interview, Kimberly shares her insights on the competitive edge provided by selecting a supply chain partner, the growing demand for VMI and supply chain services in the U.S. and in the CALA region, and why towercos and carriers should select KGP as a service partner.

Keywords: Interview, KGP Logistics, United States, North America, Central America, South America, Logistics, Business Model, Warehousing, VMI, OEMs, AT&T, Supply Chain


Kimberly Morrison, Director, International Markets, KGP Logistics

cost/time savings for your clients?

Kimberly Morrison, Director, International Markets, KGP Logistics: KGP has been named Supplier of the Year by AT&T for the past three consecutive years. KGP is the only company to achieve this recognition for three consecutive years. Being a recipient of this award for the last three years speaks volumes to the level of customer service KGP offers and the creative solutions we deliver when it comes to advanced supply chain services which save the customer cost and time.

For example, KGP will study a customer’s flow of material and create a process which works together with the OEMs to identify and deliver a process that is the most cost and time efficient from OEM’s factory to customer’s site.

On an aggressive deployment, having the right process drives improved delivery times and a guaranteed lower bottom line project cost, taking advantage of inventory planning, demand planning, volume purchasing, supply planning, expediting, warehouse management, cable cutting, order staging, kitting and integration services.

TowerXchange: What does it mean to use a supply chain supplier? How does the workflow of your clients practically change and improve?

Kimberly Morrison, Director, International Markets, KGP Logistics: A supply chain provider gives the customer a tailor made solution designed specifically around their project needs. Additionally, the supply chain provider engages with the OEMs as partners


and initiates the customer solution at the OEM factory. When KGP applies supply chain solutions to a customer, KGP looks at the flow of all material involved – not just a couple of specific products.

For example as a tower owner, KGP would evaluate the overall process of sourcing and managing the supply of the towers and monopoles as well as DAS active and passive components, and everything in between, used at the sites. When KGP solutions are integrated, expedited delivery fees, penalties from the carrier, and other unwanted charges can be avoided. Due to the volume of business KGP handles annually, KGP ensures competitive pricing is included in each solution.

TowerXchange: Given the lean business models many towercos employ, have you seen many examples of them employing full scale vendor management inventory (VMI)?

Kimberly Morrison, Director, International Markets, KGP Logistics: VMI programmes are commonly practiced in the U.S. Due to the success of these programs, we are seeing more and more towercos requesting VMI solutions outside of the U.S.

Traditionally, VMI programmes would support the telecom structures and related accessories. Today we are seeing the VMI programmes wrap around the DAS solutions as well. KGP is actively supporting VMI programmes today both in and outside of the U.S.

TowerXchange: How does KGP differentiate itself from competition?

Kimberly Morrison, Director, International Markets, KGP Logistics: KGP is unique in its ability to offer a full portfolio of both sourcing and inventory management services as well as engineering, design, and installation services. KGP encounters little competition that can offer a true turnkey solution with advanced supply chain services bundled together.

TowerXchange: And do you have many competitors South of the border or is the supply chain logistics service still a relatively new one?

Kimberly Morrison, Director, International Markets, KGP Logistics: The sourcing model South of the border is often direct, where the customer buys from the OEM. Leveraging supply chain logistics services is a new concept that is being widely embraced across the Americas. As competition increases both for the towercos and the carriers, delivering best practices that magnify cost and time savings is critical to maintain market dominance. Relying on practices that are years old will not give the competitive edge required to succeed.

Engaging with KGP to study, dissect, and create the best solution for the customer’s specific ecosystem optimises time and cost savings. KGP services have been proven time and time again not only through the results driven by KGP solutions, but by the numerous customer awards received

KGP Logistics will be exhibiting at the second annual TowerXchange Meetup Americas, taking place at the Westin Diplomat Resort & SPA in Hollywood, Florida, 28-29 April. [email protected] for more information.

Obstruction lights: a small component of a tower but fundamental for everyone’s safetyShanghai Nanhua Electronics has sold over 150,000 virtually maintenance free obstruction lights

TowerXchange: Please introduce Shanghai Nanhua Electronics - what products do you offer to the telecom tower industry, how long ago was the business established?

Stella Su, Vice Director of Sales, NANHUA: NANHUA was established in 1990 as a family business with the goal to produce audible and visible alarms for a couple of industrial enterprises. In 1999, the company had one hundred clients from a variety of industries and kept growing at a steady pace.

In 2007, we decided to open up to the telecom tower industry and since then, there have been over 150,000 installations of our obstruction lights in eighty-one countries. Our lights are designed according to ICAO and FAA standards and include low, medium, high density and solar lights, all with LED light source. TowerXchange: What proportion of Shanghai Nanhua’s business comes from mobile network operators compared to towercos? Stella Su, Vice Director of Sales, NANHUA: Most of our business comes from towercos as obstruction lights are a small component of the eco-system and usually don’t fall under MNOs’ responsibilities. In Africa and Asia we have cooperated with over 50% of the existing towercos.

TowerXchange: From which countries are you seeing most demand for your products? How are your products sold worldwide - do you sell direct or through local partners?

Read this article to learn:< Nanhua’s footprint and key business area< Which international standards govern obstruction lights < The balance between safety and light pollution< How to ensure obstruction lights have a long lifespan

Most of the time TowerXchange is caught up in strategic talks and deal analysis but today, we are focusing on one of the smallest and yet most important components of a tower: obstruction lights. Their function is key not only for the aviation industry but also to protect residential areas while ensuring towers don’t become an impediment to the ever growing air traffic.

In this interview, we chat with Stella Su of Shanghai Nanhua Electronics, a leading organisation with twenty-five years of experience in the sector, and find out more about obstruction lights and their function in the tower industry ecosystem.

Keywords: Interview, South America, Shanghai Nanhua Electronics, Central America, Southeast Asia, Myanmar, Vietnam, Health & Safety, Towercos, Regulation


Shanghai Nanhua Electronics’ Headquarters

Stella Su, Vice Director of Sales, NANHUA: Right now, we forecast most of the Asian demand to come from Myanmar but there is also a considerable amount of business coming from Vietnam and other emerging Asian markets. Latin America is another region which is particularly active.

TowerXchange: Are the requirements for aviation warning lights standardised worldwide, or are there different requirements in different markets? And what are those requirements?

Stella Su, Vice Director of Sales, NANHUA: Yes, they are generally standardised by ICAO and FAA and then there are some nationwide regulations depending on the country, but they’d still have to comply with these international standards.

ICAO and FAA standards present different characteristics. In fact, ICAO requires photometric tests while FAA checks the product in its entirety, including its materials, EMI, EMC, surge protection et cetera. TowerXchange: What is the optimum balance between maximising visibility whilst minimising light pollution?

Stella Su, Vice Director of Sales, NANHUA: This is a very interesting question and I think there are two sides to this. On one hand, different intensities of aviation lights have different vertical angles, and each angle will need to comply with strict intensity requirements to ensure that pilots can see it but the light won’t disturb any residential area nearby.


That said, the flash is about ten times brighter during daytime due to the reduced contrast. Therefore the intensity requirements during daylight are about 20,000cd in comparison to the nighttime when 2,000cd is sufficient and is the maximum to avoid light pollution.

TowerXchange: How do you ensure the long lifespan of your lighting systems to minimise maintenance and replacement costs?

Stella Su, Vice Director of Sales, NANHUA: Nanhua uses LED light sources that last a minimum of fifty-thousand hours. Additionally, we use aluminium light bases to extend the light’s lifespan and protect it from corrosion.

TowerXchange: What warrantee is offered with your aviation warning light systems?

Stella Su, Vice Director of Sales, NANHUA: Currently, we offer two years full warranty and three years of free maintenance and spare parts. TowerXchange: How have your products been designed to ensure safe and correct mounting on tall structures?

Stella Su, Vice Director of Sales, NANHUA: Every aviation obstruction light and bracket product should be tested for wind and vibration resistance to ensure its correct mounting and suitability.

TowerXchange: Please sum up how you would differentiate Shanghai Nanhua’s aviation

warning light systems from your competitors’. Stella Su, Vice Director of Sales, NANHUA: Nanhua is a leading organisation which serves the global tower industry with top quality products in compliance with ICAO and FAA obstruction standards. Our packages include cable connections, controllers and light installation as well as a long lasting warranty and maintenance service.

We use high quality LED light sources whose lifespan is extremely long and that are virtually maintenance free. Nanhua is also very careful about its pricing as we know opex is an important component of the decision making process and we are confident our prices are quite competitive!

Courtesy of Shanghai Nanhua Electronics

The truth behind your assetsWhat you need to know about whose equipment is hanging on your towers, and how safe they are

TowerXchange: Tell us about Delmec’s current footprint and key markets.

Spencer Crawford-White, CTO, Delmec Engineering: Our company is based in Ireland, with an interest in the UK marketplace, Europe and projects in Africa, Asia and the Middle East. Central America, India and Russia are entry markets for us at the moment.We have six core offerings in which we are very active including structural engineering and design, a network management solution, an in-house project management tool with a GPS core, installations, steelwork and structures, renewable energy and fibre.

We’re also developing two additional subsets; network management and a training suite. In markets such as Africa and India it’s expensive to put our resources in the field, so we have developed five dedicated courses where we’ll train local contractors in the field for our clients. We haven’t launched this service yet but we’ve been getting a huge amount of interest, I’d say it’s probably our most popular solution at this point in time. TowerXchange: What are the core capabilities which Delmec offers to the tower industry? Spencer Crawford-White, CTO, Delmec Engineering: The highest priority for us at the moment is our training suite, it’s a unique offering in the market and one which will enable our clients to work more effectively. The assessment and certification of structures and people is our core capability – it’s what we do best. There’s a certain synergy and

Read this article to learn:< The most common hurdles faced by tower owners in terms of updating and maintaining an

asset register

< How to bring an asset register back up to 100% accuracy

< How and when tower portfolios should be audited

< The benefits of certification to investment, expenditure and business development

With asset registers incomplete or out of date in many parts of the world, tower owners are getting a shock when it comes to the capacity of their structures, the safety of the sites and, most shockingly, the legitimacy of the hardware hanging from their towers. Spencer Crawford-White from Delmec talks us through some of the major challenges tower owners face in managing their assets and how a tower portfolio can be brought back into line.

Keywords: Interview, Monitoring & Management, East Africa, Southern Africa, West Africa, Europe, Delmec, O&M, Construction, Installation, Investment, Capex, Due Diligence, Opex Reduction, Co-locations, Infrastructure Sharing, Capacity Enhancements, Health & Safety, Bankability, Site Level Profitability, Operational Excellence, Off-Grid, Unreliable Grid, ROI, Site Visits, Site Surveys, Asset Register, Masts & Towers


Spencer Crawford-White, CTO, Delmec Engineering

efficiency in what we offer - we’re not the cheapest but we could be if we combine all of our offerings together for our clients. What we offer is the means to get the job done right first time, and we can also reduce timescales allowing sites to introduce other solutions quicker, which can have an enormous cost impact. TowerXchange: Where does Delmec see the biggest growth in the tower industry taking place over the next few years?

Spencer Crawford-White, CTO, Delmec Engineering:The African market needs to build more structures but overall the global market will move towards the independent towerco business model, meaning you’ll have infrastructure owners and MNOs totally


separated. The headache of leases and planning isn’t interesting to an MNO and towercos can do it on a bigger and more specialised scale. People have been buying networks for 20 years now, but I think towercos are now doing it on a greater scale than before. It’s a good time for them as acquisitions are cheaper at the moment due to the downturn in the global economy. It means costs have gone down but on the other hand insurance premiums have gone up because people aren’t spending the same on safety and structures as they ought to. TowerXchange: Given Delmec’s track record in auditing asset registers, what would you say is the most common problem which towercos and MNOs face in creating and maintaining accurate asset registers?

“

“Every single company we’ve spoken to has terrible trouble with their assets. The might have an idea of what they have from a purchase ledger, but they don’t know what they have in each location from a safety or structural capacity perspective

Spencer Crawford-White, CTO, Delmec Engineering:They do not adhere to maintenance and routine recording. Not just Africa. Globally. Every single company we’ve spoken to has terrible trouble with their assets. The might have an idea of what they have from a purchase ledger, but they don’t know what they have in each location from a safety or structural capacity perspective. The more we’ve gone to Africa and started helping, the more interest we’ve had from their European counterparts, which leads us to believe that even assets there don’t have as good a set of records as possible. Maintaining sites generally is a big issue globally both in terms of the the structure and recording what’s on it. Most site providers we do physical reviews for are surprised by the equipment on their towers. There are huge implications for lost revenue and also significant safety concerns if you don’t have a handle on what’s hanging on your towers. Unregistered equipment hanging on towers is a huge loss in terms of selling space and generating cash. It’s mostly down to poor record keeping but there’s also the odd opportunist – smaller radio broadcasters or broadband microwave solution companies who might have reached a private arrangement with the land owner where the site is located. They sometimes steal power too, which of course is the biggest cost to infrastructure managers in Africa due to the lack of reliable grid provision. TowerXchange: How would you go about rectifying problems with an asset register?

Spencer Crawford-White, CTO, Delmec Engineering: The main reason we’re employed is because at the starting point, towercos don’t even know what they’ve got. They’ll do an audit on 10% of the proposed buy before an acquisition and ask questions like can you get there? Is there a tower? Has it got a fence and does it look okay? No other information comes back, not even photos in most cases. When we go out we’ve often got nothing beyond co-ordinates and a theoretical size of structure. They might have pictures of 10% of the towers if we’re lucky. So although they have almost nothing initially, we help them pull that to 100% for every site, we help them assess every tower. How do we rectify problems? We train local people, show them how to do it efficiently, do structural analysis and give them a RAG report (Red Amber Green). In Europe we give a 40 page technical report, in Africa we give four pages because that’s the level of detail each market needs. Our database maps that with pie charts in the same colour so we keep track of it all. Part of our solution is to arrive at a certificate of conformity when we know 100% that the site is okay. We will give clients a report detailing what and how to improve, then we will sign off on a local contractor for them, then certify the structure on a scale from ‘gold’ to ‘white’. For gold certification we go and inspect the site ourselves, silver is checked by one of our approved contractors, bronze is certified by the client’s contractor and for white certification the client details what they have done and we take their word for it. Unsurprisingly

everyone wants gold level certification once they have committed the time and funds to the upgrades. They can take the certificates to the bank for investment for the future as our certificates are well known in the market. TowerXchange: So tell us about the full benefits of certification? Spencer Crawford-White, CTO, Delmec Engineering: A reduction in insurance premiums, ability to increase borrowings, getting a higher (and more reliable) calibre of customer. MTN, Tigo or Vodafone want to protect their assets and they’re looking for something of this standard, which is important to ensure their SLAs are met. It’s also very useful for further investigation – we receive a 40% return rate of business, so having that data in our system means it can be very quick for us to help customers know how they can maximise their assets. TowerXchange: Who should use an asset register

auditing service and why is it important? When is it most effective to review an asset register?

Spencer Crawford-White, CTO, Delmec Engineering:The site owner is the responsible person whether they are independent owners, towercos or mobile network operators. They are responsible for recording and auditing their assets, most importantly for safety – keeping an accurate accident register is vital. Commercially, of course, it’s also critical. When should they be reviewed? If you look at the standards it ranges across the type and location of a structure. Yearly inspection should really be the norm, but certain clients could see that every couple of years is enough. Some might leave it five years but in our experience it’s a lot cheaper and more effective to keep on top of problems as they arise than to wait for something serious and risk having to make major repairs or even replace infrastructure


“ “The site owner is the responsible person whether they are independent owners, towercos or mobile network operators. They are responsible for recording and auditing their assets, and most importantly for safety

How to sail throughsite development roadblocksSeasoned telecom site developer Sierra Tower Partners introduces the CellBoat

TowerXchange: Please introduce Sierra Tower Partners, where does your company fit in the tower industry?

Tim Romanowski, Managing Member, Sierra Tower Partners: Sierra Tower Partners was formed in 2014 in response to what I perceived as a need for a tower company that can do four things not only well, but exceptionally:

1. Relate and communicate to landowners in a way that shows them we are sensitive to their needs when considering a telecommunication site on their land.2. Prioritise carrier needs not only with site characteristics criteria and lease structure but more so in view of a long term relationship.3. Respond quickly to the needs of our clients without making them sift through layer upon layer of corporate gridlock.4. Never change who we are.

TowerXchange: What is a CellBoat? And what are the scenarios in which the CellBoat could be deployed in a network?

Tim Romanowski, Managing Member, Sierra Tower Partners: CellBoat is a revolutionary solution to several site development roadblocks. It can be deployed in an area as a boat sitting on a trailer or in dry dock. With proper engineering and stabilisation modifications, it can sit in open water or in a wetland or marshy area. Within those deployment scenarios you can begin to see that CellBoat’s unique and patented design

Read this article to learn:< What is a CellBoat and what are its use cases?< How does the cost of a CellBoat compare to a traditional tower installation?< How site acquisition has evolved in the last ten years

The CellBoat is a revolutionary addition to the telecom infrastructure arsenal, which now gives site developers the ability to gain coverage where it was previously unavailable. Areas with adversarial zoning, as well as water, wetland, marsh or coastal areas can now be opened up to become revenue generating telecom sites! Site acquisition and zoning approvals seem to be the most common bottleneck in the deployment of new cellsites worldwide… With the possible exception of regions with ferocious rainy seasons, where some cell sites can be inaccessible for amonths at a time. Veteran site acquisition professional, now Managing Member of Sierra Tower Partners, Tim Romanowski proposes an innovative solution…

Keywords: Who’s Who, Steelwork, Leasing & Permitting, Masts & Towers, Sierra Tower Partners


Tim Romanowski, Sierra Tower Partners

and engineering characteristics could provide deployment solutions to a very large segment of not only the US Market, but in global applications as well.

TowerXchange: TowerXchange: Do you see CellBoat as a temporary coverage solution for special events or emergency response, or as a permanent solution?

Tim Romanowski, Managing Member, Sierra Tower Partners: CellBoat’s versatility is able to offer both temporary and permanent coverage, but it was designed to be a permanent part of the telecommunications infrastructure grid for many areas where a typical cell tower installation will not work.

TowerXchange: How does the cost of a CellBoat compare to a conventional small tower?

Tim Romanowski, Managing Member, Sierra Tower Partners: The cost of a CellBoat will vary as it can be engineered for either single or multiple carriers and some costs may be associated with the specifics of the site. Because the CellBoat can be duplicated from a mold, the cost will go down exponentially as production increases. In full production, we anticipate the costs of CellBoat to be about the same as a typical tower installation.

TowerXchange: Changing topics, I see from your background Tim that you have extensive experience of site acquisition. Is site acquisition art or science?


Tim Romanowski, Managing Member, Sierra Tower Partners: Both of those and a lot of hard work! My background in real estate and development goes back 25 years before moving to telecom. I spent a lot of time on land acquisition and the related due diligence so for me the “art” of looking for a site with all the required attributes was a bit easier. Incorporating the “science” of the internet tools was just on the job training. Going in front of a planning commission and knowing your product better than the opposition is probably a skill that needs to be at the top of your list.

TowerXchange: How has site acquisition evolved during the wireless era?

Tim Romanowski, Managing Member, Sierra Tower Partners: An agent can cover a lot more ground now, with the help of Google Earth™, access to city real estate and zoning records and ordinances. The ability to take pictures, scan documents and upload information from out in the field puts us in warp speed compared to where we were even ten years ago. Still, tools that allow you to go fast are no replacement for good, solid understanding of what needs to be done and the diligent execution of the same. I don’t need an RFDS with all the wrong information same day. Give it to me tomorrow, done right. We will both be farther ahead.

TowerXchange: And how do the parameters of site hunting shift in a towerco-led market, where sites need to attract at least two tenants?

Tim Romanowski, Managing Member, Sierra Tower

Partners: Numbers don’t lie, and a tower with just one tenant prints in red. Still, the tower company has to be committed to the needs of the carrier because developing towers is a long term business. There are times as a company when we have to build knowing that number two is a way’s off.

When that happens you still need to pick a site that will be a good, multi-tenant site; doing anything less is would not be prudent. Even if the build is short term, the business model still has to be long term. Everyone is in the same market eventually

CellBoat

Accelerate your sales cycle and close your next major deal in emerging market towersAdvertise in the TowerXchange Journal, circulated to a highly targeted community of the 10,000 PRVW�LQȵXHQWLDO�WRZHU�GHFLVLRQ�PDNHUV

To book your advertisement, contact: Annabelle Mayhew | [email protected] | M. +44 (0) 7423 512588

OperatorTowercoEnergy equipment & ESCOManaged service/ turnkey infrastructureStatic asset manufacturerStrategic or legal advisorActive equipment or IBSInvestorRMS, ILM & access controlRegulator or governmentOther

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