This short paper is written as a discussion vehicle for towerco and ESCO CFOs. It seeks to outline Huawei’s understanding of the marketplace for towers and energy. It offers an insight into the future of telecoms in the short to medium term and positions the value that new generation products and services can have when dealing with key market pain points.’Please get in touch with us at :
Ian Mash ian.mash@huawei.com
Mark Easton mark.easton@huawei.com
Wisdom Wang wisdom.wangqiang@huawei.com
Jack Ye yesijie@huawei.com
Executive Summary
The towerco and ESCO businesses are key to the growth of ICT moving forwards. The original idea of financial engineering has been replaced with highly professional, vibrant businesses which support mobile operators across the globe. Like every business, there is a constant need to increase revenue and reduce costs both in capex and opex. Up to 70% of capex is focused on engineering costs and 30% is equipment. Opex is influenced by electricity fee/ fuel cost/ rent cost/O&M cost fluctuation.
The future for towercos and ESCOs looks good and there are clearly opportunities in both areas to find new revenues and new efficiencies as we discuss below.
Huawei believes that by understanding the market in detail and by working with our customers we can facilitate the growth of both the market players and the overall market size to the benefit of all.
Our market leading portfolio is integrated in a way which allows power, space and manpower efficiency across the range of products we offer and can provide management capability across the complete towerco and ESCO estate. We hope we have outlined them in a way that can be understood by non-technical people.
Our market understanding
Towercos are evolving very rapidly beyond their origins as the owners of the physical towers and estate management. A significant number are emerging as Infrastructure Companies (infracos) with a much more extensive ambition to provide comprehensive services including ’ Fibre; DAS; Small Cells DIS; Data Centres; Edge Computing services and Wi-Fi. This is both their choice, and is being driven by MNOs as they seek to reduce the capex on their P&Ls.
This extension of this service portfolio brings the tower/infracos into areas which have more traditionally been dominated by the MNOs.
There are two important factors to be considered. Firstly, the MNOs are entering another phase of significant investment due to 5G and most do not have the financial position needed to achieve what is expected from them. The MNOs are increasingly dependent on alternative financing models and are exploring new ways of sharing costs of infrastructure without high capital outlay by buying ’services’, rather than building their own infrastructure. This loads the opex line not the capex one and hence effects ROI.
Secondly, the tower/infracos are demonstrating that they are increasingly able (and indeed required by MNOs) to make investments (with their investor backed model) in the new infrastructure. They will provide MNOs with access to these on a shared service basis - for example DIS deployment in business parks, sports arenas and shopping-centres. Many are considering how they might move to deploy shared RAN, antennae and potentially active equipment where permitted and planning to achieve the shared occupancy rates needed for the success of their business models.
This new financing model will enable the MNOs to re-establish a position where they can once more re-establish profitable revenues from new 5G technology deployment. It will allow them to achieve greater success across the industry and deliver the goals of industry 4.0. The challenge for Huawei is to establish the relationships, engage with and support the evolving towerco/infraco with all of the services that their ambition is demanding.
For Huawei to capitalise on this market change, the next step should now be the formation of a Global Specialist Account Group to manage across this market space which should focus on building the business for Huawei across the entire applicable portfolio, ranging from power through antennae to edge computing and perhaps beyond.
Many MNOs face a profitability challenge and struggle to deliver the required cost efficiencies. Revenues are falling despite the exponential growth of data demands from customers. Consequently the investments in infrastructure to meet demand and to deploy 5G capabilities present a significant challenge for the MNOs, in terms of ROI.
The role of the towerco is now increasingly important in being able to help the MNOs to deploy new infrastructure with lower capital investment and operational expensing of the services provided.
Towercos are already an integral part of the majority of networks with the provision of passive infrastructure and their role is set to become even more critical to the business. They will increasingly become the enabling partner for investment in new 5G capabilities, associated technologies (IoT, DIS etc) and supporting services.
The shift in the relative roles and dynamics of the tower/infraco and the MNO has been recognize by Huawei with the creation the Tower Business team in 2018. Fig. 1 below shows the change in Dynamic for the marketplace.
Huawei sees this market as being key to the growth of the sector and as such is keen to support and work with towercos and ESCOs to build a sustainable business in support of the MNOs. We are keen to develop products which leverage the requirements of the sector and help to build in depth coverage in all markets.
Background
The towerco business started primarily as a financial engineering proposition. MNOs needed to find funds to pay for new spectrum licenses and next generation technology and the sale of the tower estate assets was a mechanism for achieving this goal without impacting the core business.
Through a ’sale and leaseback’ contract with the embryonic towercos the MNOs were able to focus capex on new technology and pay for the lease of the tower estate as an operational expense. This in turn creates a better ROI.
The benefit for the towerco was that by owning the land and the tower structure, they could sell space on the towers to multiple customers. It is the multi tenancy capability that drives the towerco/infraco business model and as a consequence the investors see the towerco very differently to an MNO.
Long lease contracts (5-10 years) together with the ability to increase the tenancy ratios for the tower infrastructure and services resell the ’same’ space improve profitability with respect to an MNO. From an investment point of view the valuation of a towerco can vary between 8.5x revenue in China to 20x in the USA. The tower business is quite volatile in the sense that there are many consolidations and take overs as the market grows and size (number of towers) does not dictate the ability of one to take over another because of investor leverage - in this respect
Huawei believes that it must carefully address all relationships and not focus necessarily only on the bigger players.
There are broadly 4 types of Tower Cos:
Land plus steel tower
Land plus steel tower and Power
Land plus steel tower, Power and Passive Equipment eg Antennae
Land plus steel tower, power, Passive Equipment and Active Equipment
The final two categories (medium and large) are of interest for Huawei as the passive providers look towards active provision to grow their market.
Finally alongside this segmentation, some towercos are evolving into infracos (Infrastructure Cos and ESCOs (Energy Supply Cos), in an effort to remain ’pure’ to the grounding principles of being simple businesses with simple and effective business models.
How will the future pan out?
The growth in demand for data based services continues unabated. Boston Consulting Group in 2018 estimated this to be YoY growth of up to 60% in many countries. This isn’t hard to believe when we see companies like Amazon, Google, Ali Baba and We Chat having phenomenal success in their chosen markets. This growth has to be delivered to the user of the services via fixed and mobile broadband and the demand for bandwidth is huge because of the benefits available.
Despite the continued growth of Fixed Broadband, the mobile Broadband market is still being driven by innovative smartphone focussed Apps like Facebook, Babylon Health and Instagram.
4G support from the tower business has been a great success and now with increasing demands for data and at a density not seen before, operators are looking to support 5G. On a like for like basis, 5G is more economical per user than 4G and operators are looking to upgrade now to take advantage of that. 5G can however also support an order of magnitude more customers on an equivalent node. To do this it will need more power to support the users. Thus the short term need is to upgrade the power requirements of towers. Figure 4 shows the potential power increase for 5G, albeit split across many more end users.
However, change does not stop there. To take advantage of the capabilities of 5G , users will not want to be out of the connectivity area, so, density of cells will need to be increased. In addition, to support the short latency ability of 5g and exploit it, many more small cells will need to be supported on street furniture or as inbuilding cells. Finally, Mobile Edge Computing will need to be supported at a high proportion of the nodes to allow the main network to offload local traffic and high usage applications. All of these need power, and management to maintain QoS and uptime.
Key Pain Points
What are the key pain points for a towerco and an ESCO? The way we see them at Huawei is as follows:
The need to multi-tenant each tower, power system and piece of equipment, to both align with the model and to ensure that the company doesn’t start to look like a telco with the earnings valuation multiple reduction that would entail.
The need to keep equipment weight to a minimum to prolong the life of towers without strengthening
The need to ensure site security and reduce diesel shrinkage
The need to manage on site power consumption to keep a handle on costs
The need to uprate on site power in advance of 5G
The need to expand the marketplace to obtain new revenues
The need to sweat the assets on site
How Products and Services can help adapt to the future needs
Let’s take each of the pain points in turn and show how Huawei can help:
The need to multi-tenant each Tower, Power system and piece of equipment
The wide Huawei product range offers multi tenancy across the board. We have a RAN sharing product set, we have a shareable DIS (Digital Internal Systems), our power portfolio is able to multi-tenant power systems, and the management systems can monitor individual usage.
The need to keep equipment weight to a minimum to prolong the life of towers without strengthening
Our 5G 64x64 antennae weigh less that 40kg ensuring that towers will need the minimum if any strengthening to accommodate them.
Additionally this light weight means that an engineer can mount the product on a tower, without the need for a crane.
The need to ensure site security and reduce diesel shrinkage
By maximising the usage of our li-ion batteries in the network, many diesel generators can be dispensed with in favour of batteries and solar power in combination. li-ion batteries require specialist equipment to recycle and therefore present a less alluring target for theft in themselves.
The need to upgrade on site power in advance of 5G
As the acknowledged market leader in 5G technology we have been able to build our power systems as part of an integrated business model which maximises usage of legacy energy systems but provides boosted power when required. This allows the transition from lead-acid cells to li-ion to be managed over time to optimise the life of the legacy assets.
The need to expand the marketplace to obtain new revenues
Our DIS products allow in-building coverage for multi-operators, enabling infrastructure companies to move into new market areas using a familiar model.
We also have ideas on how power systems can be offered to local rural communities as micro grids, operating vending machines, recharging smartphones etc.
Finally we have world beating stand-alone range of rural towers, which connect via LTE and are solar powered, for connecting rural communities.
These are all new potential revenue streams.
The need to sweat the assets on sites
Our modular designed power systems allow you to expand your power capability without the need for additional cabinets.
Our MEC (Mobile Edge Computing) can be used on existing sites to enhance operator network functionality.
Our Tower portfolio maximises site footprint (Polestar has a footprint of 2 square metres and is 30m tall) allowing reduced sized sites for cost saving or other equipment to be housed on site for revenue enhancement.
The need to reduce site renovation capex to supply increased power capacity, cooling, space, power cable capacity, computing room space/weight.’The need to reduce opex for electricity, fuel, and space rental costs.
Our one site one cabinet solution/ one band one blade power solution allows one cabinet to replace one room MEC solutions with 5G intelligent features, for example peak shaving. Intelligent voltage boost can help by freeing towercos of the need for grid modernization, reducing the need for new cabinets and reducing the need for cable modernization. Savings can be of the order of 30% TCO in telecom sites and 60% TCO in Data Centre (DC) rooms.
The need to power IT equipment
Our 36KW eMIMO unified platform power rack can support 12VDC/24VDC/36VDC/48VDC/24VAC/220AC/380V HVDC. It has the ability to power both CT and mainstream IT equipment. This means that there is no need for a new IT power system.
The need to maintain the multi-component, multi-scenario, multi-manufacturer solutions.
Our 36KW eMIMO unified platform power can support multi-input (Grid/Solar/DG), multi-output (12VDC/24VDC/36VDC/48VDC/24VAC/ 220AC/380V HVDC) and with 5G power intelligent features. One power solution supports all scenarios and offers smooth evolution to future needs. Our remote AI network management helps drive O&M savings across the entire base.
The need for fast deployment, fast time to market.
Our 6KW/15L 20kg blade supports 1 hour, 2 person fast installation. And can support pole and wall installation. This saves time and engineering cost caused by reducing the need for a site engineering survey. This in turn helps to speed up TTM. It also offers ’0’ maintenance, 97% efficiency minimizing site opex.
Our MEC cabinet with built-in 36KW multi input and multi output power rack can support powering both IT and CT devices. With precise management of the environment inside the cabinet it ensures IT device reliability.
Next steps
We hope that this paper has given rise to new ideas within your business. If you as a CFO would like to know more about how Huawei can help you to raise revenue, cut costs and enhance your business models our Tower Strategy team will be happy to meet with you and discuss options.
