C-level perspectives from CALA’s fast-growing regional towercos

Middle market tower companies in the CALA region represent an important segment of the tower ecosystem, and they are particularly important stakeholders in the BTS game. The leaders of five of CALA’s most innovative ‘middle market towercos’ convened a panel discussion at the recent TowerXchange Meetup Americas, based on which we share the following insights, together with brief introductions to each towerco.

Represented by CEO Dr Chahram Zolfaghari, Brazil Tower Company (BTC) operates exclusively in Brazil and is funded by 1848 Capital and by CAF, a Latin American development bank. BTC’s current portfolio includes 250 towers with a pipeline of an additional 500 sites. Its goal is to reach 1,000 sites within the next 24 months.

Originally working with Vivo Telefonica for its build to suit (BTS) projects, BTC is now engaged in dialogues with Claro and TIM.

BTC is focused on creating value for its investors and to date, they have found BTS to be the most secure way to generate a constant stream of revenue. That said, BTC isn’t ruling out the possibility of participating in sale and leaseback opportunities, but that may come two or more years into the future.

To date, the tenancy ratio of BTC’s towers, most of which were built in the last 12-18 months, is already 1.3 compared to the national average in Brazil of 1.5.

Represented by COO Eric Ensor, Torres Andinas is the first BTS firm in Peru. They also have approximately 100 sites in Colombia. The company is funded by Multi Holdings Corporation as well as by private investors. Eric and his business partner have excellent credentials in CALA having created SBA Torres, a Central American towerco joint venture with SBA Communications which SBA bought out in 2011.

With the substantial premium paid per tower in sale and leasebacks deals in CALA, and with major tower companies able to access relatively inexpensive debt, Torres Andinas has found its niche in the BTS market which allowed the company to enter markets like Colombia, which had been considered by some competitors as a high risk market.

Although American Tower and Torres Unidas hold the right of first refusal respectively for Tigo and Telefonica’s BTS programmes in Colombia and Peru, both carriers having completed sale and leasebacks with their respective towerco partners, large towercos don’t always have an appetite for certain BTS opportunities due to their locations and other characteristics. This opens the door for towercos like Torres Andinas to acquire more sites, and the company is aiming to scale to 500 towers in Colombia and Peru.

You will find a full interview with Torres Andinas’ Eric Ensor here.

Maria Scotti, Torrecom’s ebullient CEO, explained how her company operates in Guatemala, Nicaragua and Mexico as well as in the US. Torrecom is owned by Message Center Management, Inc. and funded by a combination of U.S. and in-country private equity firms. Active in LatAm since 2010, the company has 550 sites in its pipeline, 400 of which are in Mexico, with the balance in Guatemala and Nicaragua. Torrecom has an appetite for both BTS and sale and leaseback opportunities, and has access to sufficient capital to follow either or both growth strategies.

Telefonica was the first carrier to ask Torrecom to develop BTS projects in Guatemala and Nicaragua as well as Mexico, where Torrecom also works with Nextel. Telcel has also been starting to reach out to independent towercos too.

Torrecom is a service-oriented, flexible company, able to react very fast to its clients’ demands. These characteristics prove very useful in the CALA region where carriers are extremely price conscious and are used to multi-sourcing BTS providers. Moreover, spectrum auctions often come with clear timelines to achieve coverage in remote areas as well as in metropolitan and suburban areas. These factors combine to create the perfect environment where a towerco able to react nimbly to client requests could find its Eldorado.

You will find a full interview with Torrecom’s Maria Scotti in the “Leadership perspectives on LatAm towers” special feature of this Journal.

Founded in Guatemala, Continental Towers Corp. is active in ten different countries in the CALA region, including six countries in Central America. Continental Towers is financially supported by the IFC as well as by US banks. The company enjoys contracts with all six main carriers in Central America, and with Telefonica and Entel in Chile.

Continental Towers’ expansion beyond Central America is due partially to the difficulties of operating in such a fragmented market consisting of several small countries. Each country has its own jurisdiction, legal framework and permitting process, so the complexity of day to day operations serves as a great driver to explore larger markets such as Chile, explained Jose Paz, Continental Towers’ CEO.

IIMT is a ten year old company formed by executives who originally served as a consultants for American Tower and Global Tower Partners at the time of their market entrance in Mexico, including President William Ritchey, who represented IIMT on the panel. With a portfolio of 300 towers and a pipeline growing on a monthly basis, IIMT works with all the Mexican carriers, although the majority of its business comes from market leaders Telcel.

Uniquely, IIMT has the right to utilise the infrastructure of the state-owned electric utility company, CFE, and install telecom equipment on their towers. Thanks to this deal, IIMT has been able to respond to new tenants’ requests in a matter of few weeks. This provides IIMT with a genuine competitive advantage in the complex Mexican market where tower sales attract the highest prices in CALA, and where carriers are usually better off seeking tenancy opportunities on existing structures rather than building new towers.

Exponents of the BTS model in CALA suggest it’s easier to create value building towers than buying them. “We can build towers at a better price than the prices being paid for existing towers,” said one towerco leader. You know what you’re building, you can design for multiple tenants from the outset, negating the need for augmentation capex. If you have a good relationship with the carrier, and if you do your modeling in advance, you can pick and choose the locations where you know your client’s competitors also need a site, thus creating maximum upside from the outset.

Towercos all start with one BTS partner, but in the interest of diversification of counterparty risk, it’s important to secure additional BTS partners as soon as possible. Co-locating tenants impressed with the service they receive may be willing to consider offering BTS opportunities to the owner of that tower.

Different carriers have a different appetite to outsource BTS, and each will find their own balance between price and quality. Telefonica were the first to outsource in many markets, soon followed by Nextel. America Movil is starting to ramp up their BTS requirements.

Large towercos will seldom build towers in areas where they don’t have the immediate prospect of attracting a second tenant. Keen to pursue opportunities in sought after areas and able to pay premiums to ensure they secure the business, major towercos dominate one end of the BTS market.

In contrast, middle market towercos may be able to get a foothold in a market by building the towers the large towercos don’t want. The structure and financial engineering of small, lean towercos enables them to build a tower and wait for a second tenant for longer than their larger counterparts.

Many of the ‘middle market towercos’ we spoke to at the TowerXchange Meetup Americas actually prefer to operate in markets where there is a big competitive towerco present. Small, lean towercos feel they offer a unique proposition: they can react faster, they can be very service-oriented, they can get tough-to permit sites built. And carriers don’t like to put all their eggs in one market! Multisourcing BTS is essential to ‘hedging your bets’, particularly for carriers who have reduced their internal competencies to build sites.

The CALA tower industry is moving toward a market-led, balanced ecosystem, wherein the larger towercos bid for sale and leaseback opportunities and trade acquisitions, while participating in high volume BTS and participating selectively in smaller BTS programmes. Meanwhile, middle market towercos are comfortably operating ‘from the ground up’ in the BTS arena, able to find value in almost every deal.

Some middle market towercos are driving toward a scale wherein they can attract more substantial capital investments and bid for the larger sale and leaseback opportunities. Other middle market towercos prefer the greater control of BTS, suggesting that sale and leaseback portfolios include towers in good and bad locations, good towers and bad towers, whereas if you’ve built all the towers yourself, you can target sites where there is demand from a second tenant, and you control the capacity and quality of the assets, so there is relatively little augmentation capex.

On the question of whether CALA’s towercos had sufficient capacity to double the number of towers in the region, informal discussions with the middle market towercos suggested the question wasn’t just one of capacity, but also of price. CALA’s most price-conscious carriers often release RFPs for BTS programmes at a price so low that few towercos are prepared to bid for the opportunity, whereas other carriers were more focused on quality.