70,000 towers needed to achieve 90% coverage in Mexico

William Ritchey considers himself a Mexican adoptee after more than twenty years in the country. With a background in investment banking and a wealth of experience in the local tower industry, William agreed to offer TowerXchange an exclusive perspective on the Mexican telecom and tower scenario.

Mexico is the second largest telecom market of Latin America, behind Brazil. But can the country cope with its own growth in spite of the lack of infrastructure?

TowerXchange: Tell us about IIMT and its evolution over the past 10 years. 

I used to work in investment banking and helped American Tower enter the Mexican market back in the late nineties. AMT was the first tower company in Mexico and started acquiring towers when carriers decided to divest their passive infrastructure portfolios.

Then we decided to start our own company, IIMT, and since then we have been building our own towers. Moreover, we signed an agreement with the Federal Electricity Commission - or Comisión Federal de Electricidad - which is the Mexican state-owned electric utility company, widely known as CFE. Thanks to this agreement, we have the right to utilise CFE’s infrastructure and therefore are able to fit telecom equipment on their towers. This process is obviously much faster than building new sites as it allows us to fully equip a tower with the necessary network equipment in approximately 1-2 months.

To date, we are working with all four main carriers in Mexico: América Móvil’s Telcel, Telefonica’s Movistar, NII Holding’s Nextel and Grupo Salinas’ Iusacell.

TowerXchange: Can you describe the Mexican tower market and its main characteristics and challenges? At what rate is subscriber penetration growing? Are ARPUs declining or stable?

There is a huge demand for towers in Mexico. In fact, according to an OECD study, the country needs approximately 70,000 new towers to reach 90% coverage.

Telcel owns approximately 14,000 towers. American Tower owns another 8,000. In addition, Mexico Tower Partners’ portfolio includes approximately 600 towers. From our side, we have approximately 250 towers between owned and managed.

Therefore, there’s less than 25,000 towers to date in Mexico and a long way to go to achieve the 90% coverage goal as described by the World Bank.

With over 120 million people, Mexico is still behind in terms of coverage. In fact, the overall performance of the networks isn’t really keeping up with demand. Users still experience bad and weak coverage and there are a lot of areas still to be connected.

The market has attracted the attention of international and local players - such as American Tower and ourselves - and a lot can be done in the near future. We don’t have enough towers, it’s as simple as that.

That said, the ARPU is growing and is currently averaging 200 pesos/month or approximately US$15.

In terms of mobile subscribers, we reached 103 million this year with a penetration rate just above 86%. Subscriber growth is still up but somehow stabilising.

TowerXchange: What impact will LTE have on cellsite densification and demand for tenancies in Mexico?

LTE is already active in Mexico and that is surely the main driver of tower industry expansion.

It is a very simple equation; we need to have more towers to ensure coverage and, while existing sites can be retrofitted, we still need to ensure 3G coverage. In fact, not every customer will switch to LTE in the near future. Systems will have to co-exist and a lot of work has to be done to achieve that. At the same time, we predict densification to increase significantly because of the specific characteristics and requirements of the LTE network.

TowerXchange: Can you give us some details about the key characteristics of the electrical towers in comparison with telecom ones?

Cellular and high tension electrical towers follow the same guidelines for stress and wind factors. In both cases each tower has its specific engineering guidelines which we need to be aware of. We are carefully following specific safety guidelines too.

Considering the fact that electrical towers already exist, this gives us a unique opportunity for fast deployment and at the same time, additional revenue for the utility company.

TowerXchange: What proportion of towers are owned by independent towercos? Are most independent towers acquired from operators or are towercos simply building their own sites? Who are the market leaders?

As previously mentioned, América Móvil (Telcel) and American Tower own the majority of towers and are to be considered the Mexican market leaders.

Other active tower companies are Mexico Tower Partners and ourselves. In terms of carriers, Telcel is the leading the market, followed by Movistar, Iusacell and Nextel. To my knowledge, only Telcel owns towers.

TowerXchange: Are towercos focusing purely on towers, or are they getting involved in transmission, rooftops, DAS and even active infrastructure sharing?

While transmission is being done by carriers we are seeing a big growth in demand for rooftops, DAS and active infrastructure sharing.

The het-net business is developing at a fast pace. Coverage and revenues are driving its expansion.

In Mexico, there aren’t many “intelligent buildings” beside new builds, so there is an immense potential for new projects to be developed.

TowerXchange: How has the Mexican market changed since IIMT started its operations?

IIMT started operations when Iusacell decided to build their own towers and we did the construction for them. Since then, the market has continued to expand. While carriers have been entering agreement to either share their network infrastructure or sell their towers to tower companies, the demand for network enhancement has grown exponentially.

We are following the model of other countries, with most carriers focusing on their network development and tower companies seizing the moment.

TowerXchange: How do you think the market will evolve over the next 3-5 years?

I foresee the tower industry to grow further. There is still lots to be done in Mexico and the next few years will be crucial to the development of the tower industry.

Although we cannot give too many details, we are seeing lots of growth potential and the pipeline of new projects is quite healthy.

TowerXchange: Tell us about the Mexican regulation for greenfield tower projects, how easy is it to get permits and build new infrastructures?

I don’t think that the permitting process is much different from other countries in the region. Bureaucracy can take a while just like anywhere else and we did experience some issues and protests to protect the landscape and to limit the visual impact of towers. But overall, Mexico is a very good place to do business and I think it’s actually cheaper and possibly faster to get projects done here that in the States.

Mexico is still an underdeveloped market and therefore there is a huge need for infrastructure and we are lacking specific regulation for wireless tower companies. We always need to keep in mind that we are far from reaching 90% coverage therefore this might change in the future - when those 70,000 towers get built.

Enrique Peña Nieto took office as Mexican President in December 2012 and formed a new entity called IFETEL, the new Federal Telecommunications Institute - or Instituto Federal de Telecomunicaciones - which will serve as the regulatory body for the Mexican telecom sector.

IFETEL will have the power to grant and revoke broadcast and telecommunications concessions and will start ruling in 2014. The plan is for IFETEL to guarantee economic competition and content plurality, therefore we need to wait and see which developments follow its establishment.

TowerXchange: What is the government doing - if anything - to push towards co-locations and infrastructure sharing?

Beside the creation of IFETEL, whose role will involve some ruling regarding the wireless tower industry, the government isn’t pushing towards co-locations. I’d say that so far, market demand has been the biggest driver towards companies’ interest in sharing infrastructure. In fact , all carriers in Mexico are now sharing infrastructure.

I don’t think we will move towards a law like the proposed Brazilian Lei das Antenas but the Mexican government maintains a good relationship with the local businesses and will do what is necessary to enhance growth and industrial development.

TowerXchange: What is the balance of your portfolio of towers between urban and rural sites?

We own and operate towers exclusively in urban areas. But that is true for the majority of towers in the country.

There isn’t a big drive yet to cover less dense areas with so much that needs to be done in urban areas. We are still very concentrated in ensuring coverage in high density areas but we are also looking at providing highway coverage in rural areas.

The government has tried to push to cover some remote areas especially for security reasons. But that is an expensive proposition. Companies will look into the next logical step - rural, less dense hence less profitable areas - when the work is complete in those parts of the country that are naturally more attractive for their profitability potential.

William Ritchey will be speaking at the TowerXchange Meetup Americas, taking place of May 20-22 in Orlando, co-located with the PCIA Wireless Infrastructure Show.