The recent TowerXchange Meetup Americas featured a round table gathering together 15 different companies seeking information about opportunities in Colombia, including representatives of four different towercos. Respecting the confidentiality of that conversation, certain data and the source of insights has been omitted from this report, but we are still able to share a clear picture of the status of the tower industry in Colombia.
LTE stimulates demand for co-locations and amendment revenue
Of five licensed MNOs and six MVNOs, Claro (trading as Comcel) are market leaders in Colombia, and are generally felt to have the best coverage. Movistar and Tigo (trading as Colombia Móvil) also have substantial market share.
4G was launched by Une-EPM as long ago as 2012 and the company already operates LTE networks in several Colombian cities. A successful 4G auction in June 2013 will lead to mid-2014 LTE launches from Claro, Movistar and Tigo. DirecTV recently acquired spectrum and are expected to launch – towercos report that DirecTV have very specific search area requirements. Digital trunking service provider Avantel are also launching LTE – they have achieved finite growth to date but are expanding. ETB are also scheduled to launch LTE in 2014 building its own mobile network, rather than continuing as an MVNO sharing Tigo’s network.
Despite the limiting effect of a network sharing deal between Tigo, Movistar and ETB, participants were bullish that the rollout of LTE, combined with demand for sites from new market entrants, would stimulate demand a surge in demand for co-locations on independent towerco sites.
Colombia has an estimated 8,000 towers, including rooftops, of which 3,461 (or 43%) are owned by American Tower. Torres Andinas and Continental Towers also own a few hundred sites in Colombia.
The regulatory environment
A National Law prevents a lot of the most common local blockages around new site permitting. However, in most of Colombia, mayors have a fairly unfettered right to close a site if deemed in the public interest or if there is risk of unrest. As a result, Colombian towercos report that despite securing permissions they have had several sites stopped and sealed – causing delays as negotiations are undertaken with the community to avoid unrest. One towerco reported “we have to put 30 sites into the pipeline to get 20 out at the back end!”
Does the time taken to secure a permits vary if the site is designed whether with or without foundations? In some instances you can start earlier with foundationless sites, and the more you have to dig the more worried the community gets, so the faster you can get it done the less risk of community resistance. And of course foundationless towers are more readily relocated in the event of unrest forcing the closure of a site.
In comparison, aviation permits are surprisingly easy (perhaps too easy?) to obtain in Colombia, with an online application process typically taking just a couple of weeks.
Cell site monitoring, perimeter fencing and backup power requirements in Colombia
Carriers increasingly want to shift the burden of cell site monitoring to towercos. However, many smaller Colombian towercos prefer sticking to a simple “dirt, steel and concrete” business model. RMS is currently a quality differentiator, or reserved for priority sites, and is seldom deployed as standard on Colombian sites. However that is changing. A hot topic of conversation at the Colombian round table was the business case for RMS; whether and what to measure (power, access et cetera). One towerco, which does use RMS primarily to mitigate coax theft, reported that remote monitoring paid for itself if depreciated over ten years through a reduction from ~US$70 to ~US$30pcm in insurance premiums.
Remote monitoring paid for itself if depreciated over ten years through a reduction from ~US$70 to ~US$30pcm in insurance premiums
The designated RMS vendor at the Colombia round table explained the importance of adapting RMS to meet the specific requirements of a given cell site to ensure RoI. Including CCTV, for example, can double the cost of RMS. CCTV tells you when there is an intruder onsite, but they are typically unrecognisable – and how are you going to respond to a break-in at a remote cell site? Good security requires layers; gate monitors can be inexpensive, then the next layer might be movement sensors and audible alarms – but beware cheap equipment as frequent false alarms will lead to NOC operators ignoring alerts. Our RMS vendor also shared a cautionary tale about potential corruption from the engineers installing RMS trying to disable the system to enable continuation of pilferage – this can be countered with covert backup power systems and tamper protection. “At the end of month towercos need to prove their performance against SLAs, so RMS is about more than just security,” concluded our RMS vendor.
One towerco reported the theft of chain link perimeter fencing material, soon followed by some familiar-looking chain link appearing on local chicken coops! Alternate fencing solutions consisting of solid metal sidings or cinder block perimeters were highlighted, with the cost often passed on to the tenant, typically amoritised over ten years as a ~US$20 uplift in rent.
Whether for perimeter fencing or tower structures, Colombia round table participants reported that steel was easily sourced locally, avoiding import costs. However, inland transportation remains expensive in Colombia.
Colombia’s power grid is extensive and generally reliable, with some unreliable areas along the coast. As such, energy efficiency efforts tend to consist of batteries, with few backup generators in use.
RANsharing
How should towercos respond to the threat to their business model of RANsharing, whereby one set of antennas is used by multiple carriers using multiple different frequencies? If left unresolved, this issue could reduce the total amount of equipment on towers, lowering the glass ceiling on tenancy ratios and tower cash flow.
Most towercos use frequency-specific language in their contracts, spelling out the capacity, height, width and depth of equipment to be hung on the tower, ensuring each additional tenant pays a monthly lease whether hanging new equipment or sharing existing antennas. Meanwhile, most regulators prohibit spectrum sharing.
However, the towercos on the Colombia round table effectively issued an RFI from any firm able to monitor and manage RANsharing to ensure contractual terms were being followed, and to ensure the towercos receive payment for additional RANsharing tenants.
Opportunities in Colombia’s build-to-suit market
Building the business case to persuade carriers to outsource build-to-suit (BTS) programmes, rather than build their own towers, is an ongoing battle. Towercos are compelling potential BTS business partners, given their specialist capabilities in acquiring sites, securing permits and building towers, together with a business model that unlocks economies of scale as structures are shared among multiple tenants.
Participants at the recent TowerXchange Meetup Americas reported that each local OpCo in LatAm needs convincing of the business case to outsource BTS in isolation – there was very little sharing of intelligence across borders, and few unified BTS strategies at Group-level. Advocating outsourcing BTS requires engaging the financial team, encouraging the supply chain team to balance cost with quality, and persuading the in-house site acquisition and site build team that you’re not reducing their status in the business!
With the major towercos able to ‘cherry-pick’ the best BTS opportunities – those where additional co-location sales opportunities are obvious – smaller towercos and private developers are often left with sites that are difficult to permit or build, or those with less obvious co-location sale potential
Asked whether many carriers transferred their site acquisition teams to towercos and shut down their in-house build capabilities, Colombia round table participants suggested that most carriers across LatAm hadn’t committed to fully outsource BTS, and therefore retained the majority of their site acquisition workforce. As such, any talent released to towercos was seldom the best people!
The dynamics of the BTS market in Colombia, or just about any country in the world, are significantly affected when major towercos complete substantial sale and leaseback deals inclusive of first refusal options on their anchor tenant’s BTS programmes. With successful tower acquirers, usually larger scale towercos, able to ‘cherry-pick’ the best BTS opportunities – those where additional co-location sales opportunities are obvious – smaller towercos and private developers are often left with sites that are difficult to permit or build, or those with less obvious co-location sale potential. While this explains why the BTS portion of major towerco’s balance sheet looks so attractive, it can make it difficult for carriers to get certain sites built.
The volume of BTS opportunities in LatAm means BTS-centric towercos, or turnkey infrastructure firms moving up the value chain, are more investible than in other regions. Many such towercos present at the TowerXchange Meetup Americas were bullish about their ability to drive tenancy ratios and create investible portfolios.
