Costa Rica: a new tower market with a first class business environment

José Escobar is an expert in the Costa Rican telecom market thanks to twenty years of business ventures and achievements. Now fully involved in the development of his own company, Catalina Incorporada, he has witnessed the evolution of the national industry from day zero and actually contributed to the shift from a monopoly to a modern telecom industry.

We had the pleasure to speak to José about his experience, background and perception of the Costa Rican telecom tower industry and what follows is a detailed and insightful overview of the status of its small and yet thriving market.

TowerXchange: José, please tell us about your background and experience in the telecom tower industry

I am the President of Catalina Incorporada, a company born in 1992 and involved in the telecom space since 2007.

In 2008, I participated in the campaign to open up the telecom market in Costa Rica. At the time, ICE, the Costa Rican Electricity Institute, had a monopoly on wireless communications. Interested parties such as consumers, international carriers and towercos worked together to push for an open market. Claro and Movistar started offering services along with two MVNOs back in 2011.

From day one I worked with Global Tower Partners in Costa Rica which quickly became the country leading towerco and was later sold to American Tower. After that, I led TOCSA where in less than a year we manage to create a portfolio of 26 towers and achieved BTS orders for over 120 more sites currently under development. This made TOCSA the fastest growing company in Costa Rica.

Having been personally involved in about 50% of the sites developed by towercos in the country, I am now fully involved in my own company, Catalina Inc., to actively manage, develop and market telecom infrastructure in the country.

TowerXchange: Please tell us about the Costa Rican telecom market and its key players.

Costa Rica is a small and yet very active market in spite of its young age. There are a little over 2,500 telecom towers in the country of which approximately 1,000 are owned by Kölbi, the state-owned carrier, 500 by Claro, a similar number by American Tower (AMT), and SBA Communications (SBA) and the rest by Continental Towers and TOCSA. There is still potential for growth as I’d say about 2,000 new sites are needed in the country to meet coverage and capacity requirements as set by the government.

The Costa Rican telecom industry is half way there in terms of reaching its full potential and we expect about 800-1,000 new sites to be built over the next two years and the rest within five years.

In spite of the entrance of towercos in the country, carriers still retain most of their telecom towers. However, with the exception of a handful of sites built by Claro, carriers entirely rely on towercos to develop build-to-suit projects.

Kölbi is the incumbent operator owned by ICE and still retains its towers. América Móvil’s Claro and Telefónica’s Movistar entered the market in 2011 and adopted different strategies. In fact, Claro owns a good share of its telecom towers, I’d say around 50%, and leases the rest of them, whereas Movistar embraced the initial offer we made when they entered the market for a full-package turnkey that didn’t require them to own any towers.

Generally carriers are very open to the independent towerco model also thanks to a strong regulatory environment. In fact, as the permitting procedure for greenfield projects is a very demanding and time consuming operation, carriers are enticed by the towerco model as it releases them from this task. The shift from a capex to opex model is another appealing factor and a growing trend in the global telecom industry.

TowerXchange: What are the key regulatory challenges for carriers and towercos operating in the country? And what are the local laws governing land ownership – can international companies acquire the land under towers?

Costa Rica is a small country but is divided into eighty-one separate counties. Therefore, environmental permits have to be obtained at a national and county level; a process that requires a lot of specifications, and investment of time and travel. The government is very active in protecting the environment and severe guidelines have been issued with regards to zoning and in general, to ensure landscape preservation.

In terms of land ownership, with the exception of border areas, anyone can own land and build on it in Costa Rica. Currently SBA and AMT are reportedly trying to purchase some land under their towers. Personally I prefer to buy the land whenever possible. In general, this is easier in rural rather than metropolitan areas.

TowerXchange: What is the degree of urban and rural electrification and how reliable is the grid?

The electricity grid is generally reliable and 99.2% of Costa Rican homes are currently connected through the grid. The same can be said about telecom sites, in fact most towers use the grid and are equipped with back-up batteries to counteract occasional blackouts. Very few sites require diesel generators and overall, diesel isn’t an issue in Costa Rica, even in rural areas.

As ICE is a state-owned organisation, they are very involved in granting connectivity to rural as well as urban sites. In fact, I recall working on a rural project and as we were building sites, ICE started working to ensure we could connect them as soon as possible, which definitely sped up the process.

In spite of its reliable electricity system, Costa Rica is environmentally conscious and we have just signed an agreement that pushes companies and the government to adopt more renewable solutions with the goal to have as much as 100% energy produced by renewable sources by 2025. The country already produces 96% of its energy through renewables, mainly hydropower at around US$0.20 per kWh.

TowerXchange: How would you compare the Costa Rican telecom industry to its neighbours’?

When we compare Costa Rica to neighbouring countries, it’s easy to realise its amazing growth pattern, considering it opened up in 2011. To date, Costa Rica has one of the highest penetration rates in the region at 151% (compared to Nicaragua at 116%, Guatemala 140% and Panama at 153%) and the demand for data is comparable to the level of developed countries. With a growing middle class, the population craves data whereas voice traffic is actually decreasing. As data traffic grows, we need to provide more services, more capacity and obviously more towers.

With two large scale towercos, a couple of middle-market towercos and approximately 2,000 towers to be built, I would say there are enough opportunities for all of us, especially as AMT is mostly involved in sales and leaseback and not as active in build-to-suit activities.

TowerXchange: What business model has been adopted by towercos? Steel and grass or tower and power?

Towercos in Costa Rica follow a pure steel and grass business model with the exception of the power we provide before sites get connected to the grid.

In fact, it takes us about six weeks to build a site but approximately three months to actually connect it to the grid. In the interim, towercos tend to offer power to carriers to then switch to grass and steel only.

TowerXchange: Do you have any detail with regards to the average tenancy ratio so far achieved by towercos? 

In terms of tenancy ratio, American Tower and SBA Communications are both around 1.7, whereas Continental Towers and TOCSA both hit 2.0 on currently built sites.

TowerXchange: How do you foresee the market evolving over the next few months?

Costa Rica is a young market with lots of developments going on. 4G has just been launched a couple of months ago and the regulator is currently looking at amending the pricing structure for post-paid services.

On the investment side, the country has already attracted quite a lot of interest from foreign investors thanks to its safe political and social background, low country risk and lack of currency risk as contracts are all in US dollars. We expect new players to take an interest in the evolution of the national telecom industry.

As previously mentioned, we expect quite a few towers to be built over the next 24 months and this will further improve the level of service carriers are able to offer to subscribers and new opportunities for towercos and suppliers.

On a side note, during the licensing round back in 2011, no bids were received for the fourth license the government was ready to grant and I believe this will be offered again over the course of the next couple of years. A new market entrant would definitely create an even more interesting business environment for subscribers, towercos, investors and service providers alike.