During the inaugural TowerXchange Meetup Asia held in Singapore this past December, Mr Suresh Sidhu, CEO of edotco Group, took center stage and delivered a keynote speech sharing his views on the evolution of the telecoms value chain, driven by shifts in technology, consumer behaviour and regulatory regimes, resulting in the “unbundling of the mobile operator” and the emergence of a new class of specialist infrastructure service providers.
edotco is an integrated telecommunications infrastructure services company providing end-to-end solutions from towers, energy, transmission and operations & maintenance (O&M) in the region of Southeast Asia with 13,000 towers and 12,000 Km of fibre across Malaysia, Bangladesh, Sri Lanka, Cambodia and Pakistan. Some of these assets relate to traditional portfolios which the Axiata Group owned which were then transferred to edotco, and others are part of the company’s organic growth plan. In many of the countries where edotco operates, infrastructure sharing is not a new concept, and the challenge the company has to face is to make sharing commercially viable.
edotco want to be a globally admired, world class infrastructure brand by 2017. To date, edotco enjoys a tenancy ratio across its portfolio of 1.45. Their goal is to achieve a tenancy ratio of 2.0 and a pan-Asian portfolio of 20,000 towers by 2017. edotco is the largest tower operator in Malaysia and in Bangladesh, where it has carved out its tower assets from the operator. The towers are run as a managed service in Sri Lanka and Cambodia with full carve out expected in Q2 2015
edotco Pakistan is currently being set up, where edotco owns 12,000 Km of fibre, a critical resource and yet a very different one to edotco’s core business. According to the CEO, a towerco can succeed even if it owns as little as ten towers but when it comes to fibre, a company needs to own thousands of kilometres to make it commercially viable. In light of the different proposition required to run a fibre business, it’s likely that edotco will keep running its fibre business in Pakistan without looking at expanding it elsewhere in the region.
Standardising best practices
In order to create Asia’s first genuinely pan-Asian towerco, standardising best practices across their five countries is already paying huge dividends for edotco.
The acceleration of construction scheduling and ultimately of network rollout has been achieved as a result of specialisation and standardisation of processes and designs across the footprint.
There are significant economic benefits of having a single point of purchasing for all materials and items, namely, in the aggregated economies of scale arising from bulk procurement exercises that is denied to smaller purchasers.
edotco are deploying a single vendor site management system across all countries. And edotco is creating of a pool of talent, both at a regional and country-wide level, focused on ensuring efficient operation and uptime at all their sites.
Savings through standardisation are reaching 20% of the original capex.
Unbundling the mobile operator
The “unbundling the value chain of the mobile operator” is a fundamental shift which edotco’s customers, shareholders and team see across the region. In fact, Mr Sidhu believes that “the mobile industry is going through an unprecedented set of challenges, driven by shifts in technology, customer behaviour and regulatory approaches”. These changes in the value chain present new opportunities for infrastructure companies as well as other players in the broader telecom industry. The time is now right to ask the question: what should be the shape and form of the ideal telco value chain? While convergence and its opposing force, deconstruction, have been talked about for years, the forces at play today are probably mature enough to finally force the unbundling of the mobile operator. edotco is focused on “convergence and deconstruction”.
New customer-oriented regulations have been created in various countries and universal coverage is high on everyone’s agenda; in the meantime, and the whole concept of “fair value to customers” is a key component of MNOs modern strategies. On the other hand, auctions are proving very profitable and effective and governments will keep promoting them as Asia’s operators move towards 3G and 4G. License revenue is becoming a major source of income for many governments. And as a result, countries are starting to assess how much money operators are ready to pay to obtain a license. Meanwhile continuing investment in coverage and new technology is requiring higher levels of financial commitment.
Revenues are flattening due to OTT and price competition, the traditional consumption model is shifting from voice to data, and an integrated offering is now the standard approach. Bundles is the new buzzword every MNO needs to adapt to. However, Mr Sidhu challenged whether these comprehensive, all-inclusive types of offerings will still be the norm in a few years or whether MNOs will move in different directions, offering services with a “portfolio approach”.
An MNO is multiple businesses into one: infrastructure, customer, content, brand and pricing, distribution and retail. And whereas today the drivers for disaggregation and unbundling are felt strongly in the infrastructure space and in the digital space, further disruptive changes to the business model will doubtless follow
An MNO is multiple businesses into one: infrastructure, customer, content, brand and pricing, distribution and retail. And whereas today the drivers for disaggregation and unbundling are felt strongly in the infrastructure space and in the digital space, further disruptive changes to the business model will doubtless follow.
What is driving spin offs and carve outs?
The telecom CFO today has several key concerns in mind, according to Mr Sidhu: exploding wireless data usage coming without considerable revenue increase, spectrum scarcity, rising capex and opex, and the constant need to refresh technology. Given that consumer dynamics have changed so much, speed to market is now more critical than ever before. Yet against this backdrop, the fixed cost structure of the business is forcing CFOs to look at ways to increase return on capital invested.
With this mindset, infrastructure becomes less core and is seen as an asset to monetise – generating capital is definitely another factor CFOs have high on their agenda. Therefore, the industry is witnessing the number of passive infrastructure mega-deals increasing, values going up and “considering the interest of bankers in the room”, we are all likely to see this trend continuing!
However, Mr Sidhu rightly noted how a successful tower industry will need strong regulatory and licensing regimes across Asia, especially in countries such as Sri Lanka and Bangladesh with less mature regulation relating to infrastructure providers. However, positive moves towards the adoption of tower infrastructure licensing regimes are being made across the region.
In conclusion, Mr Sidhu suggested that edotco and the tower industry at-large were at the leading edge of operator business model unbundling. The growth of Asia’s tower industry is being fuelled by increasing wireless usage, limited spectrum availability, and the need to control capex budgets. edotco is more than just a tower sharing provider; they have evolved the business model to offer specialised telecom infrastructure services with skills focused in energy management, operations, customised site planning and optimised tower designs.
