Seven hundred islands and almost forty million people. This is the Caribbean. For most people a dreamy vacation spot but for the tower industry; one of the few remaining untapped markets in the world. However, considering its fragmented geography and challenging logistics, are the risks worth the potential rewards? Could a towerco ever achieve scale in this region? And out of the myriad of islands, which ones are attracting more attention in terms of potential investments?
According to several sources we’ve approached during the recent TowerXchange Meetup Americas, there are 10,500-12,000 towers in the Caribbean and more than half of them are located in the Dominican Republic and in Haiti. 98% of cell sites are still owned by operators and to date, TowerXchange has tracked only two active towercos in the Caribbean, namely Teletower Dominicana, with around 200 sites in the Dominican Republic, and Continental Towers, which owns a small portfolio in Jamaica.
On the operator side, Digicel and Cable & Wireless’ LIME are present in most countries with other portfolios of scale owned by Orange, Claro, Trilogy’s VIVA, AT&T, Satcom and Sprint. Digicel and LIME dominate the Caribbean island mobile markets but have so far been unable to reach a tower sharing agreement and have been mostly building their own sites on the islands where they operate. The competition among the two is apparently so strong that sources suggest that only a change in the law could force them to seal a sharing pact. With extensive coverage on most islands, the incentive for towercos reduced.
In terms of its business potential for towercos, there seems to be general consensus that there is limited growth opportunity for a towerco in the Caribbean as each market is quite finite in terms of organic growth opportunity, and is geographically limited by the sea. Geographical conditions also pose tough logistics challenges in terms of transportation of materials, health and safety and power availability.
From an investment standpoint, the Caribbean could serve as a cash-flow play rather than growth play - a business model potentially able to attract a different breed of investor; more likely infrastructure funds rather than publicly traded towercos. However, when asked about the Caribbean during the latest TowerXchange Meetup Americas, experts didn’t appear too excited about the opportunity… That said, conversations stirred around a few countries with interesting business conditions, investment opportunities and untapped markets. Lets examine them in more detail.
Dominican Republic: towers for sale?
The Dominican Republic is home to over 10 million people and up until a few months ago, had been host to four active carriers - Claro, Orange, VIVA and Tricom - with a SIM penetration rate of 99%. In terms of infrastructure sharing, Claro and Orange haven’t so far been open to enter any substantial agreements with other carriers, whereas Tricom and VIVA have sharing agreements in place. However, it’s yet to be seen how the agreements shape up now that Tricom is merging with Orange.
Between 2013 and 2014, Altice, a cable and telecommunications investor from Luxembourg, acquired both Orange Dominicana and Tricom via a US$1.5bn investment and is now in the process of merging the entities and deploying capital.
On the towerco front, Teletower Dominicana, whose key investors include Amzak Capital Management, owns and operates ~192 sites in the country while offering BTS services to carriers and is the only active towerco TowerXchange has tracked so far.
An opportunity for new entrants could be represented by Trilogy’s VIVA, whose 500+ tower portfolio is up for sale. Despite several negotiations over the course of 2014, the portfolio is still available and could represent a great starting point for a towerco to launch its operations in the Dominican Republic and achieve scale in a swift manner.
On the other hand, América Móvil has recently carved out its Mexican assets and created a separate entity, Telesites, which is set to become an active towerco in their home country. Claro’s executives have in the past speculated that such move could be replicated throughout the CALA region, should the Telesites venture prove successful. Could Claro and Telesites open access to their towers in the Dominican Republic in the future? We have a feeling there are ‘lower hanging fruit’ markets which Telesites would address first. However, a carve out could completely change the dynamics of the local market but it will take some time to assess how the Telesites venture evolves and its replicability in other CALA countries.
Viettel’s role in Haiti and the potential for Digicel’s carve out
In 2010, the Central Bank of Haiti reached an agreement with Vietnamese operator Viettel to provide telecom services in the country and contribute to the post-earthquake reconstruction. An investment of US$99mn was aimed at rebuilding the telecom infrastructure nationwide and starting the construction of over 3,000 km of fibre optic cable network.
The plan aims at increasing SIM penetration, which recently surpassed 75%, and reaching out to remote areas with internet and mobile services. Moreover, the Central Bank of Haiti signed the agreement with the expectation to stir further foreign investments in the country.
By looking at the shape of the Haitian telecom industry and its overall conditions following the devastating 2010 earthquake, it’s tough to imagine towercos entering the country anytime soon. With only two active operators, one of which, Digicel currently owns and operates the biggest and best infrastructure portfolio, a carve out could be the only option to initiate a tower market in Haiti. But is it realistic?
Prospects of a Digicel tower carve out
Digicel isn’t new to towerco ventures in tough markets and is currently operating in Myanmar as Digicel MTC, an infrastructure company which owns a portfolio of approximately 800 towers (rumoured to be for sale). Digicel has also formed deep partnerships with towercos in Costa Rica and Panama. With positive experiences from all three ventures, in the medium term Digicel could opt for a sale or carve out of all its Caribbean passive infrastructure assets, mimicking América Móvil’s recent move with the creation of Telesites. Such move could create the very first towerco of scale in the Caribbean by joining together - financially speaking - assets located in Anguilla, Antigua, Aruba, Barbados, Bonaire, the Cayman Islands, Dominica, Grenada, Guadeloupe, Haiti, Jamaica and more… But to date, there hasn’t been any practical move in this direction by the operator.
LIME, with a little less experience of towerco ventures, could conceivably follow a similar strategy.
Is Cuba the next frontier?
After the re-establishment of diplomatic relationships in December 2014, on 21 January 2015, the U.S. and Cuba started to discuss lifting the embargo which dates back to 1958 and has so far stopped any economic cooperation between the two countries.
The improved prospects of an end to the trade embargo generated a lot of buzz during the latest TowerXchange Meetup Americas for its potential impact on the Cuban telecom industry which would certainly benefit from a wave of investment, know-how and infrastructure to modernise its telecom infrastructure, should the country open up.
The Cuban mobile telecom sector is by far the least developed in the Caribbean with an astoundingly low 20% SIM penetration rate, corresponding to just 2.3 million connections for the over 11.3 million inhabitants of the island (source: GSMA Intelligence, Q4 2014).
The government operates the only telecom service provider in Cuba, the Empresa de Telecomunicaciones de Cuba S.A. (ETECSA) and, in light of the fact that calls are being paid in the local currency (the Cuban Convertible Pesos), calls are still quite expensive in Cuba (US$0.35 per minute during peak hours) compared to the rest of the region.
Over the past few months, the U.S. have started to contribute to improving access to telecoms in Cuba by allowing the commercial sale of communications devices, software and hardware. In January, Telegeography reported that “Washington is allowing telecoms providers to establish the necessary mechanisms, including infrastructure, in Cuba to provide commercial telecoms and internet services, which will improve communication between the island and the U.S.”
Could this mean towercos might enter the Cuban market soon? The first step would be to issue one or more new licenses to mobile network operators willing to set up ventures in Cuba. Interested players could include the likes of AT&T, Digicel, América Móvil and Telefonica.
When asked, a few towerco executives expressed enthusiasm over the the possibility of doing business in Cuba for a variety of reasons. There is general consensus that the country will boom from a commercial standpoint as soon as the embargo is lifted. Thanks to its vicinity to the U.S. and a well developed tourism sector, Cubans are well aware of what they’ve missed and would certainly jump at the opportunity of owning an affordable smartphone, navigate online and make cheaper, long distance calls to relatives overseas, should their disposable income allow it.
Entrepreneurial towercos aren’t particularly scared of challenging ventures in under-penetrated markets, as demonstrated by successes we’ve reported in the past in countries such as Guatemala, Nicaragua, Myanmar and the DRC. Quite the opposite - the first mover advantage for a towerco daring to settle first in a virgin market can be quite striking as relationships have to be built from scratch and conditions can be negotiated with less pressure than in highly competitive markets.
So what are towercos waiting for? Everyone is waiting to see what the US and Cuban governments agree and which brands jump on board first, once the embargo is lifted. As Rafael Fernández Quirós, VP of Communications for Coca Cola Latin America said in a recent statement: “As a U.S. company we’re completely governed by legislation, and we’ll fulfil it to the letter. If they do lift the sanctions, we’ll open new markets. Until that has been lifted, we can’t think in terms of opening bottling plants or distribution systems.” To date, Coca Cola is present in countries such as Somalia and Myanmar and is only absent from Cuba and North Korea and I feel most U.S. based towercos would agree with Mr Quirós and wait until the time is right.
My commentary on the Caribbean tower markets, by Kieron Osmotherly, Founder & CEO, TowerXchange
Making a towerco play work in the Caribbean is all about finding scale. There isn’t even much opportunity for BTS-centric towercos as most of the more attractive islands have mature networks and, until American Tower or, perhaps more likely, SBA Communications shows an interest in the Caribbean, there is no-one to build and flip to.
So are there investible islands within the Caribbean? The Dominican Republic offers sufficient scale and runway for growth to be worth a look – towercos are active in several smaller Central American countries. A Digicel or LIME carve out and asset sale would also be worth a look, but again with finite organic growth opportunities, even with thousands of Denis O’Brien’s towers on a hypothetical balance sheet, it feels like a cash flow play.
The high growth, high risk towerco play in the Caribbean is to be found in Cuba. I don’t think I’ve spoken to an entrepreneurial CALA towerco owner who wasn’t interested in Cuba. When Cuba’s borders open and the first international MNO secures a license, expect the rollout to be led by one or more towercos, drawing inevitable comparisons to the current Myanmar rollout.
