Why Colombia is so attractive to towercos

TowerXchange spoke to Eric Ensor, COO of Torres Andinas, back in August 2014 and ten months later he agreed to speak with us again to give us an update on what is happening in Colombia and Peru, where his towerco is active. Since last year, the Colombian tower industry has been expanding at a swift pace and the Peruvian market has been steadily growing. In this interview, Eric shares his views on the considerable opportunities presented by Colombia and the positive growth pattern of the Peruvian market.

TowerXchange: Eric, we’ve spoken about a year ago about the status of the markets where Torres Andinas operates. Can you give us a quick run-through what has changed and what is Torres Andinas’ current footprint in each of them?

Torres Andinas remains active in Colombia and Peru. In Colombia, we now have contracts with all the operators whereas when we last spoke, I believe we had three in place. This is a major step forward for us as we are finally able to develop projects for all five operators.

The Colombian market is moving on quite well. It’s still a game of trial and error with carriers as we both adjust to the BTS and co-location model. But it’s part of the process and we are satisfied with where we are now.

To date, we have 200 sites either built or in the pipeline in Colombia with an average of about ten sites built a month or more, depending on the flow of activities from carriers. We tend to build in coastal areas mostly, plus some sites in major cities like Bogotá and Cali.

In Peru, we are now at the search ring stage on a number of sites for two carriers. In the meantime, we are working to establish a stable relationship with the others. Our business has definitely progressed since last year but we have noticed that some carriers in Peru are more interested in second tenancies rather than BTS so will jump on board once the towers are up and running.

Last year, Entel was the most active carrier we’ve worked with, but business has slowed down from them lately. Entel is now assessing what’s next and we expect their BTS activity to pick back up in a few months. On the other hand, DirecTV has entered the market, creating an additional potential business stream for towercos.

We have 50 to 60 sites in development in Peru and we’ve received two thirds of those orders over the past few weeks so I can definitely say things are moving in the right direction. However, downward pricing pressure is huge in Peru. I am sure this is a positive factor for carriers especially with the rumoured entrance of an additional towerco into the country but for us, it’s definitely a risk factor.

TowerXchange: Specifically, we’d like to speak about Colombia. And why is Colombia such an attractive market for towercos?

After Brazil, I believe Colombia is the most exciting telecom market in the region. With five licensed carriers for 4G and plenty of activity scheduled for all of them, many towercos saw the great potential of the country and decided to launch their operations here.

Claro has been able to outbuild all the other carriers, leaving both Telefónica and Tigo behind in terms of coverage. However, Claro agreed to build sites in as many as 1,000 small towns and villages as part of its 4G license package and now has to step it up and work with towercos as well as developing its own projects. Moreover, Avantel and DirecTV are new entrants who are starting to build as well.

With quite a few large cities where connectivity isn’t yet up to standard and very stringent rural coverage requirements, Colombia is now witnessing a huge volume of activity.

TowerXchange: Do you think there’s enough BTS opportunities in the Colombian market for more towercos, or will some of the existing companies will end up being squeezed out of business in the country?

Most towercos in the country are involved in BTS projects. However, I believe Colombia is getting pretty crowded. My prediction is that some towercos might gain some initial work in the country but will end up moving on as the market gets too tough for them. Right now, it seems that everyone is winning some business but the question is whether this trend will continue or not as carriers start to work steadily with one towerco or another.

Carriers do need a lot of sites and there are great expectations for the two years to come. However, the process of building a tower in Colombia is long and time consuming, starting with extensive search rings all the way to land leases and permitting. Most of the success of a project depends on the ability of a carrier to approve projects in a timely manner. For instance, we do have a number of sites waiting for approval and it’s in the hands of carriers to make them happen at this point.

TowerXchange: How many towers do you think are still operator-captive in Colombia, and do you have a sense of the potential for sale and leasebacks?

Right now, I don’t see the potential for considerable sale and leaseback transactions in Colombia. Claro does own a large portfolio but as we all know, they aren’t typically a seller. On the other hand, after having sold most of their towers, Telefónica and Tigo are now developing some projects themselves which is quite interesting. I think they might look at monetising them but it’s not imminent. I would estimate they could make a move over the next couple of years. Recently Telefónica organised a bid for a BTS project but there was no talk whatsoever about any tower sale.

There has been some speculation about Claro and what they might do with their towers in the region, in light of the creation of Telesites. However, I haven’t heard anything with regards to Colombia and actually, the only rumour I heard was regarding Costa Rica! In any case, I’d be surprised if they sort out their Mexican operations before the next couple of years. Plus, regulators in other countries might not be as open to the model as the Mexican one. What was great news in Mexico would still be seen as a dominant position in other parts of the region.

TowerXchange: Last year, you mentioned that Torres Andinas’ goal was to build an average of 20-25 new sites per month. Is that still the case?

Yes, the goal is still to build as many as 20-25 sites per month. To date, we haven’t reached that goal simply because we don’t have enough work from the carriers. However, we do have the capabilities and resources in place to achieve that volume.

Our investors are still very positive about our activities in Colombia and Peru and we are confident we can build a good-sized portfolio in both countries.

TowerXchange: How would you characterise the regulatory environment for towercos in Colombia? Has the National Law to ease permitting been implemented and had much effect at local level?

With regards to the National Law, we believe it’s a good starting point but much depends on how fast local municipalities embrace it. The situation is similar to Brazil with its Antenna Law. However, in Colombia we deal with very strong local communities, and civil disturbances protesting against new towers can be a real issue.

The telecom industry is well aware of the problem and we get involved in socialisation projects to educate the population to our business, its characteristics and the safety of radiation emissions. It’s key to get a well organised educational plan in place to avoid getting stopped along the way.

Any towerco that doesn’t think the socialisation process is necessary is short lived in the country.

TowerXchange: How mature is the 3G rollout in Colombia, have the early 4G rollouts on the AWS band had any effect on demand for towers and tenancies, and what effect do you feel the 700 MHz auction will have?

Things are very intense right now and the ramp up of new service is extremely demanding. Legacy carriers such as Tigo and Telefónica need to build sites in areas that will allow them to compete with Claro. In the meantime, urban networks are getting overwhelmed, particularly for data, and carriers are building quite a few infill sites in major cities in an attempt to offload existing sites. Then we deal with a third variety of players with a niche approach, such as Avantel and DirecTV, who have identified certain areas they want to cover and who are concentrating on those.

I’d say there are three different demand drivers which vary from carrier to carrier and create plenty of activity for all of us in the tower industry.

TowerXchange: On a side note, are you currently active in Ecuador or still assessing a possible move there?

Yes, we are still looking at Ecuador but have been so busy in Colombia and Peru that simply didn’t have time to do much there.

Claro’s dominant position doesn’t help the towerco model spreading in Ecuador and we are still trying to understand how to position ourselves there. So far, we haven’t been able to answer that question entirely as we aren’t sure about how much business we can get there.

TowerXchange: Can you a draw a comparison between Colombia and Peru?

We definitely have more activities in Colombia as we started earlier and the country is host to a larger carrier base. We entered Peru at a later stage and we aren’t as developed in terms of carriers’ relationship. As previously mentioned, we don’t have contracts with everybody yet but we are getting there.

In both countries we were able to build strong core teams and can acquire local steel, which is a great price factor. Plus we’ve done a good job identifying quality contractors we are working with on the construction phase.

Torres Andinas has a good reputation in both Peru and Colombia and our sites are delivered up to standards. We aren’t the lowest price player in these markets but we aren’t interested in that. We provide quality services which is appreciated by our customers.

Geographically speaking, Peru is harder than Colombia with less cities and lots of smaller, rural communities to serve, where the potential for second and third tenancies is lower. In Colombia, there are a lot of large cities which makes it very attractive for BTS firms.

TowerXchange: Finally, whether it’s in Colombia, Peru, Ecuador or Brazil, why is a tower built for sharing and built by an independent towerco generally worth more when sold than a tower built by a carrier?

Generally speaking, it’s harder to forecast a straightforward way to create revenue from a second or third tenant when we deal with a tower acquired from a carrier. Most of these towers are built for one, or a maximum of two tenants and in order to meet their full co-location potential they might have to be reinforced if not rebuilt from scratch. So any towerco acquiring a carrier portfolio knows they’ll need to inject capital into those assets.

Another problem is that most of these towers have 2G, 3G and 4G antennas spread over various heights and aren’t maximising the use of space. Therefore, it’s hard to put additional equipment on them even if structurally speaking, the tower could support it.

Legally speaking, much of the consideration regarding the value of a tower depends on the permitting, the length of the land lease and the existence of renewal clauses. These are factors that a towerco will always take into consideration, whether they are building from scratch or buying an existing site, and will have a huge impact on the valuation.

In some areas, carriers have been very precise with these bureaucratic aspects but we’ve also seen towers built without permits and which are basically illegal. I don’t know  of one single towerco that would accept to buy them except at a significant discount - this reflects how much they are worth.

So, if you consider that a tower acquired from a carrier may not have much spare load capacity, what space it does have might be sub-optimally used, and it may not come with a full set of documentation, you can see why a tower built by a towerco is typically worth so much more given its ample structural capacity, with space sold to maximise use of space, and with a full, clean set of permits with a long lease term and sensible renewal terms.