During the second TowerXchange Meetup Americas, around twenty experts involved in the Costa Rican telecom tower industry gathered to discuss key challenges and opportunities of this young and exciting market. Held under the Chatham House Rule, the roundtable touched upon discussion points such as the permitting system, regulatory environment and ICE’s infrastructure dominance. In this article, TowerXchange reports on key insights gathered during the session.
The Costa Rican telecom market has been undergoing a deep restructuring enabling KPIs to catch up to other countries in the CALA region quickly despite of the country’s late liberalisation of telecommunications. To date, the telecom sector is host to a healthy group of carriers with three strong players - State-owned ICE, Telefónica and Claro - and a wide array of towercos such as SBA Communications and American Tower and middle market towercos TOCSA, Continental Towers, Phoenix Tower International and Catalina Inc. The tower market is led by AMT and SBA, each owning around 500 sites with tenancy ratios in the 1.7 to 2.0 range.
To date, experts estimate that there are as many as 2,800 towers in Costa Rica and this number could increase by 1,500 to 2,000 new sites over the next four years, with half of them likely to be built within the next 24 months.
With the advent of 4G, Costa Rica is likely to experience a wave of new infrastructure development and currently there are as many as 350 sites being built in the country.
Permitting remains a bottleneck but improving
In spite of a relatively healthy BTS market, the main bottleneck to new project rollouts is permitting. In fact, with as many as eight-seven public entities involved in the permitting process and an average of eight licenses needed, the process can be extremely complicated and takes a considerable amount of time.
Since 2012, Costa Rica has jumped to international attention for its demanding environmental protection laws and regulations which make it one of the greener states in the world. The regulator, Sutel, went as far as shutting down the permit process for seven months, which resulted in a lawsuit being filed against it.
There have been concerted efforts by carriers and towercos to push for a more streamlined permitting process which includes environmental as well as civil aviation permits along with other formalities. However, municipalities are opposed to any simplification of it in light of the revenue stream related to each individual permit. And some municipalities - reportedly up to six - went as far as refusing to issue permits altogether and are now involved in lawsuits with towercos.
A variety of discrepancies and limitations create a complicated environment for new entrants and has favoured established and more experienced towercos, able to cope with bureaucracy in a more organised manner thanks to larger teams and deeper relationships.
However, regulatory limitations are now clashing with the growing demand for service by the population and this is contributing to opening a dialogue channel with the regulators as well as local authorities.
Infrastructure sharing could be further regulated
Infrastructure sharing is mandated by law, with no fixed pricing structure. Therefore, lease prices are defined by market forces. The government had been working towards setting a price structure but to date the process has stalled and it isn’t likely to be concluded for the next couple of years. Tower industry investment is generally maximised where the government does not intervene in lease pricing.
On the regulatory front, SUTEL has been very active and has recently drafted a new regulation that would force carriers to share all of their sites. The new provision would make multi-carrier towers mandatory and enforce the shareability of fibre as well. However, the first draft was only released in March this year.
This change would allow Telefónica to co-locate. In fact, the carrier has tried in various occasions to become a tenant on ICE and Claro’s sites the cost of co-locating on other carriers sites to be prohibitive. Telefónica was definitely one of the strongest lobbyists in favour of a new sharing regulation and encountered the backing of local communities that prefer infrastructure to be shared.
ICE is a powerful organisation with a very strong group of unions behind it. It’s not unusual to have massive public demonstrations against anything that would lessen ICE’s competitiveness. Moreover, ICE’s workforce is almost entirely unionised so the company cannot freely restructure their workforce without paying huge severance. This outdated system comes at a huge cost which represents a burden against the company’s modernisation. For example, ICE employs as many as 1,500 maintenance experts compared to Telefónica’s 500.
On a separate note, there are two different models that towercos adopt when it comes to their maintenance strategy. One model uses subcontractors for maintenance and is the one adopted by American Tower. On the other hand, SBA Communications does site maintenance in-house.
The status of the national grid in Costa Rica
The grid in Costa Rica is pretty stable and in general, outages are limited to rural areas and tend to last less than one hour. Sometimes, there could be planned outages, especially on weekends, of up to six or seven hours. However, sites tend to be equipped with backup power and there is an increasing interest in alternative energy sources such as solar. To date, only 10% of towers are equipped with backup gensets.
The Costa Rican tower model is a pure real estate business and carriers are in charge of supplying their own energy solutions. Carriers as much as towercos are now shifting to renewable energy solutions.
Companies like Catalina Inc. for example, tend to use a combination of hydro, wind and solar power and stated that as much as 90% of its energy will be provided via renewable sources. Fossil fuels are still used as backup but Costa Rica is pushing to reach 100% renewable energy by 2018.
In a country where communities are very involved and attentive to balance industrial development and environmental protection, alternative energy sources tend to be preferred as they provide a reliable and yet quiet solution.
In Central America, there is a traditional view on power and carriers tend to be very conservative. They want to keep control of their power supply and its pricing. If a towerco was to handle the power, they’d end up charging the customer more and carriers don’t see that as a value-added service.
In Africa, where towercos handle the power business, this has helped the development of new technologies as well as cost-cutting initiatives and an overall rationalisation of the energy model. But the African model was born out of necessity due to the almost total absence of a reliable grid in certain states.
Fibre and small cells: not quite there yet
Another challenge the industry is experiencing is how to connect to fibre. The largest fibre networks in the country are owned by ICE and they are yet to open up access to competitors. Other fibre suppliers’ footprints are far from extensive and they will encounter an additional limitation as some municipalities are opposed to granting the right of way. As a result, fibre isn’t as extended yet and small cells are uncommon.
Another challenge the industry is experiencing is how to connect to fibre. In fact, the largest networks in the country are owned by ICE and they are yet to open up access to competitors. Other fibre suppliers’ footprints are far from extensive and they will encounter an additional limitation as some municipalities are opposed to granting the right of way
However, small cells are a promising reality especially for urban centres and the Costa Rican tower industry does expect them to become an additional revenue stream.
Costa Rica is getting safer but theft is still a reality
Although not a major issue, vandalism can be a problem especially during certain times of the year. It was noted how around Christmas crime rates tend to raise and carriers have to deal with issues such as thefts of copper, batteries, lighting et cetera.
During those times, electrical systems are hit the hardest and that is why equipment is kept in cages. This extreme solution is adopted once a site is hit with a theft. It must be highlighted that overall crime rates have been decreasing in the country over the past couple of years.
Almost inevitably, there was a degree of theft within the supply chain, but stakeholder report that this has reduced since 2011 as the number of projects outsourced to international subcontractors has reduced.
Overall, Costa Rica is perceived as a safe country, especially compared to other Central American states. It’s a secure, dollar-based economy supported by a stable democracy. The tower industry has been developing swiftly also thanks to these factors and the absence of turbulence on the political and economical fronts. Costa Rica presents its challenges but it’s not a hard country to operate in and is very open to international investments and the wisdom of expatriates.
