TowerXchange’s guide to the Central American tower market

Independent towercos own and market 3,681 of the 10,971 towers in Central America, representing penetration of 34%. Towercos building rather than buying will drive growth in the region, with the majority of “low hanging fruit” sale and leaseback transactions already complete. Potential inorganic growth is more likely to come from consolidation within the tower industry, with several ‘middle market’ towercos active in Central America and both SBA Communications and ‘new kids on the block’ Phoenix Tower International acquisitive.

SBA Communications leads the Central American market with 2,050 towers, 1,982 of which are included in this analysis as a product of their inclusion in SBA’s current site list (at 22 April 2015). SBA has built their Central American portfolio through sale and leaseback transactions, primarily with Telefónica but also with Digicel, through trade acquisitions including from Mobilitie and Centennial, and through organic growth.

The number two towerco in Central America is Continental Towers. It is difficult to estimate Continental Towers’ tower count as the company is very guarded about releasing data or site lists. While our most recent research suggests Continental’s total tower count is around 1,000, just over 300 may be in Colombia, with 690 in Central America, their largest market being Honduras where they have ~200 towers. All other Continental Towers counts included in this analysis are estimates.

American Tower has 498 sites in Central America, all now in Costa Rica, which formed part of their acquisition from Global Tower Partners (GTP), which also absorbed Centennial’s towers in the same country. American Tower recently divested their 58 towers in Panama to Phoenix Tower International, a new towerco managed by several GTP alumni, including CEO Dagan Kasavana.

In addition to Phoenix, several ‘middle market towercos’ operate in Central America, including Torrecom (with 93 towers in Nicaragua and 86 in Guatemala), TOCSA (105 in Costa Rica), NMS with around 75 in Nicaragua, Catalina Inc, a recent startup in Costa Rica, and Torres de Panama (60).

TowerXchange don’t think there is much potential for the Central American MNOs who retain their towers to spin them off into “operator-captive” towercos in the short to medium term.

However, we note that Claro is present in all six Central American tower markets, and has to date retained all of its estimated 2,000+ towers in the region. If the Telesites towerco venture in Mexico achieves positive results, it is conceivable that Claro’s Central American towers could be rolled into América Móvil’s new towerco. Similarly, it is also conceivable that Telesites could be divested, before or after the injection of the América Móvil’s Central American passive infrastructure, although we doubt either strategy will play out in the near future.

An even further “out of left field” thought is that Denis O’Brien’s satisfaction with Digicel’s inaugural towerco venture in Myanmar might persuade the entrepreneur to spin-off towercos from his existing assets, although such a venture would have more impact on the Caribbean than Central American markets.

However, we must emphasise that the most likely scenario is that the Central American tower market remains led by independent towercos, with SBA Communications consolidating their leadership position.

Let’s take a closer look at each of the six Central American mobile network operator and tower markets:

Government-owned ICE, trading under the kölbi brand, dominates the market with Claro and Telefónica (Movistar) for competition.  Telefónica entered the market using 100% co-location and BTS, so own few if any towers. The rollout of LTE is progressing steadily for all three MNOs, hence Costa Rica has one of CALA’s highest levels of broadband penetration, driving healthy tenancy ratios and amendment revenue. Sutel has not ruled out the possibility of enabling a fourth operator to enter the market during the second phase of spectrum auctions.

Tenancy ratios in Costa Rica are generally in the 1.7 to 2.0 range, with the tower market led by SBA and American Tower, each with around 500 towers, American Tower having acquired their Costa Rican assets in the GTP transaction, which apparently also absorbed Centennial’s assets in the country. Like SBA and American Tower, local towerco TOCSA is growing fast, joined by new entrant Catalina Inc, run by GTP’s former Country Manager and the former head of TOCSA, José Escobar. Phoenix Tower International recently acquired 25 towers from TOCSA. Continental Towers also has a footprint in Costa Rica.

Tigo and Claro vie for market leadership in the healthily competitive El Salvador market. Tigo plan to upgrade from US$50mn in 2014 to US$70mn investment in their network in 2015.  Digicel El Salvador, which uses HSPA+, plans to invest US$50mn in network expansion in 2015. Telefónica had recently completed a three-year US$100mn upgrade.

Given the presence of four credit-worthy tenants, it is perhaps surprising that El Salvador is the least penetrated tower market in Central America at 17%. SBA Communications and Continental Towers appear to be the only towercos active in El Salvador, SBA having acquired the majority of Telefónica’s sites.

The most populace country in Central America, Tigo and Claro vie for market leadership in Guatemala, with Telefónica (Movistar) in third place and fourth operator Intelfon (Red) licensed but apparently inactive. Movistar invested US$100mn to launch 4G in October 2014 on the 1900MHz band, Tigo is scheduled to launch in Q2 2015.

SBA has the largest towerco-owned portfolio in Guatemala, with 498 sites listed in their last site directory, having acquired the majority of Telefónica’s towers in the country. Torrecom claim to have 86 sites in Nicaragua, and we estimate Continental has around 100.

Honduras remains a duopoly, with subscribers split between Tigo (Millicom) and Claro, who represent around 800 towers between them. Both incumbents are in the early stages of rolling out LTE. A prospective third mobile operator, state-backed Hondutel, has been making headlines in their search for investors, with an oft-delayed launch currently scheduled for Q3 2015.

Continental Towers are believed to be the only active towerco in Honduras, with around 200 sites.

Nicaragua is another near-duopoly, with Claro and Telefónica (Movistar) dominating the market and new entrant Xinwei making little impression on the market. Telefónica sold the majority of their Nicaraguan towers to SBA, Claro has retained ~300, and Xinwei have used 100% co-location to date in a very limited launch restricted to a handful of isolated settlements in the North Atlantic Region.

Nicaragua is the most penetrated tower market in Central America, with towercos owning 60% of the country’s towers. SBA lead the Nicaraguan tower market with 285 sites listed in their last site directory. Torrecom claim to have 93 sites in Nicaragua, and we estimate Continental has around 74.

Four operator market, led by Cable & Wireless and Telefónica (Movistar) but with aggressive new market entrants Digicel and Claro claiming market share and driving tenancy ratio growth. Digicel sold all their towers, now relying entirely on co-location and BTS, enabling aggressive tariffs, whilst chasing down Movistar for second place.

Central America is the fifth largest tower market in CALA (effectively the fourth largest as Argentina effectively doesn’t yet count). Most of the "low hanging fruit" sale and leasebacks with the likes of Telefónica and Digicel have been closed in Central America. Remaining operator-captive towers are generally trapped on balance sheets by complex ownership structures, or by América Móvil’s reluctance to divest tower assets. However, there are no shortage of strategic acquisition opportunities, with SBA Communications and Phoenix Tower International likely to bid on most quality portfolios.

Towercos are well established in the region and are building the vast majority of new towers in Central America, fueled by the need for infill sites driven by data demand. The rollout of 4G is in early stages across the region (slightly ahead in Costa Rica), promising to create amendment revenue in addition to co-location revenue.

Investing in Central American towers has been a very fruitful endeavour for SBA Communications, attracting Tower Cash Flow comparable to Brazil, and healthy tenancy ratio growth. Efficiencies are created as resources are shared across operations in the six Central American countries, so in the long term we foresee Central American tower portfolios consolidating on the balance sheets of SBA, Phoenix Tower and (perhaps) American Tower. In the meantime, Central America remains a great environment for middle market towercos to execute a ’build and flip’ strategy.

The towerco market is led by SBA Communications and their 521 towers, acquired from Digicel, Telefónica and Centennial, who are believed to have exited the market. SBA are joined by Phoenix Tower International, who were surprise winners when American Tower sold their 58 towers in Panama, plus Continental Towers and Torres de Panama.