Vietnam’s disaggregated tower market

The Vietnamese telecoms market is on the verge of opening up as telecoms providers race to meet demand for connectivity; we spoke with Patrick Tangney to hear his thoughts on the restructuring of the market and what to expect in the Vietnamese tower market in the coming years. Patrick is a lawyer by trade and also worked as an investment banker at Citigroup before moving over to the principal investment side.  He co-founded Alcazar Capital, which focuses on greenfield telecom projects, and has co-founded two tower companies in Southeast Asia: Golden Towers in Vietnam and Irrawaddy Green Towers in Myanmar.

TowerXchange: Who are the main companies in the Vietnamese tower market?

Vietnam is at a relatively early stage of its development as an independent towerco market: most of the towers are owned by the operators with some exceptions. The MNOs own more than 75% of the towers in the market and the rest are owned primarily by private individuals and companies often focused on other activities. There are some private portfolios, and some smaller companies, but few entities that you could classify as a towerco in the traditional sense: the private tower market is quite disaggregated. There are a handful of IBS-oriented companies that would qualify and a couple of companies that resemble more traditional tower companies.  These include Golden Towers, another holding group that has approximately 2,000 towers, and a third company with roughly 500 towers.  There are a number of privately owned portfolios in the 100 to 750 tower range, but it’s not clear what their market share is. There are also numerous smaller portfolios with fewer than 100 towers.

TowerXchange: What is the total tower count in Vietnam?

The exact numbers are hard to pin down, but there are perhaps 45,000 towers owned by the MNOs. Viettel owns about 45% of the assets, Mobifone and Vinaphone together roughly the same level, with smaller operators holding the remainder. If you include the independent portfolios there is a total of approximately 60,000 towers including rooftops.

TowerXchange: What is driving demand for new sites? And are there new towers being built by MNOs currently? 

Tower strategies vary from operator to operator. The key growth driver over the past several years has been data and this is only going to increase. Vietnam is at a relatively early-stage 3G environment with smartphone penetration at 25%, which is much higher than even two years ago. This in turn is driving data usage and there has been increased demand for content over mobile including video, music, games etc. in the classic developing market paradigm where very young populations leapfrog directly to mobile as the principal gateway to the internet. Google did some research on the Vietnamese market and found that slightly over 80% of smartphone users watched video, for instance, the third highest rate in the world, and 75% accessed the internet. Email, social networking and other data-oriented activities over mobile devices are also steadily increasing.

This uptick in data service demand has signalled a need for further capacity, and this is without factoring in LTE, which will be another driver when launched in 2016. As a result, there is a real need for densification; the smaller operators in Vietnam are at a disadvantage in terms of infrastructure and they need to do whatever they can to maximise return on capital invested. It’s very likely that they will continue to look at co-operating with towercos rather than spending huge amounts on new infrastructure to compete with the market leaders.

The larger companies like Viettel also do some co-location on private towers where it’s hard to get permits due to zoning. Given the strong demand for tower space, they look at the existing network first in these situations, then they look at build to suit. Some of the market leaders, especially Mobifone, have a history of working with private tower owners.  The estimates of new tower requirements are high; the smaller MNOs are going to have to find tenancies on some existing towers to continue to expand their coverage. Beyond this, there is expected to be a 30% increase in demand for capacity every year.

Vietnam’s top three MNOs are expected to need to create at least 50,000 new tenancies either in existing towers or by building new towers.

TowerXchange: How is the restructuring of the Vietnamese MNO market progressing?

Historically Viettel was the leader followed by Mobifone and Vinaphone. Vietnamobile (Hutchison) and Gtel entered the market more recently. In 2013, the government passed legislation effectively requiring that Mobifone and Vinaphone cease to both be owned by the Ministry of Post and Telecommunications.  Last year, the ownership of Mobifone was shifted to another ministry as a result.

As part of the equitisation of government assets, Mobifone is expected to bring in a foreign partner for a minority stake and list on the local stock exchange, creating even greater separation from Vinaphone. This is yet to be defined in terms of the division of ownership and the role of the foreign company, but is expected to happen by sometime in 2016. Mobifone has been in active discussion with a number of foreign operators.

This isn’t the first instance of foreign ownership in Vietnam; Hutchison owns Vietnamobile together with with Hanoi Telecom.  The partners there are in discussion about how to take that JV forward; there will need to be a lot of investment to deliver data services.

Gtel is the smallest MNO. Gtel has a strong backer and there are ongoing discussions about bringing in some further assets, capital and spectrum. It is possible that as part of the LTE rollout Gtel may focus on data/LTE as a major part of their strategy, but that remains to be seen.

There are ongoing discussions to lay the groundwork for LTE services; the first meaningful rollout will likely happen later in 2016.

TowerXchange: What is the condition of the towers in the smaller portfolios? Are there any opportunities for investment there?

At the moment there aren’t many companies with real towerco DNA operating in Vietnam. There are a lot of smaller companies with a pure steel and grass model who have one tenant per tower and no investment in increasing tenancy; they tend to look at their portfolio as a kind of annuity.

That being said, the infrastructure of the smaller portfolios is generally in decent shape and isn’t too old - in fact many of the towers are less than ten years old. Of course, some improvement would be required to bring them up to international standards. These towers haven’t been managed with co-location in mind; the owners would get their anchor tenant and then there is often no further active marketing or investment.

The small towercos are not required to provide power, maybe backup power sometimes, though the grid in Vietnam is very good. These towers are often capable of multiple tenancy with limited structural reinforcement. They can often take two tenants with limited or no reinforcement. The tenancy ratio of the smaller portfolios in general is quite low, not too far from one; it’s rare to find a portfolio of towers exceeding 1.25 given the build-it-and-clip-coupons model of many owners, who own towers as one part of larger, unrelated businesses.

TowerXchange: What will it take for a Vietnamese towerco to drive to scale?

In Vietnam, leaving aside IBS, there is probably room for two or three companies to achieve scale purely from purchasing smaller portfolios and, to the extent that MNO sale-leasebacks become a feature of the market, that could support another incremental company or two in theory. I tend to think the market will have two or three larger independent towercos over time.

It’s important to remember that there has been effectively no sale and leaseback to date, although discussions are ongoing.