Towercos stand poised to acquire and invest in as many as half of Bangladesh’s telecom towers within the next two years, creating operational and environmental efficiencies and accelerating network extensions and QoS improvements. However, the lack of defined regulatory guidelines for towercos is currently the number one inhibitor to tower company activity in the country, and the investibility of the market is compromised by restrictions on foreign direct investors acquiring majority ownership of assets, and a tax regime which currently disincentivises operators from leasing independent towers in favour of bi-lateral swaps.
TowerXchange has identified five characteristics of the regulatory environment that tower industry leaders believe encourage investment and the healthy functioning of a competitive, independent tower market.
1. Promotion of infrastructure sharing, but with lease pricing left to be defined by market forces
2. A formal licensing regime for towercos with reasonable application fees and revenue sharing obligations, combined with the timely issuance of licenses
3. An “even playing field” for the taxation of tower transactions and tower leases
4. The recognition of the importance of the independence of towercos – enabling them to own the majority of equity in the assets they acquire and build
5. A permitting regime that protects the zone around existing towers yet expedites new tower construction, ideally incorporating a ‘shot clock’ or similar
Let’s take a look at each of these characteristics as they apply to the emerging tower market in Bangladesh.
1. A closer look at the BTRC’s infrastructure sharing guidelines
The Bangladesh Telecommunication Regulatory Commission (BTRC) published “Amended guidelines for infrastructure sharing” in July 2011. You can download those guidelines here.
The guidelines state that “1.3 Infrastructure sharing includes requirement to lease out/ rent out/ swapping infrastructure on a non-discriminatory basis to other service providers.”
The guidelines cite the usual motivations:
“3.2 To promote the availability of wide range of cost effective and competitive telecommunication networks throughout …
3.3 To minimize the environmental effect, to ensure minimum occupation of land space and maximizing the utilization of existing infrastructure and installations.
3.4 To ensure optimum utilization of the operators’ capital expenditure on supporting infrastructure”
The BTRC’s guidelines effectively mandate infrastructure sharing, and apply to both towers and fibre: “4.2 The operators shall Share its Passive Infrastructure with other operators on a non-discriminatory ‘first come, first serve’ basis.”
The BTRC also specifies the timelines within which infrastructure sharing requests must be responded to: “5.4 The period to respond (either acceptance or rejection) by the Infrastructure Provider to any request for Infrastructure Sharing shall be 4 (four) weeks and the timeframe for negotiation of an Infrastructure Sharing Agreement shall be 5 (five) weeks from the date of receiving the request. The infrastructure providers shall not reject any request without the valid grounds (like insufficient capacity etc.) If no response is received within 4 (four) weeks of request or the cause of refusal seems unacceptable, the Infrastructure Seeker shall refer it to the Commission.”
The guidelines appear to give the BTRC the right to intervene in matters of pricing if not mutually agreed: “4.3 Operators shall enter into bilateral agreement for sharing infrastructure. Tariff and charges for Infrastructure Sharing shall be mutually agreed based on the directives issued or to be issued by the Commission. In case of any dispute regarding the tariff and charges the decision of the Commission shall be final and binding upon the parties.”
In summary, the BTRC’s amended infrastructure sharing guidelines of 2011, which remain in force at time of writing, effectively mandated infrastructure sharing, and the Commission has made commendable progress toward engendering a culture of infrastructure sharing – for example, TowerXchange has spoken to MNOs in Bangladesh who report that around 25% of towers built by ROBI, Bangalink and Airtel have been shared since the guidelines were issued in 2011, compared to very few prior to the publication of the guidelines.
2. Licensing regime for towercos remains a ‘work in progress’
The BTRC’s Director of Engineering and Operation, and Director of System and Service, are leading an industry consultation process with a view to drafting guidelines for independent towercos in Bangladesh. The BTRC reportedly have an inclination to restrict National Licenses to a maximum of two towercos for the entirety of Bangladesh (and edotco and Bharti Infratel were both licensed in 2014).
THE BTRC’s consultation process is ongoing, and TowerXchange have spoken to several stakeholders who have submitted their views to the BTRC. When draft guidelines are released, and the licensing regime becomes clear, we will endeavour to share those guidelines and key stakeholders’ reactions to them with the members of the TowerXchange community.
Whilst the towerco licensing regime remains under development, it would be premature to reach any conclusions on the fairness of any rumoured application fees.
3. Uneven playing field for the taxation of tower transactions and tower leases
There are three tax challenges to be overcome for towercos wanting to invest in Bangladesh; taxation of the initial tower transaction, the differential treatment of VAT between leased and swapped sites, and potential revenue levies.
When transferring tower assets you have two options; demerger or outright sale. A demerger may be more tax efficient, but can take a year or more to complete. However, expediting the investment by pursuing an outright sale exposes the transaction to both VAT and capital gains tax on any value beyond that which is recorded in the seller’s books, thus incurring significant taxation.
Towercos also face an operational taxation issue in Bangladesh. If an operator leases a site from a towerco, they must pay VAT, but if they lease a site from another operator they are eligible for a VAT rebate. At present the law prohibits an equivalent rebate on the commercial rental of infrastructure. This uneven playing field constitutes a significant disincentive to MNOs considering leasing towerco sites.
The BTRC are believed to be considering requiring towercos to pay 5.5-6.5% of revenues as an annual levy. While a revenue levy is not unusual, the suggested rate is high compared to, for example, Myanmar where a fixed fee of ~US$12,000 plus 0.5% of revenues are payable annually.
4. Apparent requirement that MNOs retain a majority stake in tower companies
edotco were initially rejected in their application to transfer 80% equity in 5,300 ROBI towers onto their balance sheet. However the BTRC subsequently approved the transaction with edotco acquiring 49% equity in the assets.
The current limit on foreign direct investment in towers, with a precedent set with a maximum shareholding of 49%, is being discussed as part of the consultation concerning Bangladesh’s towerco guidelines. Established towerco wisdom is the reverse of the BTRC’s current preference: the towerco’s shareholding should not be less than 51% to ensure the independence of the towerco and to maximise the trust of competitive MNOs considering co-locating on what had previous been their competitors’ sites.
A continuation of the 49% FDI limit will likely slow the development of the Bangladeshi tower market, and will have a suppressing effect on tower valuations and thus on international investment into the country’s telecommunications infrastructure.
5. Expediting permitting
It generally takes several years of towerco operations in a country to demonstrate their commitment and capability to accelerate network extension and densification.
Once through the initial phases of defining the basic guidelines for towerco operation, most towercos in other markets report that their number one challenge is permitting – specifically the multitude of different authorities from whom one needs a permit to build a tower, the different processes and timelines each might work to, and the inconsistency of process from one municipality to the next.
Many tower markets have particularly benefitted from the instigation of a ‘shot clock’, whereby if a permit application is subject to bureaucratic delay, the towerco can construct the site anyway, subject to the risk that if they did not adhere to the permit application process correctly and satisfy pre-determined conditions, they risk the site having to be taken down. Thus the creation of a regulation which harmonises, centralises and accelerates permitting of new sites is typically seen only in more mature markets – even the 25 year old US tower market only introduced the “Shot Clock” in 2014, while the Antenna Law was introduced in Brazil in Q2 2015, again more than ten years after towercos started operating in the country.
With Bangladesh’s regulatory environment remaining immature, it is perhaps not surprising that no policies are yet in place to simplify and expedite permitting new cell sites.
Conclusions: BTRC has a unique opportunity to attract investment into Bangladeshi ICT
It is not fair to be critical of a Bangladeshi regulatory regime within which the guidelines for towercos have yet to be drafted. The BTRC has already made significant progress in the promotion of bi-lateral infrastructure sharing, and tower companies are already investing in the country.
However, with at least two tower companies standing poised and ready to invest substantially in the market, and with three of Bangladesh’s MNOs either having divested or interested in divesting towers to those towercos, what is needed more than anything else is clarity of what the regulatory regime will be in Bangladesh. There is no such thing as a perfect regulatory regime to encourage investment in telecom infrastructure – different stakeholders will lobby for different priorities, and the interests of the tower industry and their MNO partners are only two parties to consider, alongside the interests of consumers, landlords, and the need to maximise taxation revenues for the public purse.
TowerXchange asked the BTRC to comment in this article and to clarify several points, but it seems our request was premature. We look forward to reporting on the evolution of the regulatory environment in this highly investible tower market.
From our analysis of the Bangladeshi tower market, the opportunity is clear; regulators must be open minded to attract international companies with deep pockets, boosting investment in the country’s ICT infrastructure.
