edotco 360: how edotco are operationalising the first Pan-Asian towerco

By way of a preview of his keynote presentation at the second annual TowerXchange Meetup Asia we spoke with Suresh Sidhu, CEO of edotco for an update on the development of the first pan-Asian towerco. We discussed the progress of the company’s regional divisions, their efforts to evangelise the towerco model with regulators and other stakeholders across the region, their future M&A strategy, and the shape of things to come in the Asian tower industry.

TowerXchange: Please bring us up to date on the progress of edotco since the last TowerXchange Meetup Asia - how has your footprint expanded, how has the business grown organically, how have the capabilities of the business crystalised?

There has been a lot going on; it’s still a huge task getting edotco established and operational and known in five, now six, markets in one go. There has been a lot of engagement with the regulators in each market; this engagement is something that edotco is pioneering in many of these countries. We’ve been doing a lot of employee engagement as we have to reassure employees and major brands in new markets that the independent tower business model is an opportunity, not a risk – I’ve been working on this personally.

In terms of operations we now have our 15,000th tower under management. We installed our echo remote monitoring solution in 5,000 sites in a year, and caught our first diesel thieves who were stealing 300L in Chittagong. The operational development of our sites is characterised by stories like this; they’re small but important examples of the difference we make.

By the latter part of 2015 we had become comfortable with our progress in our existing five markets such that we’ve advanced our M&A agenda to enter new markets. This has culminated in the acceptance of our offer to acquire MTC in Myanmar which is a great market which will add lustre to our growth potential. If all goes well and that acquisition is approved, 2016 will be off to a good start and we will be close to our January target of owning and operating 16,500 towers.

TowerXchange: How are your different regional businesses progressing?

Our local offices are setup and our Country Managing Directors are in place and reporting in from their markets. Malaysia is fully licensed and fully operational. Bangladesh is fully operational, and operating under a no-objection certificate from the regulator. In Cambodia we have a license in place and the team has transferred to the new entity; we’re just awaiting tax authority approvals to make it a fully-owned subsidiary, hopefully within the next Quarter. It’s being run as a managed service in the interim. In Pakistan we’re awaiting approval of ownership for our entity there, which we expect this Quarter. In Sri Lanka there isn’t a license framework yet, so we’re operating as a managed service and launching edotco as a services company, so the staff report formally as a fully owned subsidiary.

There is a lot of buzz at the moment; the regional management are all flying back and forth between headquarters and their markets for Quarterly management meetings. They’re working harder than ever toward their end-of-year bonus targets!

Myanmar adds another dimension; once we are fully operational there we can focus on becoming the largest independent towerco in Myanmar too. We acquired a business in Myanmar, not just assets – the core management team from MTC is in place, and the current assumption is that we would like them to stay on. As for future builds, we anticipate being ready for the next rollout phase. We have a capital plan which includes future funding for Myanmar which was approved based on a certain expectation of growth in this market. We’re hoping for quick approval to work on business development and capital plans so that we can push the button on this when the time comes.

TowerXchange: How are the local governments and regulators helping edotco to maximise the efficiencies of infrastructure sharing?

In every country there’s a period of education and consultation in creating the right framework for the towerco model, and each market presents its own challenges. For example we had early success in Cambodia; we were there at the right time as they had noticed the benefits of the towerco model in other markets and were keen to proceed.

In other countries, our initial engagement typically consists of highlighting the benefits of the shared infrastructure model. Generally we find that government stakeholders are able to grasp the benefits quickly and they resonate with their aspirations for National development. The challenge is in creating a framework for towercos to operate. There are a myriad of taxation, import laws and land laws which make the complexities different from country to country. For example to operate as a towerco in Sri Lanka it’s important to get a VAT exemption, as Sri Lankan MNOs run under a tax exempt license so they don’t have any output tax to offset and therefore outsourcing towers becomes more expensive and a tax liability. This is a common issue across different markets; tax regimes are designed to incentivise telecoms networks under the assumption of an integrated telecoms model.

It’s not just regulators that you need a dialogue with, but ICT and other Ministries as well. These are lessons we didn’t understand when we started operating, but that we are integrating now. Typically a decision of this nature requires relationships with different government stakeholders in telecoms. The traditional approach is to take time talking to the regulatory authority, and in all of our countries the regulator is separate from the Ministries. The different government and regulatory stakeholders need to be aligned and you need to ensure that all levels of the government know what you’re doing.

One of the key lessons we learned is that many emerging market countries have BOI (Board of Investment) structures which can be very helpful in ensuring the right environment as we’re effectively bringing fresh capital into the country. We only discovered their importance later, since our first port of call had previously been the regulator.

We’ve put these lessons to use in creating a broad-based understanding with the government beyond a single regulatory authority, thus solving issues linked to tax revenue which is a major consideration for business model viability. We need to help governments to trust that net tax revenues will always increase. The process is more complex than we believed at the beginning, and this was the main reason for the delay in getting things operational.

TowerXchange: Appreciating you can’t comment on specific ongoing processes, how would you generally characterise edotco’s appetite for further acquisitions within (or even beyond) Southeast Asia? Should we see your intent to acquire MTC as illustrative of an appetite to expand beyond the Axiata Group footprint?

We’re very open to new deals, and we’re largely focussing on opportunities within our Asian footprint, although not necessarily restricted to the Axiata footprint. In the meantime we’re focussed on consolidating our operating model and improving it, and there are some great opportunities on our doorstep.

There has been a shift in the last twelve to eighteen months and a surge in interest in infrastructure sharing and the spinoff of infrastructure sharing across Asia; it’s already eclipsed the African and European markets as we estimate the number of towers available for sale in Asia to be around 100,000. We’re not trying to buy them all, I hasten to add – we’ll leave the private equity backed guys to gobble up certain assets!

Thanks to this surge in the Asian market we’re in the right place at the right time and we’re better suited to focus on specific countries here that are close to home. We understand how to operate in this region, and we understand that operations and financial value creation are important for customers and for governments here. For example, people are excited by the fact that the cost of buying steel is a net outflow for most of these countries and this makes forex deficits decrease.

M&A will be a major part of our strategy, but naturally we will be selective; it all depends on which towers are available and what the terms are. In Pakistan, for example, we’re committed to an organic build-out, and we will also pursue any M&A opportunity that looks appropriate. Pakistan is a market that we’re keen on but again the deal has to be right as there are a lot of opportunities and challenges there, so any acquisition must be well thought through.

Decommissioning is also at play in Pakistan as unsightly parallel infrastructure is torn down to consolidate coverage. We’re looking at making offers to some parties, and even if we don’t acquire portfolios we can do more micro consolidations and put two to three parties together, then convert the opex to one lease. There is typically a 40% to 60% tower overlap in Pakistan; for example in a town square in the middle of Islamabad there are five rooftop structures next to each other. There is an opportunity to harmonise and make the place look much better. Increasingly the regulators and government are paying more attention to aesthetics as historically mobile infrastructure hasn’t been the prettiest, and now there is growing advocacy to improve this in both Pakistan and Malaysia.

TowerXchange: What does ‘customer satisfaction’ mean for edotco and your customers, beyond the achievement of SLAs?

Non-Axiata customers in markets where we have Axiata carve outs are increasingly excited about the benefits of infrastructure sharing. A number of non-Axiata operators now trust the independence of our operations and are signing substantial co-location deals.

Operationally it is a challenge to convert a vertically integrated business model to one that’s separated. Inefficiencies that were papered over in the past due to friendships between the local companies now have the potential to become flashpoints because people are paying for the service.

One of the keys is to manage expectations well and we’re in the process of training everyone on customer relationship management. Even if you’re a field engineer and an old friend at an operator who used to own the towers asks you to do something, sometimes you need to disagree. This is where clear communication and expectation management are especially important.

However, like in all businesses, customers are always happier if you go above and beyond expectations. One way we do this is crisis management, for example during the floods that regularly occur in some of our markets. In Bangladesh we had a dedicated team helping maintain uptime during monsoon season using makeshift boats and portable gensets!

The other way we exceed expectations is with innovation; in an industry as tectonic as towers, innovation, new ideas, being proactive about new locations that customers aren’t familiar with, and other new concepts make all the difference. For example our first twenty five BTS hotel sites are soon being launched in Malaysia; we’re acting ahead of the curve and helping our customers to get solutions in place.

Finally we’re also working on dealing with the real pain point: energy. We’re putting more attention on that this year, moving from energy as a service to implementing more sustainable solutions and thus reducing energy costs even if passed through.

We’ve rolled out echo remote monitoring and management systems on 5,000 sites already, and we’re already starting to see benefits. We identified some subcontractors who thought they’d make some money on the side stealing 300L of diesel in Chittagong; an alert was triggered which led to the Bangladesh team investigating. They found that two employees had been carrying out the theft together on an alternating basis. We’re seeing a lot of micro-wins like this on the ground and we can offer total transparency to customers. For example, our new BTS are all outdoors, but we have a substantial footprint in shelters in arctic boxes that can run at 30-35ºC yet are running at 18º. There is a potential US$40pcm average saving on each of these sites just from normalising the temperatures, depending on cabin insulation condition, air-conditioning efficiency and environmental factors. We also have a lot of insights like these into the demographics of the operational business which adds value to customer relationships.

TowerXchange: What does the future hold for the telecom tower industry in Asia?

We anticipate the acceleration of the unbundling of traditional MNO into dedicated infrastructure companies, but we’re also seeing small cells, IBS and BTS hotels appearing. Semi-active infrastructure is starting to appear in markets like Malaysia, but this will be the prevalent source of growth in other markets within five years.

The future is extremely bright for the towerco model, but there are some caveats; anyone participating in this needs to move away from the financial investor approach. There will be appropriate financial returns but there needs to be a focus on two important objectives. Firstly we must deliver real, transparent operational improvement, increasing uptime, and reducing TCO over the long-term; some customers are asking us to lock in benefits, even among sister companies, so we have to deliver on this! Secondly, there needs to be engagement with regulatory and other relevant national bodies. They see fundamental infrastructure as critical to Nation Building; we have to participate and invest in this and become a true partner to the country, not just a foreign investor. In the past the tower model has been perceived as just a “good deal”, but now customer demand is shifting and governments are asking what we’re doing for the country.

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Don’t miss the upcoming TowerXchange Meetup Asia being held on 13-14 December at the Marina Bay Sands,Singapore. For more information visit https://meetup.towerxchange.com/event/779b884f-2156-4a99-81e0-747a2f905382

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