So much to do, so little time

In a recent interview with Marc Ganzi, his first words regarding Mexico were “Mexico is really a tale of two cities” and that concept has been stuck in my mind since, mostly because it is the perfect description I had been looking for. Mexico is a country where opposite realities can coexist in relative harmony and the status of the telecom and tower industries is just another example of that.

América Móvil created its towerco earlier this year with the aim to manage 10,800 Telcel’s sites and develop the operator’s considerable pipeline of build-to-suit projects which has been estimated at around 1,000 sites per year. The creation of Telesites responded to IFT’s request to AMX to limit its dominant position in the National telecom market. But the IFT is yet to decide whether Telesites is the solution they were looking for.

Telesites’ future is currently on hold, pending IFT’s seal of approval and the vote needs a plenary session of the regulatory body which won’t take place before August-September, as recently stated by Gabriel Contreras, President of the IFT. Only then, América Móvil will be allowed to carve out Telcel’s tower portfolio and enable Telesites to operate it.

So as of today, Telesites doesn’t legally operate nor own 10,800 towers and the reported potential deal between AT&T and the towerco to lease space on those sites will need to wait until the approval is actually granted.

I am inclined to believe that the project will receive the approval of IFT and that Telesites will strike a substantial deal with AT&T, which is eager to start operating in Mexico and whose first and most obvious step will be to utilise existing infrastructure as much as possible to accelerate time to market. However, I am also surprised about the reported current negotiation between the two entities when in essence, Telesites doesn’t - yet - own any towers. I would also caution about expecting Telesites to have much effect in the near-term; the carve out of towers from other carriers worldwide has illustrated a typical 12-month lag between carve out and tenancy ratio growth, as the initial focus tends to be on auditing assets and establishing governance regimes.

Once in charge of Telcel’s capillary infrastructure network, Telesites will compete against the likes of American Tower and Mexico Tower Partners, whose management teams have been involved in the tower game for decades. Towercos, especially in a complex market like the Mexican one, require a deep understanding of the legal, operational and financial context and this is even truer for a company like Telesites that will handle a considerable portfolio from day one while managing BTS projects for the number one carrier in the country.

One potential challenge is represented by the technical characteristics of Telcel’s assets. It’s not uncommon for carriers to build most of their sites as single-tenant towers and this would mean a greater technical and financial effort by Telesites to upgrade key sites before being able to market them to potential tenants.

Never has a yet-to-be-approved towerco attracted so much interest and press coverage, and understandably so. Telesites and its projected portfolio of assets could change the shape of the Mexican tower game and anyone involved in the local market is speculating about what the future might hold. But the truth is, until the IFT grants a green light, and until Telesites’ lease rates are revealed if and when they bring their towers to market, all we have is speculation: nobody knows what impact Telesites will have. TowerXchange understands lease rates range from US$800-1,500 in Mexico, with the range reflecting load and the application of escalators. A study by local brokerage firm Accival Casa de Bolsa claimed Telcel would pay Telesites MXN 3.7bn per year, suggesting Telesites lease rates would be around $1,700, at the top end of the market, although the source of the firm’s figures were not given.

In the meantime, IFT is planning a spectrum auction whose dates and characteristics will be announced later this year. The auction is likely to take place before the end of 2015 and IFT has recently confirmed that Telcel will be allowed to bid.

Alejandro Navarrete, Director of the Spectrum Unit (Unidad de Espectro Radioeléctrico) within IFT, recently stated that “Telcel is part of the preponderant economic agent in telecoms and our laws state that its participation to spectrum auctions can be limited. However, this valuation is referred to the Economic Competency Unit (Unidad de Competencia Económica)… An analysis is needed but in theory they can participate.”

In separate comments, IFT executives explained that the most important goal of spectrum auctions is to improve coverage across Mexico and that any company able to support the development of the local telecom sector should be considered for new auctions. That said, March 2016 will mark the second year since the issuance of anti-dominance rules against América Móvil and that is the deadline that IFT has in mind to review market conditions and, if necessary, formulate new rules to improve competitiveness even further.

So one of the country’s faces is dominated by questions and expectations related to América Móvil and what the future holds for the group. What will Telesites do? Will IFT regulate further? Can Telcel access spectrum auctions? The other side of Mexico is about AT&T and its potentially game-changing effect on each and every carrier and towerco in the country.

With announced plans to invest as much as US$3bn in its high-speed network, AT&T is the ideal catch for every towerco active in Mexico and a good reason for a few start ups to try and enter the market. The carrier’s plans include covering 40 million people within the first six months of operations and its final goal would be to reach out to 100 million by the end of 2018.

AT&T brings to Mexico more than just capital. Its expertise and track record is likely to push other carriers beyond their comfort zone and this is particularly true for Telefónica, who haven’t been very active over the past few months in terms of BTS and is likely to fine-tune its future moves in light of AT&T soon to be released plan of action.

If AT&T represents a threat and an incentive for carriers to improve their service, strengthen their brand and expand their network even further, the U.S. carrier’s entrance in Mexico is great news for the tower industry as a whole.

In fact, as José Sola, CEO of MTP shared with us in a recent interview, the Mexican BTS market has been slow over the past couple of years as a result of carriers’ reluctancy to heavily invest in greenfield projects ahead of the telecom reform. Now that the reform has taken place, the carriers’ landscape has shrunk considerably but this isn’t necessarily bad news.

With the creation of Telesites, towercos have technically lost Telcel has a substantial client. Additionally, Iusacell and Nextel have now become one entity. However, AT&T has brought capital, expertise and an appetite for growth South of the border which is just what the industry needed. And the volume of business they are expected to develop in Mexico could be enough to keep AMT, MTP, Telesites, IIMT, Conex and Torrecom quite busy for the next couple of years.

In a recent statement, AT&T’s Mexico CEO, Thaddeus Arroyo, stated that it will take approximately two years to get the business where the company wants and we hope this includes a strong push in terms of BTS projects, which is just what Mexican towercos are hungry for.

AT&T’s immediate focus is to unify the acquired networks of Iusacell and Nextel, each of which consists of approximately 4,000 towers, of which around 90% are owned by American Tower. Forecasts suggest AT&T could add between 5,000 and 8,000 new sites to their network over the next three years, including both co-location and BTS, and a mix of capacity infill and coverage extension, 3G overlays and 4G modernisation. TowerXchange expect this to significantly accelerate organic growth within the American Tower and MTP portfolios in particular.

The last tale in Mexico is represented by the 700MHz shared network whose plan was included in the telecom reform and whose construction could require an investment of as much as US$7bn.

The goal of setting up a shared wholesale network has been considered of high relevance for quite some time now and was originally included in the constitutional reform of 2013 and subsequently in the 2014 Telecoms Act. However, details of the plan are yet to be fully defined by the Secretariat of Communications and Transport (SCT).

To date, a few elements are clear. SCT received thirty-nine expressions of interest to participate in various aspect of the development of the 700MHz shared network. Of them, 54% came from Mexican companies and the remaining 46% from international entities. 58% expressed interest in one aspect of the project whereas the remaining 42% would be available to cover multiple elements of it.

The number one priority for most applicants is to fully understand the nature of the relationship between the Mexican government and the companies that will be in charge of running the shared network. Specifically, SCT received requests to clarify the role of the public administration in the Public-Private Partnership (PPP) that will manage the wholesale network, as reported by Telesemana.

Other aspects highlighted in the expressions of interest include the commercial viability of the project, in light of the ambitious coverage goals, as well as the required upfront investment especially since the actual demand for the network is uncertain. SCT stated that interested parties asked for “sufficient flexibility to the administrative body in charge of the network with the goal to plan and execute a rollout in line with market conditions and technical standards” which would also mean that the government should limit its participation to the network design and technology selection processes.

Next steps will require SCT to review these requests and publish tender documentation before the end of August. The actual tender should be open for bids around October with the goal to assign the project during the first half of 2016 and start rolling out in the second half of the year.

Telesemana published a non-exhaustive list of interested parties which include Accenture, Cisco, Ericsson, Huawei, Motorola Solutions, Qualcomm, Nokia, Alestra, Axtel, China Telecom, MVS, Pegaso PCS, SES, Total play and associations such as the Ibero-American Association of Investigative Centres and Telecommunications Companies (ASIET), the Mexican Internet Association and PCIA.

Whilst this uncertainty makes it difficult to forecast the implications of Mexico’s 700MHz wholesale network, TowerXchange has spoken to some towercos in the country who forecast that the project may need anything from 8,000-14,000 sites, of which half to two thirds could be co-locations with the rest greenfield - driven by the project’s remit to provide wholesale coverage to areas with no coverage.

Players in the Mexican telecom industry, whether they are towercos, carriers, OEMs or solution providers, could get really busy very soon but there is a catch. Way too often Latin American countries find themselves stuck in tedious bureaucratic processes that slow down the development of any type of project. Therefore, my hope is that Mexico steps it up over the next few weeks and reaches crucial decisions with regards to a variety of key telecom issues such as the approval of Telesites and clarification of the 700MHz shared network. These decisions will enable various players to tailor their strategies and get started with the most exciting year for the Mexican telecom industry to date.