The transfer of telecom tower assets from MNO-captive to independent towercos is driving multi-billion dollar capital flows and creating a new, highly investible asset class of infrastructure management specialists: towercos. Towercos now own 2,044,286, or just over 60%, of the world’s 3.3mn telecom towers. This change is also having a transformational effect on the supply chain as towercos become the new king buyers of passive infrastructure equipment and services. In this article, TowerXchange Founder and CEO Kieron Osmotherly highlights his top ten trends for the tower industry in 2016… Sorry, make that eleven top trends!
1. More carve-out captive towercos
2016 will see an increasing trend for MNOs to carve out their own “captive” towercos. Some of the first exponents of the carve-out towerco business model can be found in India, where the likes of Indus Towers, Bharti Infratel and Reliance Infratel have created tens of US$billions worth of capital value, some of which is now being monetised through IPO and sale to equity investors. More recently, Axiata carved out 15,000 towers to create edotco, which has since completed its first acquisition outside the Axiata footprint in Myanmar. America Movil’s Telesites made an underwhelming debut on the stock exchange in late 2015 but will be adding towers and tenants voraciously in 2016. Telefonica will hope that their carve out of captive towerco ‘Wireless Towers’ performs better when monetised in Q2-3 2016. Wireless Towers will initially be a vehicle for 11,500 Spanish towers but the strategy could be extended to carve out Telefonica’s towers in Germany and in the CALA markets where towers have not yet been sold. If Telecom Italia’s strategy to carve out, list 40% of the equity, then sell the rest of Inwit plays out successfully, expect more MNOs to carve out towercos in 2016 – lead by BSNL in India and MegaFon in Russia.
2. Sale and leasebacks continue
The flow of pure sale and leaseback (SLB) transactions will continue in parallel, driving towerco penetration in India from 68% to 85%, in Southern and Southeast Asia (excluding India) from 27% to 45%, where we anticipate SLBs taking place in Bangladesh, India, Indonesia and in Pakistan. In MEA towerco penetration will rise from 19% to 30%. While most of the investible towers have already changed hands in SSA, we expect the MTN South African towers to finally change hands, and most of the cancelled Airtel African towers to come back to market, excepting those affected by prospective opco sales to Orange. We forecast that towercos will build over 5,000 new towers in SSA in 2016. In MENA, the Mobily and Zain transactions continue to progress, while Vimpelcom could inaugurate a tower market in Algeria with the sale of ~6,000 Djezzy towers. Vimpelcom had already kick started the European tower market in 2015 with the sale of 7,377 Italian towers, and the same company is progressing toward the sale of 10,400 Russian towers, a process which could be extended to include certain CIS countries.
3. Towerco consolidation
Towerco consolidation will drive the deal pipeline in CALA and in Myanmar, where ‘middle market’ towercos will seek to consummate their exit strategies. With seven towercos, Myanmar is ripe for consolidation, while build to flip tower entrepreneurs are active all over CALA, from new portfolios in the Andean markets to maturing portfolios in Brazil, where deal flow will be slowed by currency devaluation.
4. Towercos increasingly diversify into small cells and DAS
The integration of microcells and DAS into networks and towerco portfolios commenced in 2014-15 but will reach an inflection point in 2016. We are already seeing tens of thousands of “special structures” being installed into U.S., Indonesian and Indian telecom networks to provide infill capacity and coverage. As volumes increase and the cost of multi band antennas comes down, we’re going to see towercos increasingly diversifying into the provision and management of this and other semi-active infrastructure.
5. Drive toward energy efficiency
2016 will also see the drive for opex efficiencies continue, with an increasing volume of hybrid and renewable energy and innovative energy storage solutions being leveraged to reduce and ultimately eliminate diesel consumption from many cell sites on unreliable grids or off grid. While shipments from leading innovators such as Flexenclsoure and Heliocentris will continue to rise, 2016 will not be the year of the ESCO. 2016 will see landmark ESCO pilots, but many towercos still prefer to deploy their own capital to improve site level profitability.
6. Differentiation through remote tower monitoring
2016 will see tower management professionalised through the integration of three key intelligence solutions. The first half of this decade saw as many cautionary tales as success stories around Remote Monitoring Systems as many deployments failed to meet expectations. RMS has been made more robust and user-friendly, and effective RMS is now a quality differentiator between independent towerco managed sites and operator-captive sites. Meanwhile site management platforms designed for the tower industry, like those offered by Accruent, Infozech, FieldForce, Infozech, nexsysone, Tarantula and Treefrog, are being used to manage and optimise assets and projects, workforces and workflows. Complete the solution stack to professionalise tower management with identity access management solutions such as those offered by Acsys and Abloy.
7. Positioning towercos as Nation Builders
In 2016 Regulators, Ministries and other National stakeholders need to establish clear, fair licensing and taxation regimes to encourage domestic and international towercos to foster investment in telecom tower networks - critical infrastructure for Nation Building.
8. An end to the era of parallel infrastructure
The minority of MNOs still retaining their towers need to recognise that their tower networks are no longer a source of competitive advantage – the era of parallel infrastructure is at an end, and the efficiency and time to market advantages of tower sharing are best facilitated by carve out or independent towercos. MNO retained, single tenant towers risk being trapped on balance sheets, depreciating assets, while shared towers represent a source of increasing and recurring cash flow. If MNOs haven’t sold their towers already, 2016 may see peak valuations in many markets.
9. Decommissioning
2016 will be the first year when we’ll be celebrating towercos with falling tower counts. In markets characterised by significant parallel infrastructure (including much of Europe and Pakistan, for example), towercos will create value by consolidating tenants onto one tower and decommissioning the other. While there will be a near term adverse impact on balance sheets, as towercos liquidate the ground leases of decommissioned towers, proof of concept will come in 2017 and particularly 2018 when towercos are left operating fewer, more leased up towers.
2016 will be a year of integration. The chaos of the land grab in many markets will give way to an increasing focus on integrating and leasing up acquired assets, and an increasing focus on operational excellence
10. Innovative tower transaction deal structures
Since the tower industry was inaugurated in the mid 90’s in the USA, late naughties in Asia and early part of this decade in Africa, many of the world’s most investible towers have now been acquired. What’s left? Towercos may have to set aside their established playbooks to acquire a significant proportion of remaining towers. Perhaps FDI restrictions limit equity stakes to 49%. Country and currency risk may be unpalatable. Perhaps the MNO wants to retain a substantial, even majority stake. They may not even want to sell the towers. The simple fact is that over 2mn of the world’s 3.3mn telecom towers have already been acquired by towercos – in order to maintain previous volumes of inorganic growth, acquisitive towercos may have to deviate from ‘ideal’ deal structures in 2016.
11. From land grab to integration
Finally, for many towercos and their partners, 2016 will be a year of integration. The chaos of the land grab in many markets will give way to an increasing focus on integrating and leasing up acquired assets, and an increasing focus on operational excellence. TowerXchange currently tracks 154 towercos worldwide, of which only 13* are currently listed entities. TowerXchange believe over a dozen towercos are within 12-18 months of either their own IPO or acquisition by a listed entity. In preparation for either outcome, 2016 will be less about inorganic growth and the associated complexity and chaos, more about organic and margin growth, and the order that comes from embedding operational best practices
