During Q1 2016 the proportion of the world’s telecom and broadcast towers owned and operated by towercos or specialist infracos rose from 60.3% to 61.9%. A new, parallel industry to retail telecommunications, the tower industry is building the vast majority of the world’s new towers. This 20 year old, US$192bn infrastructure asset class currently owns 2,092,865 of the world’s 3,379,806 towers. In this quarter’s global tower market overview, I’d like to take the opportunity to contrast the maturity of different tower markets worldwide.
There remains a pronounced difference in MNOs’ attitude toward passive infrastructure ownership, ranging from North and Northeast Asia, where operators cling to their towers as a primary source of differentiation, to the US tower market, where a significant majority of towers were long since transferred from MNOs to independent towercos, a critical evolution in vaulting the US mobile market from laggard to leadership status.
TowerXchange market maturity classifications
Dormant: negligible towerco activity, almost all towers remain on the balance sheets of MNOs, who still see the network as a primary source of competitive differentiation.
First movers: early adopter MNOs are considering the first transactions in the region, but less than 10% towers have been transferred from MNOs to towercos. First mover markets are generally treated with caution by investors, but on the other hand much of the “low hanging fruit” assets may yet to have been picked.
Launch velocity: MNOs are seriously considering monetising their towers, and the first four landmark transactions have taken place, with over 10% of towers in towerco hands. While towercos still don’t own a high proportion of towers, the pipeline of future transactions is starting to fill up.
High growth: MNOs have bought in to the principle of partnering with towercos, and there are immediate drivers to monetise assets. Multiple concurrent divestiture processes mean towercos are equally busy raising and deploying capital.
Maturing: deal flow is starting to plateau – an increasing proportion of the investible towers have been absorbed by towercos, whose attention increasingly turns to the integration and leaseup of acquired assets, and the drive to maximise efficiency and profitability.
Mature: most of the MNO towers have been acquired, towercos are able to focus their attention on the last improvements to site level profitability and tenancy ratio. Much of the M&A in mature tower markets consists of consolidation between towercos, while those who achieve scale may consider an IPO.
Outside of Northern and Northeast Asia, MENA is the least mature tower market, but a landmark first transaction has already been closed (in Egypt by Eaton Towers, who are closing in on a second deal with counterparts Orange Egypt). A further five decent scale MENA tower transactions are in the pipeline: all three MNOs in KSA are at various stages of bringing their towers to market, while Zain are selling towers in Kuwait and VimpelCom may soon turn their attentions to monetising their Algerian towers. We’ve even heard talk of potential joint venture, operator captive towercos in Bahrain and the UAE. Predicting when, or even if, a MENA tower deal will close is a risky business, but TowerXchange will stick our necks out and say we anticipate towerco penetration in MENA reaching around 14% by the end of 2016, exceeding 20% by the end of 2017, by which time the region will have matured to “launch velocity” status.
Our rating of Europe’s maturity as a “launch velocity” tower market indicates both the high quantity of prospective deals in the transaction pipeline, and the relatively low penetration of independent towercos to date, representing just 13% penetration. Penetration in Europe is topped up to 37% by several large scale joint venture infracos, and a growing trend favoring MNO-captive carve out towercos and infracos, most recently exemplified by Telefónica’s Telxius. The other concentration of carve outs is in Russia, where each of the three leading MNOs has created their own towerco, each with a different purpose: VimpelCom with intent to sell and leaseback ‘National Tower Company’ as soon as their valuation is met, MegaFon with intent to professionalise asset management in ‘First Tower Company’ before sale to a strategic investor, while 5,500 towers have been transferred to “MTS Towers” with the apparent intention of retaining the value created by co-location.
The status of Europe as a “launch velocity” market masks a variety of hot and cold regions of activity. The aforementioned Russian activity creates a hotspot to the east, which is warming neighboring CIS countries, where tower transactions are forecast from 2017. Another hotspot is in Southern Europe, where Cellnex and EI Towers are battling for control of TIM’s INWIT in Italy, and in Spain where Cellnex now has a peer in Telxius. Considered in isolation, Spain and Italy are certainly maturing markets. Other European tower markets to watch in Q2 2016: Turkey, where Turkcell has stated intent to list their carve-out towerco Global Tower on the local stock exchange; and Germany, where Telefónica’s Telxius has recently taken ownership of the MNO’s 2,350 towers, where Deutsche Telekom is considering monetising the 27,000 towers in subsidiary Deutsche Funkturm, and where American Tower Germany is raising third party investment.
The rest of Northern Europe is a more static market, perhaps because the MNOs of the UK and Scandinavia have organised infrastructure sharing through several joint venture infracos which themselves have delivered some of the prospective efficiency gains of partnering with independent towercos.
It is strange to see a market 100% penetrated by towercos classified only as “high growth” rather than “mature”, but the transformation of China to a co-construction and infrastructure sharing model has happened almost overnight, with China Tower Company (CTC) still building toward capacity. Although over a million legacy towers have been transferred from China’s MNOs to CTC, our categorisation of China as “high growth” stems from the fervent new build market (currently 150,000+ new towers per annum), which is being fought for by CTC and a growing band of independent towercos. To learn more about the structure of the Chinese tower market, check out the special feature later in this edition.
Comparing towerco penetration worldwide
The tower markets of Southern and Southeast Asia are currently the most dynamic and fast growing in the world. Within the region we still have considerable variance of local market maturity, from the “old growth,” mature tower market of Indonesia, where most operator towers that can be sold have been sold, and where three or four larger towercos continue to rollup assets from as many as 35 small independent developers. Then we have high growth markets like Bangladesh and Pakistan; in the latter country towercos own <1,000 towers now, but rumors suggest almost every MNO tower is coming to market (CM Pak notwithstanding).
Myanmar is increasingly a category of one; the ‘great towerco experiment’ whereby independent towercos rather than MNOs led a rollout from the outset, has been a bumpy ride for towercos and MNOs alike, with towerco consolidation coming earlier than some might have anticipated; those who have built quality assets with a disciplined approach to contractual terms will likely prosper.
Brazil and Mexico’s status as maturing markets, with little left to acquire from MNOs, brings the CALA region to an overall ‘maturing’ level, yet there is high growth to be found in the Andean States (some would say too high growth, with over 20 towercos putting sticks in the ground in Colombia alone!) In this edition of TowerXchange we take a closer look at the long-dormant Argentinian tower market: has the blue touch paper been lit? Could CALA’s second largest telecom market achieve “launch velocity” in the next 12-18 months?
The tower market in SSA is showing the classic symptoms of maturing. Again, most of the investible towers have been acquired, and this quarter we’ve seen the first towerco consolidation in Nigeria with IHS acquiring HTN Towers and Hotpsot Networks Limited. For the three privately owned members of Africa’s ‘Big Four’ attention turns to the path toward monetisation; integrating their last acquisitions, driving tenancy ratio growth, and instigating operational improvements to enhance site level profitability.
The Indian tower market is almost re-maturing after investors seemed to accept that valuations had been recalibrated after four years of restructuring in the wake of the cancellation of 122 MNO licenses. With towers now changing hands for a more palatable ~US$60,000-80,000 each, deal flow has returned to India, again characterised by towerco consolidation rather than sale and leasebacks. The most eagerly anticipated tower deal in India would be the inauguration of a BSNL tower company.
This variation of tower market maturity, and variations in operator requirements, has created a parallel set of variant towerco business models; from steel and grass to full power as a service, from huge operator-led infracos capturing value for parents, to lean, fast “build to flip” independent developers. Whether you have an appetite for high growth, high return, high risk opportunities in early stage or fast growth markets, or prefer a more conservative exposure to risk and therefore growth in a more mature market, there is something in this asset class for everyone.
For a more detailed analysis of regional tower markets, visit:
TowerXchange’s analysis of the tower market in Africa and the Middle East
TowerXchange’s analysis of the tower market in Europe
TowerXchange’s analysis of the tower market in Asia
TowerXchange’s analysis of the tower market in CALA
