TowerXchange market study: Laos

The mountainous, landlocked country of Laos is has the lowest population density in the ASEAN region, with a population of just under 7mn spread across 238,800 sq km. There are just under 7,500 towers in the market, all remaining MNO-captive. Four MNOs, three of which are majority State-owned, participate in a relatively slow growing market. However, 4G deployment has begun, and 3G coverage is already widespread. With possible windows of opportunity to invest in the #2, #3 or #4 operator’s towers, its time for TowerXchange to examine the tower market in Laos.

The mobile market growth in Laos had been slowing, but SIM penetration climbed 11.3% between Q4 2014 and Q4 2015 to 78%, according to GSMA Intelligence.

The two clear market leaders are LTC, 51% State owned, which has money from Shenington Investments, and Unitel, also 51% State owned, which has money from Viettel. Unitel invested heavily in tower building and has by far the country’s largest network.

ETL is controlled by Ministry of Defence and have been in financial difficulties for some time, with the government increasingly seeking to arrest the bleed of money. Interest from China in acquiring ETL reportedly floundered on concerns about payroll and pensions. Subsequent management changes and allocation of spectrum for 4G has put ETL on a path toward IPO. LTC and Unitel are already listed.

Number four MNO Beeline, from which VimpelCom have been seeking to exit, recently successfully arrested a decline in subscriber base. Having sold their opcos in Cambodia and Vietnam, Laos remains an anomaly on the VimpelCom balance sheet. The Russian parent company has been through at least three rounds of trying to divest Beeline Laos, but no party has so far met their valuation. Beeline is cash flow positive, so the company is under no pressure to accept a low bid.

A fifth MNO Sky Telecom, also owned by the military, own spectrum but don’t have a network.

With a population of around 7mn and GDP per capita of US$5,400 (Source: CIA Factbook, 2015), by most metrics Laos should be a three MNO market, and a merger between Beeline and Unitel or ETL might be one way of creating a more rational market.

Unitel don’t need cash with Viettel behind them, and their 4,000 towers give them a genuine coverage differentiator. LTC seem similarly disinclined to monetise towers, although rumours that Shenington Investments may be seeking an exit could create a window of opportunity.

ETL’s IPO could slip further in the future, and the company is heavily indebted, so may be receptive to an offer to buy their towers. An approach may be best directed to the government, with the incentive that the cash from monetising towers could be reinvested in upgrading networks.

Beeline currently has 711 sites, 423 sites for which Beeline holds the lease, plus 288 sites co-located on shared towers. At the end of 2014 Beeline owned 444 sites, but they removed BTSs from 21 non revenue generating tower sites in 2015, as the operator only had a handful of towers in these areas so not enough coverage to generate customer demand.

VimpelCom is in the process of monetising towers worldwide, but may prefer a full sale of their Beeline opco in Laos. Much depends on who the new owners of Beeline might be – moentising their towers could provide a nice cash injection to enable a 4G launch, and the Beeline towers are generally in good condition.

There are currently no independent towercos in Laos, although TowerXchange are tracking at least one interested party. There are third party TV and radio towers, and the Ministry of Defence own a few, but most tower structures remain operator-captive.

There is quite an active market for bi-lateral infrastructure sharing – swaps with no money changing hands. One MNO reportedly tried to instigate a lease price of US$150 per month, but other operators were reluctant to pay. LTC share quite extensively, ETL and Unitel also share. As the smallest network, 40% of Beeline’s base stations are co-located on third party towers.

Laotian MNOs make most of their margin in Vientiane (the commercial capital with a population of 760,000), Savannakhet (population around 120,000, the second city and manufacturing hub), Pakse (population 88,000, where there are tea and coffee plantations), and in Luang Probang in the Northeast (population 55,000, a cultural and tourist centre). It is difficult to find enough ARPU to provide economic coverage outside these areas.

LTC has launched 4G, primarily in the largest city Vientiane, while Unitel also rolled out 4G in Savannakhet. ETL has a loan to roll out 4G, while Beeline seem inclined to focus on provision of high quality 3G in Vientiane. With ARPU is just under US$5, and not much disposable income, there is little demand for premium 4G handsets, so the business case to invest US$100mns in 4G is weak for the challenger MNO.

There is a risk of conflicts of interest given government majority stakes in three MNOs: ETL are 100% State owned, Unitel and LTC are 51% State-owned – the government even owns 22% of Beeline. This was exemplified in 2011 when a price floor was introduced in response to a disruptive new market entrant (Millicom, whose majority stake was later acquired by VimpelCom) undercutting the tariffs of government owned incumbents. After a stand-off on pricing and promotions, Beeline’s interconnect with the other three MNOs was denied for several months, with the government supporting the incumbents. The so-called ‘Beeline Crisis’ (2011-12) slowed mobile growth and continues to cast a shadow over the investibility of the Laotian telecom market.

Access to the Ministry and other government stakeholders in Laos is reportedly good, and there have been signals of intent to take a more liberal approach to the regulation of telecommunications.

Doing business in Laos is difficult. Laotians are a friendly, incredibly laid back people, but projects require close supervision to keep on time. In a telecoms context this means it can be difficult to get high quality I&C work done on time, and much must be done in-house. There are few proven infrastructure companies to provide support.

Similarly it can be challenging to motivate and retain staff; one MNO reported staff turnover as high as 30% annually, and head hunting can be a problem. There is a shortage of experienced, well educated prospective employees, and salary expectations can be high. The opening of the ASEAN employment market should help, making it easier for foreign workers to take jobs in Laos.

Chinese investment in Laotian infrastructure is widespread. Laos is known as the battery of Asia, and there are hundreds of hydropower schemes planned, many Chinese backed, with some increase in Thai investment.

Huawei is by far the biggest telecom investor in Laos, with a substantial team on the ground supported by good warehouse infrastructure.

Laos has a surplus of power generation which they export, so grid availability is good in the country, and new sites can be connected to the grid quickly and efficiently. There are still unannounced outages, so backbone sites have DG and battery backup: 4-6 hours battery backup is standard.

Network performance is generally acknowledged to be poor in Laos.

Most network investments are in the upgrading of sites for 4G; there are very few new sites in Laos, and most of those are urban infill concrete poles. Beeline built just six sites last year, less than a fifth of the total they were building back in 2012.

Cost per site depends on what you are building of course, but for example a 60m guyed mast tower with capacity for two operators and four microwave dishes would cost approximately US$24,000, including foundations, tower, and electrical equipment. O&M works out at around US$900 per site per year, inclusive of the maintenance of both passive and active equipment.

Given the deficiency of high-rise structures in Laos, it is perhaps unsurprising that less than 5% of urban sites are rooftops. Most sites are guyed mast towers, a few are free standing.

While there may be an opportunity for a tower company to invest in Laos, they would have to be comfortable with the level of government involvement in telecoms in the country. The deficiency of local steel may also be an issue, with towers having to be imported from Vietnam or China. China may indeed be the most likely source of investment in Laotian towers, with the country being eligible for ‘One Belt, One Road’ funding.