Arqueiro Telecom: providing shared backhaul across Brazil

The towerco model in Brazil has proven successful and some entrepreneurs involved in the early days of the “tower revolution” have looked beyond the telecom real estate business to find new lucrative business channels.

Alex Sepehri-Nik and Steve Roberts have a combined wealth of experience in the telecom space and are now offering carriers and towercos across Brazil a shared backhaul service through their newly created company, Arqueiro Telecom. In this interview, they discuss with TowerXchange why sharing microwave and fibre is the future of telecom transmission in Brazil (and beyond).

TowerXchange: Steve and Alex, please introduce yourself and Arqueiro Telecom.

I am from the UK and have been in Brazil since 1998, coming over with Nortel Networks. In my career, I have represented several major vendors such as Alcatel, Huawei and Nokia and I was one of the founders of a start-up project with ON Telecom, a wireless broadband internet operator. Around a year ago, Alex and I started discussing the opportunity to provide transmission to carriers in Brazil following a shared backhaul model and here I am now, with Arqueiro Telecom.

I am American and a lawyer by training. In the early days of my career, I worked within a San Francisco based law firm mainly serving TMT clients. From there, I became in-house general counsel for several major technology companies including Amber Networks (which we sold to Nokia in 2001). In Brazil, I firstly joined Nexius, where I met Dr. Chahram Zolfaghari, my partner and co-founder at Brazil Tower Company (BTC). At BTC, we raised more than US$50mn in debt and equity and deployed towers (editor: 753 as of Q3 2015) throughout Brazil.

When we first discussed creating a tower venture in Brazil, we realised that a shared backhaul model – although at an early stage – would be attractive for the market and potentially lucrative for us. That was the first glimpse of what is now Arqueiro Telecom.

Although we have a strong partnership with BTC, it’s important to stress that we are not a wing of the towerco. Obviously, there are some substantial connections in terms of the lead investor involved and the fact that I still sit on the board of BTC. However, we are two separate companies working in complementary sides of the telecom business.

TowerXchange: How does Arqueiro Telecom’s backhaul service work?

We’ve come to refer to our service as a Build-to-Suit backhaul. It works in a similar way to the tower-sharing model.

For example, a major carrier may request the service. We will then do an internal feasibility study to see if it makes sense for us to deploy a shared backhaul in each instance. The general idea is that you should have more than one customer utilising your service. That being said, if a carrier requests our service, we will evaluate the ability of the carrier to deploy it, the topology, the degree of bandwidth we can offer and the likelihood that other carriers can benefit from sharing in the arrangement.

We have a nationwide SCM license, which allows us to call ourselves the carriers’ carrier. And we offer the carriers much more than just the Build-to Suit model. They can also use our design, vendor management (encompassing equipment providers and tower companies) and location services. In terms of the latter service, we use powerful databases to choose locations where tower space is confirmed as readily available for the carrier.

TowerXchange: Who should provision backhaul in the era of independent towercos?

In terms of who should provision backhaul, there really aren’t any standard rules in the industry as of today. We are creating our own model in Brazil. We are able to focus on this area of network deployment that nobody seems to enjoy handling. In a sense, we’re doing the dirty work!

TowerXchange: Why aren’t towercos offering shared microwave links?

Well, our concept was discussed before we even raised a single penny for BTC (five years ago). We looked at it as a service that could potentially be added to the BTC (or any other towerco’s) portfolio going from just the passive infrastructure – meaning the towers – to creating an active infrastructure involving a network.

Many people don’t appreciate that running a tower company is actually quite hard. So in the first instance you focus on raising capital from the market and shareholders, partnering with the carriers, designing and deploying towers where they want them. Brazil is a big country.

You also have to handle the licensing, the vendors, the site acquisition (leases), the build and the installation services. And it’s difficult to then tell your shareholders that you have raised capital to do these things, but now you want to become a carrier on top of that.

To put it more precisely, it’s difficult to take investor money – or in the case of a multi-national, the country budget – and tell the shareholders that on top of building towers you’re now going to plan, build, sell and maintain a network.

Our service does help to increase the tenancy rate of a towerco but works in a completely different way.

Towercos find it difficult to expand their focus into being operators. There is obviously a conflict of interest in being a tower company and a network operator at the same time. That is why we are doing this as an independent entity – we are solely focused on offering a shared backhaul network throughout Brazil.

TowerXchange: Should carriers do this themselves or outsource to a specialist who white labels the service?

We don’t white label our service. We’re an independent company that has agreements with the tower companies and the carriers.

By being on a tower, our purpose is to increase the tenancy ratio and not just provide backhaul to one carrier. We are a shared backhaul company, right?  We actively seek new customers and, as a result, can bring a second or third tenant on a given site, in addition to the first one that deploys with us.

TowerXchange: Why do towercos focus so much on GBTs and so little on backhaul?

If you look at the build out in the Brazilian market, in the next three years, over 200,000 new sites will be needed for towers. The tower companies are just too busy handling all of that to focus on anything else. On top of this, we’re not even coming close to meeting the carriers’ requirements in terms of 4G deployment.

The tower companies just don’t have the resources to keep up with the demand on the tower side. Everyone realises that a shared backhaul network is a great concept, but when towercos don’t have enough manpower or even capital to fit the needs of the customers, they are unlikely to focus on adding services such as backhaul.

Then there’s the issue of transmission. As we’ve previously discussed, it’s the ugliest part of the business and no-one really wants to deal with it.

I think people refer to backhaul as the dirty side of the business because it’s essentially very complex. Some might think it is easy to stick a microwave link onto a tower and off you go. It’s not as simple as that. You have to plan it carefully. You have to see if there is tower space and frequency available. There are many different factors that come into play. So for a tower company to think of deploying transmission, it will have to become like a mini operator. Then it has to employ a whole load of other people to plan it, engineer it, sell it and look after it. That is complex.

Some companies consider us a leased line provider. It doesn’t work that way and we don’t particularly like the phrase. We are an intelligent backhaul provider. We use sources of information to determine the number of residents in a particular area and their GDP and relate it to the economical feasibility of a transmission project. We use intelligent information, we don’t just provide microwave links.

We tend to associate towers with cellular or mobile networks. But all of these towers have big corporate areas under their control. Sometimes the tower companies do not concentrate that well on their corporate areas. So we can actually maximise these towers to bring new businesses opportunities to them such as corporate clients.

We have consistent requests from all the major carriers. In the early days, we were going around trying to convince companies this was the future. Now the response is just fabulous. They know that they can save money on capex – meaning that they don’t have to buy the equipment. They can see that they can save time in terms of deployment resources because our people are responsible for installing and maintaining the backhaul service. And, lastly, they can see that they can get a better service at a cheaper price and have little to no capex in terms of transmission.

TowerXchange: What is the impact of the current economic and Forex situation in Brazil on raising capital for telecom infrastructure ventures?

What is happening in Brazil is undeniably, obvious and quantifiable. But it actually fits with what we are doing. Everyone knows that there is a lot less foreign capital coming into Brazil at the moment. It affects everyone from private individuals wanting to start companies to international tower businesses that want to pull resources from their parent companies. It’s no secret that carriers in Brazil plan to spend much less on deployment in Brazil in 2016. And they are not discussing 2017 while everyone is hoping things will improve.

We’re here to save them money on deployment. Using our service actually fits their plans to spend less. Our clients pay us monthly fees for our service and they can take the saved spending out of their capex budget.

The current downturn simply fits with our business model.

TowerXchange: Tell us about the progress of fiberization in Brazil – why does microwave continue to play such a significant role in backhaul and is it here to stay?

The overall state of fibre in Brazil is way behind the curve of what is needed to have a world class network.

Deploying fibre is tough work in Brazil, and it’s unrealistic to think that fibre will be rolled out to many areas of the country in the near future. Fibre in Brazil doesn’t tend to be installed on the ground. Rather it is installed on telegraph or utility posts, which makes the situation even more complicated.

So in order to have a high capacity backhaul, it has to be done via microwave to speed up the process, at least in the next few years.

We think that microwave is a great way to start the process quickly and effectively. It allows backhaul to reach many parts of the country that would take years to cover by fibre. That being said, Brazil still needs fibre. Our customers are asking for it and we will probably start running it in 2017.

The deployment of fibre isn’t being done very efficiently across Brazil. Fibre can be even more complex than microwave and we are seeing some projects being developed with the use of unsuitable resources such as energy posts, telegraph posts, et cetera.

Obviously you’ve got gains on capacity with fibre but if carriers deploy it all the time, it will be very expensive and hard for them to really map the capacity. I think that by starting with microwave, carriers can really track their growth and the demand in terms of capacity and can intelligently assess whether fibre is needed in a given area. By sticking to microwave for a few years, fibre can then be selected in high density areas where it will repay the investment.