MNOs call on towercos to provide power in Peru

At the 2015 Peru round table at the TowerXchange Meetup 2015, reference was made to The Ministry of Transport and Communications calling for an increase from 9,000 to 22,000 cell sites by 2018. Two years later, the country’s tower count is still less than half way to the Ministry’s target. Why? This report derives from TowerXchange’s 2017 Peru round table, which featured a diverse group of participants including MNOs, towercos, investors, MSPs and vendors.

Supervisory agency Organismo Supervisor de Inversion Privada en Telecommuniciones (Osiptel) recently stated that there were 18,928 base stations deployed in June 2017, but called for the total to be almost doubled to 36,513 by 2021 to satisfy demand.

Osiptel General Manager Sergio Cifuentes commented “Looking ahead at more efficient network deployment, operators could opt for greater sharing of infrastructure… to date, the shared use of passive infrastructure between mobile providers is just 2% of the existing deployments.” (Source: Telegeography)

Around 75% of Peru’s towers remain on MNO balance sheets. Telxius, American Tower and Torres Unidas have the largest towerco portfolios in the country, with smaller portfolios owned by SBA Communications, Torres Andinas, Innovattel, BTS Towers, Continental Towers, Phoenix Tower International and Telecommunications Partners, with Digital Bridge’s Andean Tower Partners entering the market.

“There is no significant pipeline for sale and leaseback in Peru,” said one towerco. “Claro won’t sell, Telefónica has carved out Telxius, and are awarding them most of their build-to-suit, so towercos have to get creative to grow. For example, we are cultivating relationships with municipalities to enable deployment of small cells, Wi-Fi and DAS to enable densification.”

Despite the relatively favourable regulatory environment for Peruvian towercos (for example Law. 29022 eases filing of permits with municipalities), round table participants reported it still takes around 150-160 days to get a new tower built in Peru, partly as a function of zoning and permitting delays, partly due to the complexity of deciphering land ownership.

“If the chief of a community doesn’t allow you to build a tower, you can’t do anything,” complained one Peru roundtable participant at the TowerXchange Meetup Americas 2017. “Sometimes the Chief doesn’t want rental income, he wants community services instead – paying in blankets instead of cash!”

Once they have the towers, buying out the underlying leases is common practice for many Andean towercos, thereby assuring control of the site and lengthening the client relationship.

With many new sites at significant elevation above sea level, road access can be challenging in the mountains.

Telefónica’s Movistar and América Móvil’s Claro lead a mobile market into which both Entel and Bitel have been recent disruptive new entrants. Entel added over a million subscribers in the last year.

ARPU is around US$8 in Peru.

Inaugurated in 2016, Peru’s national fibre optic backbone network, the RDNFO, was commissioned by Mexican consortium Azteca Comunicaciones. The 13,500km network is to connect Lima with 180 of the country’s 196 provincial capitals at an estimated cost of US$333mn.

Claro Peru launched 4G services in May 2014. Movistar launched LTE-A in July 2016. Viettel’s local opco Bitel launched their 4G service in December 2016. In 2016, Entel, Claro and Movistar each secured 30MHz of 700MHz spectrum, ideal for signal propagation in remote rural and low-population areas.

In most CALA markets, carriers’ apparent preference to retain ownership of power assets, combined with towercos’ reluctance to provide power and thereby increase their complexity of their business model, means energy remains the carriers’ responsibility. Yet there seems a greater appetite in Peru than anywhere else to unlock efficiencies by sharing energy equipment in multi-tenancy situations, while MNOs are keen to find partners prepared to share the cost of grid extensions.

One round table participant highlighted that a towerco in Colombia had acquired backup power solutions in a tower transaction and, in doing so, had exposed themselves to the risk of becoming liable to pay government’s downtime penalties.

Indeed, while some towercos are diversifying, power remains low on their list. “A couple of years ago, when a carrier to wanted to deploy a co-location or a BTS, the site could be built but the fibre connection to the tower could take 20 days longer,” said the Peru Country Manager of one towerco. “In order that we start billing at the same time the site becomes revenue generating, we are increasingly providing and bundling everything: tower, fibre, fencing and equipment… but we still don’t think we have to provide energy.”

Leading OEMs, such as Ericsson, Huawei, Nokia and ZTE, are happy to step into the breach: “We’d provide managed services as well as product supply. It is does mean we’re taking on some energy risk, but if we’re doing the field services for everything else, we can realise some efficiencies and savings.”

“Towercos always bounce the energy problem back to the client – this happens a lot in Peru,” said a representative of one of the country’s leading MNOs. “Two of Peru’s largest towercos acquired a lot of sites where there are problems with energy, and we are still trying to find solutions.”

“Peru’s MNOs are obligated to provide coverage in 60,000 villages with populations under 1,000 people,” continued the same MNO. “Connecting such villages might need three or four sites with transmission – and almost all of these would be rural, off grid sites.”

“In Latin America the tower business is a real estate business,” added an experienced towerco investor. “In Africa a towerco doesn’t just provide vertical real estate; power solutions can be a source of competitive advantage, and the profitability of African towercos are driven as much as anything else by diesel savings and security improvements.”

One towerco highlighted a deal they had struck with Peru’s electrical utility to market 30,000 sites, many in rural areas. Ironically there is no access to commercial energy at many of these sites, meaning the towerco may need to explore hybrid solutions. Their representative appealed for suppliers to “make the financial model work so we can offer a bundled service.”

“Peruvian MNOs were asking towercos to provide power at last year’s Meetup – it seems like nobody has picked up that challenge,” added a vendor. “Could towercos acquire more towers in Peru if they provided power? Do they have only 25% of the country’s towers because their service proposition isn’t broad enough?”

“Is a towerco willing to expand their role beyond real estate and engage with higher risk operational and energy services? And if not, perhaps Energy Services Companies (ESCOs) could fill that gap,” suggested the vendor.

“Many towercos are closing their doors in Peru. We need to differentiate on service and be disruptive to survive, whether that’s through small cells, or whether we have to provide energy sooner or later,” responded one of Peru’s more innovative towercos.

“And would you want to develop the competencies to provide energy yourselves, or would you partner with a third party?” Asked the vendor.

The towerco responded: “We’ve spoken with some proven vendors of cell site energy solutions to understand what could be offered, and we recognise we have to evolve. Energy is not our core competency, we need your knowledge, and we need a complete service, but share the risk with us, don’t just sell us products.”

“The requirements of the end clients aren’t always clear,” suggested an OEM. “ Companies like us can support the evolution with managed services, batteries-as-a-service – sharing risk.”

“If risk sharing comes with revenue sharing, we can make it work!” Added the vendor.

“We have to evolve from a build-to-suit towerco to a provider of bundled services,” said the towerco. “The current focus of our diversification is on DAS and small cells, but we recognise carriers also need energy.”

The discussion progressed to address whether investment in electricity grid extension might bring more prospective off-grid cell sites on-grid.

“There are ten regional government owned power companies, and all plan to extend the grid to more remote communities, but each of these power companies has different needs and issues,” said an investor, who had recently met with Peru’s power regulators. “The regional fragmentation means whether you want grid extensions or co-operation on fibre, you need ten deals not one – it adds complexity.”

It should be noted that the CIA Factbook puts electrification in Peru at 91% population coverage (98% urban, 73% rural).

“We need to rollout fast, which means in some cases our best option is to partner with towercos. But in a lot of scenarios they don’t offer what I need at a price I can pay,” said a senior representative of a recent new market entrant challenger MNO. “We lack partners to do a lot of things. For example, at the moment if I need a grid extension I have to pay for this, not the towerco. We need towercos to be more solution-orientated and to partner with us.”

The ground rent pass through was also highlighted as a disincentive to tower investment: “I have to pay for both the land and the tower, and the addition of a second tenant halves the land cost – so there is no incentive to be the first tenant, better to be second or third!”