During the 3rd annual TowerXchange Meetup Asia, edotco’s CEO Suresh Sidhu, took centre stage and gave an inspirational keynote speech on the changing dynamics of the tower industry by analysing, and proposing responses to, three main threats to its traditional business model: pressure on MNO margins, new entrants such as Google, Facebook and SpaceX poised to enter the infrastructure space, and the transformation of network architecture particularly at the heterogeneous network layer.
Sidhu opened his speech by identifying three concurrent forces which are “creating headwinds” against the traditional towerco business model, namely the financial and operational threats to MNOs and their way of doing business, OTT players entering the infrastructure industry and testing new connectivity and data solutions; and the transformation and evolution of the network architecture.
Three threats to the towerco business model
The threat to traditional MNO business model is clear to everyone. In fact, while data demand is indeed growing and growing fast, this increase hasn’t been sufficient to counterbalance the decline in voice revenue. Sidhu showed the YoY results of two operators who managed to considerably increase their data revenue and yet failed to achieve positive EBITDA results due to plunging voice revenue. And as MNOs face a continuous decline in their profit margins, and in some cases mounting debts, towercos are forced to redesign the way they price their leases to remain attractive partners.
If the original mission of the towerco business model is to deal with assets embedded in the ground, Sidhu noted that this might not be the case anymore due to the entrance of various new (and challenging) business channels in the mix. He referred to OTT players who are now engaged in testing ways to deliver data via alternative platforms such as Google’s Project Loon, Facebook’s Aquila and SpaceX’s satellite network. These solutions will pose a real threat to traditional towercos if and when they become available in the market.
YoY revenue drops due to voice revenue crisis
In terms of network architecture, Sidhu highlighted that our generation will live through the 2G switch-off as MNOs will be forced to free up and re-farm frequencies for 4G and 5G. This change will have an impact not only on the ways MNOs deliver their services but also on how infrastructure companies live without a base-load of 2G kit. And although the switch-off of 2G keeps getting delayed, it is something we’ll witness in the mid-term future.
The evolution of network architecture is particularly crucial these days due to the demand for high throughput which is pushing networks to move towards the heterogeneous network architectures where macro-sites serve as coverage solutions and micro-sites such as small cells and DAS are utilised to increase capacity and site density.
Source: edotco keynote presentation, TowerXchange Meetup Asia 2016
How can towercos stay competitive?
The question for towercos is how they can position themselves to be ready for those changes that might not happen but would certainly have an impact on the world they operate in. And while the key is to embrace changes this might not always be as easy as it seems.
In Sidhu’s words “towercos will have to navigate headwinds by using the right tailwinds” and this will require towercos to engage in new ways of doing business and move to a more comprehensive infrastructure company mindset. edotco’s portfolio, for example, is formed 45% ground based towers, 45% by rooftops and 10% by in-building solutions and other shared products such as BTS hotels. Sidhu noted how this mixed composition of alternate site typologies was the way forward.
Source: edotco keynote presentation, TowerXchange Meetup Asia 2016 Other strategies to adapt to change include the expansion of services offered. For example, to incorporate dealing with complex permitting issues and other regulatory obligations, or embracing new technologies, moving towards leaner and greener operations, solidifying one’s position especially in key markets and ensuring to stay agile also by building economies of skills. The latter point refers to the need for towercos to create an internal culture that promotes engagement and skill enhancement and to forge a productive workforce rich in both local and group-wide knowledge, which should enable talented people to transfer experiences cross-country.
Sidhu outlined the towerco model for tomorrow by referencing to the four key streams of activities companies should focus on, namely expanding their offering, optimising services (with much emphasis on energy), innovating by embracing heterogeneous network architecture solutions, and automating operations such as RMS and the asset lifecycle management.
Source: edotco keynote presentation, TowerXchange Meetup Asia 2016
Conclusions
Sidhu offered an inspirational speech on the opportunities for towercos to expand beyond their traditional mindset into new - challenging - territories. This shift might not be optional as tech giants make their way into the infrastructure universe and test satellite-enabled ways to connect which force towercos to redefine their role in today’s industry. In today’s world, the adoption of heterogeneous network solutions as well as the creation of new cooperative channels with MNOs might not be optional.
Additionally, towercos might need to look beyond the traditional steel and grass model and work towards adding visibility to their business by engaging with regulators as well as working on creating a stronger internal culture. In fact, as noted by Sidhu, while edotco’s history originated due to the need to consolidate passive infrastructure across multiple portfolios, the company is now moving towards innovation and a virtually infinite expansion of services.
