Putting together the pieces of Russia’s data demand

Georgy Chumburidze leveraged his experience in Russian content platforms to identify the need for growth in telecoms infrastructure, and set about assembling a team who could deliver on the core competencies he believed would be needed. Vertical is now Russia’s second largest towerco with ambitions to grow exponentially in 2017. He talks us through how the company was formed and their vision for the future.

TowerXchange: Please introduce Vertical, how was the company founded and how has it grown?

I am heavily involved in various media and internet projects in which I am also a shareholder. In particular, in a Russian version of YouTube called RuTube, in the largest Russian video content distributor PladForm and online gaming business 4Game (which is a part of Innova Group). Through my involvement in these projects, around 2011 - 2012, I noticed that content consumption is actively shifting to mobile platforms. At the same time MNOs were struggling when trying to rollout 4G networks in Moscow due to the lack of suitable infrastructure and therefore holding up demand for content consumption.

These two observations brought me to the idea of starting Vertical. In doing this project, we were able to find a quite unique solution (refurbished light pole) which can simultaneously solve 4G rollout problems for MNOs, enhance the quality of networks for citizens and add a new tool for digitalisation of the city for local municipalities.

A customer-oriented agile approach allowed Vertical to rapidly expand its refurbished lightpoles portfolio via a build-to-suit programme which was accelerated by a wave of 4G rollout. At the beginning of 2014 we had no sites and we plan to have around 2,500 sites in our portfolio by the end of this year.

TowerXchange: Can you give us some background on the management team and your experience and ambitions in the telecoms infrastructure market?

There is no long history of the tower industry in Russia at that moment, therefore we had to build our team attracting talent from different sectors and with different backgrounds.

Today we have an experienced team. There are five core competences you need to build a telecoms infrastructure company:

- Vendors (such as Nokia/Huawei/Ericsson)

- Telco clients (MNOs)

- Property management (Real Estate)

- Project management (Construction)

- Finance (Top level)

Add 2 approaches:

- Agile (customer centric approach)

- Best Practice/tower global expertise involvement

And cover it with:

- Enthusiasm

- Entrepreneurial spirit

All these created the right mix to shape Vertical as a platform. Having this platform in place now we are focusing our efforts on three key areas:

- Geographical expansion of our business model

- Acquisition of an MNO portfolio and unlocking its value through professional and independent operations

- Deepening our cooperation with vendors and MNOs to prepare the foundations for the next technological shift via new product lines

TowerXchange: At the recent TowerXchange Meetup Europe there was a lot of talk about the Russian market, how would you summarise market conditions at the moment?

The tower market in Russia is on the verge of the new phase of its evolution. Over the past few years we have seen growing interest from MNOs to outsource infrastructure. Now we see that MNOs are trying to bring their sites to the market, spinning off or even selling their portfolios.

All this is combined with attractive macro fundamentals: (1) Growing demand for data driving network development and demand for sites; (2) Improving financial markets with falling interest rates and inflation coupled with constant inflows of international capital.

All these developments make us believe that the Russian tower market will be a very dynamic and interesting place to be during next few years.

TowerXchange: We also spoke in some detail about 4G expansion and 5G rollout - can you share your thoughts about how and when this rollout will happen in Russia and what it means for Russian towercos?

As I described earlier, 4G rollout is actively happening at the moment. It was very active over the past few years in Moscow and now MNOs’ focus is shifting to other Russian regions. This means that towercos need to expand their geographical presence and provide city solutions in other major Russian cities.

In terms of 5G, Moscow is not lagging far behind other global hubs and we will see first pilot rollouts soon and massive rollout in medium term. For the rest of Russia, 5G is rather a long term proposition.

Although 5G is a very promising growth driver for the tower industry here, it still looks distant and vague. However, I am convinced that companies like Vertical with a clear cut organic strategy of focusing on city solutions are very well placed to design a good product to support 5G development.

TowerXchange: The Russian market seems very opaque when it comes to MNOs’ plans for their towers, what is your take on the possibility of a sale and leaseback deal in Russia and how are MNO attitudes changing?

The very important paradigm shift in the market has happened. All MNOs have recognised that their tower portfolios are valuable as a standalone asset. Most of them have already started carving-out their towers in separate vehicles.

The next step is unlocking value of these assets. There are a number of ongoing discussions on how to unlock it and how much of this “locked” value can be paid up front. Western precedents are putting in place extremely challenging benchmarks, however the Russian macro environment is moving in the right direction which will converge the positions of sellers and potential buyers.

So the only questions now are when and in what form it will happen.

TowerXchange: VEON have brought 12,400 towers to market in the CIS; how does Vertical feel about the CIS market? Do your plans for the future include expanding outside of Russia?

We are keen to look at all available opportunities in the region. The CIS is, to some extent, very similar to Russia and therefore provides an opportunity to expand. On the other hand, you need to craft a solution to meet both the expectation and goals of your client and conditions of financial markets. As we see it, this process may take significant time.

TowerXchange: Can you share your vision for Vertical and where you see the opportunities for the company?

Georgy Chumburidze, Group CEO, Vertical: In addition to the previous ambitions mentioned, I can add that we are about to announce some very important changes in our corporate and shareholding structures. We have very positive expectations from these changes and we believe that it will make Vertical’s position as a leading independent player even stronger.