A flurry of recent transactions, both towerco-on-towerco consolidations and sale and leasebacks, combined with healthy organic growth for SBA Communications, Torrecom, Phoenix Tower International and Telesites, have driven towerco penetration in Central America from 34% two years ago to 42% today. Independent towercos now own 5,100 of the 12,050 towers in Central America, compared to 3,681 of 10,971 in 2015.
Why the Central American tower markets are attractive
Let’s take a look at the Central American tower markets through the lens of a prospective towerco investor.
What’s not to like?
Scale: With the opportunity for shared operational resources, and with many customers in common across six countries, Central America might effectively be considered a single market – thus CALA’s fifth largest, and perhaps most stable tower market.
Growth: Towercos have built almost 1,000 towers in Central America in the last two years, at a stable organic growth rate far in excess of that found in the mature North American market, yet with the comfort of rents still being in US$ and contract structures largely following U.S. norms. Some mature Central American tower portfolios have tenancy ratios approaching two.
Competition: While Central America is well served by towercos, it is not overpopulated, or irrational, such as markets like Brazil, Mexico or Colombia, where competition for search rings can suppress pricing and leave MNOs empowered to dictate terms.
Operational complexity: NIMBY protests notwithstanding (and these protests have been known to get violent), operational risk is relatively low in Central America. Grid power is extensive and reliable in Central America; only a handful of towers in each market are off grid.
Risks: Central America is not without it’s downsides. There is MNO consolidation risk as much as anywhere in the world, while towercos are constantly seeking ways to persuade MNOs to accelerate network investment. Country risk has certainly fallen in the region, but is not insignificant: governments can change, and there is considerable diversity (and unpredictability) in regulation.
With the majority of Central America’s remaining MNO-captive towers difficult, if not impossible, to acquire, TowerXchange expect towerco growth in the region to be continued to be driven by towerco consolidation and new site build.
Estimated tower counts, Central Americas
Central America’s MNO-captive towers
It will continue to be difficult for towercos to acquire many more of the ~6,950 Central American towers which remain MNO-captive. Why?
Millicom (Tigo) has around 2,800 towers across Central America. While the company has an ongoing appetite to monetise towers (they are believed to have ongoing processes in Paraguay and Colombia), their remaining Central American Towers would be difficult to monetise. Around 2,000 of Millicom’s towers sit on the balance sheet of market-leading Tigo Guatemala, whose President and significant minority stakeholder is Mario López Estrada, Guatemala’s richest man and former Minister of Communications (1986-91). Mr López Estrada also owns a significant proportion of the land under Tigo’s towers, making him effectively Guatemala’s largest towerco, but he has no incentive or inclination to monetise (or share!) the towers.
América Móvil’s Claro has around 1,800 towers across Central America, but also lacks financial incentive to sell and leaseback, and may be more inclined to transfer legacy towers, or more likely outsource new build, to their captive-towerco Telesites.
Market leader ICE (kölbi) has around 1,000 towers in Costa Rica, but the government-owned entity also has no incentive to sell.
Telefónica has sold around 1,000 towers to towercos in Central America, and retains around 400 on their balance sheet, albeit scattered in small portfolios across the region. The fact that Telefónica neither monetised, nor carved out these towers into their towerco Telxius, suggests the portfolio lacks sufficient scale to be worthy of monetising.
As market leader in Panama, Cable & Wireless has little incentive to monetise their ~550 towers.
Key stakeholders and transactions
SBA Communications remains the leading towerco in Central America, with 2,499 towers across five countries (Costa Rica 656, Guatemala 620, Panama 554, Nicaragua 429, and El Salvador 240). Having entered Central America in 2009, SBA derived around 60% of their Central American towers through acquisitions from Telefónica and Digicel, as well as through trade acquisitions including from Mobilitie and Centennial, with the remaining 40% coming from organic growth.
26,500+ tower giant SBA Communications recently converted into a REIT (Real Estate Investment Trust), and is listed on the NASDAQ. As such they probably have the lowest cost of capital on this list. SBA remains acquisitive in Central America, but continues to maintain a disciplined approach to M&A; recent transactions have demonstrated they can be outbid.
Continental Towers is in six countries in Central America: Honduras, Guatemala, Nicaragua, Costa Rica, Panama and El Salvador, although the breakdown of their site count in not in the public domain, it is believed to be around 690, inclusive of 30-60m towers as well as smaller flag poles and light posts. Continental Towers’ original business model was to form strategic partnerships with government stakeholders, offering free space to municipality authorities for surveillance and communications equipment in return for discounted land and zoning support, although Continental have subsequently built a number of sites on traditional build to suit contracts.
Torrecom has 548 towers divided across three countries (Nicaragua 282, Guatemala 241 plus a new operation in Panama where they had 25 towers in Q117). They also have a substantial operation in Mexico, where they have 207 towers. TowerXchange first tracked Torrecom’s portfolio in Q115 and at the time, the towerco owned 179 sites across Nicaragua and Guatemala. As of Q117, the company reports a combined Central American portfolio of 548 sites (+306%). Torrecom is led by an experienced management team including co-chairmen Roberto Woldenberg and Eric Zachs and CEO Maria Scotti and backed by MCM, Inc. and Indigo Capital.
American Tower, the world’s most valuable towerco and largest outside China, has a relatively small presence in Central America with 487 towers in Costa Rica, acquired as part of a bundle of 15,700 mostly U.S.-based towers from Global Tower Partners. NYSE-listed REIT American Tower seems to prioritise other regions with their mammoth acquisition warchest, believed to be approaching US$3.5bn – their portfolio has contracted in Central America, including the sale of 58 towers in Panama to Phoenix Tower International.
Phoenix Tower International are a relatively new towerco in the region, with 141 towers in Costa Rica and 102 in Panama, with a further 202 in El Salvador coming from an acquisition from Digicel, which has been announced not closed. Phoenix Tower International’s investors include funds managed by Blackstone Tactical Opportunities, as well as various members of their management team, many of whom previously worked together at Global Tower Partners.
Telesites, the towerco subsidiary of Carlos Slim’s América Móvil (Claro), has commenced operations in its first country outside their Mexican base. Telesites has built 218 new sites in Costa Rica in the last 18 months, representing most if not all of Claro’s new build.
Who owns Central America’s 12,050 towers?
CS&L, a U.S. based REIT which owns 6.76mn km of fibre and 86 towers in the U.S. and Mexico, announced the acquisition of 359 towers from NMS for US$65mn in November 2016. The towers have been transferred to subsidiary Uniti Towers (formerly known as Summit LatAm), under the leadership of Lawrence Gleason, who previously served as COO of American Tower in LatAm. The Uniti Towers portfolio includes 54 existing sites, and one under development in Nicaragua, with annual revenue of US$1.2mn, TCF margin at 80% and a tenancy ratio of 1.31.
BTS Towers is the latest brainchild of the former NMS management team. While it’s early days for this new towerco, and we have no confirmed tower count in Central America for them as yet, they are backed by US$2bn private equity firm Cartesian Capital, and the IFC, which are both serial towerco investors, together with Amzak, a single-family office with more than 25 years’ experience investing in LatAm telecoms.
Balesia is a towerco funded in 2013 with operations in Peru, Ecuador, Guatemala, Colombia, Nicaragua, Costa Rica, El Salvador, Honduras, and Chile. According to its CEO, Mario Rafael Álvarez Gutierrez, the company aims at expanding into Argentina, Bolivia, Paraguay, Uruguay, Dominican Republic, Puerto Rico, Brazil, Panamá, Haiti and the Caribbean in the near future and become a truly pan-regional BTS firm.
There are also a handful of small local towercos in Central America, although keeping track of the creation, scale and sale of such entities is always challenging. At one point TOCSA had over 100 towers in Costa Rica, while José Escobar was reportedly launching another towerco, Catalina Inc, in the country. Torres de Panama is one of several local towercos in Panama, who may own around 80 towers between them.
Conclusion
With Phoenix Tower International’s recent sale and leaseback deal with Digicel removing the last ‘low hanging fruit’ MNO tower portfolio from the pipeline, the future for towercos in Central America seems likely to be dominated by towerco-on-towerco consolidation, as exemplified by CS&L’s acquisition of NMS, and by continuing stable organic growth.
Ultimately, all the upsides of Central America add up to a downside: the risk of overpaying to acquire towers in low risk, US$ denominated market. But towercos who have invested in Central America remain satisfied with the returns and growth generated to date: Central America continues to remain a quiet success story within the pages of TowerXchange!
Is the Caribbean tower market investible?
With around 11,000 towers and a population of 40mn, the Caribbean market is comparable in scale to Central America, but far more fragmented. Comprising more than 7,000 islands and 26 countries, markets of some scale can be found in the Dominican Republic and neighbouring Haiti, in Jamaica, in Trinidad & Tobago and in Cuba. But towercos are present in only two Caribbean countries to date: Phoenix Tower International has 735 towers in the Dominican Republic, acquired from Altice and local towerco Teletower Dominicana, while Continental Towers has a small portfolio in Jamaica.
Given that towercos typically anticipate generating the best returns from markets with three or more strong MNOs present, this leaves the Dominican Republic, Jamaica and, post-liberalisation, perhaps Cuba as the most addressable tower markets in the Caribbean. As smaller Caribbean markets liberalise spectrum (governments remain key stakeholders in several smaller markets), additional markets may come online as prospective supplementary towerco investments, but the scale and complexity of the region would have to be priced in to any future transactions, which in itself may suppress valuations below the level necessary to attract Digicel or LIME, who retain the only tower portfolios big enough to represent pan-regional scale. Competition between Digicel and LIME is so fierce that their towers are seldom, if ever, shared, which suggests a culture of co-location would be difficult to inaugurate.
