Phoenix Tower International: a success story of new deals and strong lease-ups

PTI is an interesting breed of towerco. Entrepreneurial and bold, it isn’t scared of entering niche markets like El Salvador. Well funded and financially smart, it has the capability to build hundreds of towers for its customers across the region. It’s not an independent developer nor a public towerco but it offers the best of both, with a footprint now spanning seven markets across North, Central and South America as well as the Caribbean. In this interview, its CEO Dagan Kasavana shares his views on the recent 200-site deal with Digicel in El Salvador as well as an overview of the company’s activities in Peru, Colombia and beyond.

TowerXchange: Last time we spoke was September 2015. Can you offer us a quick summary of what has changed in the past 18 months?

With regards to our core business we have grown to 1,600 plus assets in seven countries but our overall goals and values have remained the same.

We are working very hard to continue to satisfy the needs of our customers and business partners in line with our mission statement, and continues to be the main focus of the entire PTI team.

In order to operate across our seven markets we are constantly improving upon our level of operational efficiency. Our core activity and focus continues to be leasing up our portfolio. Obviously we do continue to look for new opportunities but lease-up activities have been very strong lately and create significant value for our shareholders.

The El Salvador deal with Digicel is the proof that we remain opportunistic in the way we do business. El Salvador meets our investment criteria with four strong carriers, US$-based revenue and the imminent 120MHz spectrum auction which we believe will fuel further growth in the form of new leasing activity.

TowerXchange: Could you tell us more about El Salvador and the rationale behind the deal?

El Salvador has a very high mobile penetration (152%) but quite low smartphone penetration (50%) and adoption (33%) compared to the rest of the region. Alongside Cuba, El Salvador remains the only regional market yet to deploy meaningful LTE services.

There are only about 1,200 towers in the country for a population over 6mn. This represents a major infrastructure opportunity and we believe that the spectrum auction will drive additional growth of new site deployments and collocations.

On the carrier front, the market is quite competitive and players are currently committing to deep investments to deploy 4G networks. Digicel has stated publicly that they will increase investment in their network which will contribute to the overall health of the telecom and tower sectors.

TowerXchange: Colombia seems pretty crowded. Is there space for everyone? And how does it compare with Peru?

No, there isn’t room for everyone in Colombia. In fact, while the broad five-ten year outlook is very positive, carriers are currently in between spending cycles and aren’t investing as much capital as they have historically. At the same time, there are more towercos in Colombia than in any other regional market.

Colombia is a market where it’s difficult to grow right now through build-to-suit (BTS). Pricing for both M&A and BTS is steeper than in other markets we do business, especially when factoring in the currency risk and, while we do see room for growth and are currently looking at a number of opportunities, I wouldn’t be surprised if some competitors exit the market. Some might end up repositioning staff in other markets or trying to sell their businesses.

For PTI the story is different. Thanks to the strong investor-base behind us, we can work through these kind of downturns without rushing. The situation is similar to what happened in Brazil where Phoenix Tower do Brasil, a separate business in which Blackstone is an investor, operates. We kept looking around for the right opportunities and were able to close to T4U deal and also to win a major BTS order with Telefónica during the market downturn. Our strategy in Colombia is to continue to be diligent while we wait for the right opportunities to materialise.

On the other hand, we see Peru as a great market and not as crowded as Colombia. Carrier spending remains strong and we started operations there before some of the more recent entrants so have imbedded business ongoing. Peru is a market we really enjoy and where we are eyeing a number of opportunities. Its BTS market is relatively healthy and we are well positioned to contribute to the growth and expansion plans of our customers.

TowerXchange: Can you give us an update with regards to your activities in the Dominican Republic, Costa Rica and Panama?

Broadband deployment is very strong across Central America and the Caribbean. Therefore, we are mostly focused on BTS and lease-up activities and enjoying a very busy time!

And while I don’t foresee considerable M&A to happen in the future in these markets, we are quite happy to focus on leasing up our core portfolio and continuing to build new towers for our customers.

TowerXchange: Do you treat Central American and the Caribbean as one market or as separate units?

The Dominican Republic is a market we treat separately due to both its size (10.4mn people) and the size of our portfolio (500+ sites). We have a team based in Santo Domingo which serves the Dominican Republic business operation but also serves our other Latin American markets for certain operational functions and is well positioned to operate in additional Caribbean market if and when we decide to scale our regional presence. We are constantly trying to create operating synergies while maintaining the appropriate local presence for our business partners and customers.

TowerXchange: Is PTI involved in offering solutions such as DAS, IBS and small cells? And what about fibre? 

We are certainly exploring opportunities in all of these fields. In fact, we do have some in-building DAS deployments in Panama and are looking at various other IBS and fibre projects for our customers across the region.

However, in many markets it’s too early to really explore any sort of mass deployment and we always need to strike the right balance between speculative, mid-term projects and the actual needs of our customers today. In fact, I believe scale opportunities of this nature are three to five years away from being actually put into practice in some of our markets.

TowerXchange: Do you think that one of the keys to remain competitive is for towercos to turn into infracos with a broader product and service offering?

I’d say that this is a question that towercos are asking themselves across the world, especially if your main focus has always been on macro towers. And while I think that yes, this is something we need to evaluate, explore and invest in, I also believe that we need the right scenario to make that leap.

Infracos will be well placed to serve the next generation of network needs. But that being said, towers on their own will continue to lease up and that is the simplest way to achieve coverage.

The past five years in the United States have been phenomenal in terms of lease-up thanks to the strengthening of the 3G networks and the deployment of 4G on towers. And this is where we believe much growth is to be seen in Central and South America as well over the coming few years.

TowerXchange: Mobile network operators report to us the need for enhanced levels of partnership and cooperation with towercos. How would you say PTI adds value to its customers?

One of PTI’s unique characteristics is its access to flexible and significant capital. We aren’t only focused on new deployments like many of the independent developers and we also have quite an entrepreneurial edge compared to the larger, public entities. So I’d say we are able to serve a unique niche for our customers: while we can take a very deep dive into a one-country project, we can easily take on large BTS orders for 300 sites+ or a major M&A transaction.

Being very open minded, flexible and entrepreneurial led us to where we are today and I’d say we have many appreciative customers across our markets.

And when it comes to putting our flexible approach into practice, we don’t shy away from rural projects or other complex deployments. We do like to partner with carriers and run projects in all sort of locations as long as we price them appropriately and project their growth correctly. And yes, I would hope that by showing our willingness to run the extra mile, we can secure more attractive sites too!

TowerXchange: How open do you remain with regards to new markets?

We’ve looked at opportunities in several markets over the past few years and have entered some of them as a result. And when I say several markets, I don’t only refer to the Americas but globally. In fact, we remain ready and willing to deploy capital wherever it makes sense for us as a business. In the Americas, El Salvador is the most recent example and Central America is now a region where we are exploring further options.

TowerXchange: How do you foresee the CALA tower market evolving in the next 18-24 months?

With regards to the pool of independent developers, I’d generalise by saying that the pipeline of projects for them has dropped considerably over the past couple of years. In fact, the creation of both Telxius and Telesites has reduced the volume of BTS activity in many markets and orders are now much smaller than they used to be.

The developers’ business model requires them to look at deploying capital in the near term and it’s tougher to imagine them investing large sums anywhere in the region. So I’d be inclined to think that some consolidation among them is in the cards in the future.

On the other hand, there aren’t many large portfolios left from the carriers and much focus is now on those ones that might become available, with some rumoured deals in the pipeline for the near future and could represent a significant opportunity for towercos to increase scale.

TowerXchange: Tell us about the WINGS programme PTI has been developing.

Through WINGS, PTI rises up to give back. This is a program the entire management team and employee base are very proud of and is just a natural consequence of our commitment to the markets where we operate, which is part of our mission statement.

Via WINGS, we are engaging in various philanthropic activities with the goal to give back to the less fortunate ones and give back to the communities we do business in. As an example, we’ve recently raised funds and participated in the JDRF One Walk for Type 1 Diabetes held in Boca Raton. Thanks to the generosity of our employees and through the WINGS program, we donated more than US$5,000 for the cause and had numerous PTI employees walking to bring more attention to Type 1 Diabetes.

Furthermore, last year the business worked directly with the DREAM project in the Dominican Republic and donated and packed 50 backpacks full of children’s school supplies for the coming school year. We will continue to work with the charities we have worked with historically and new ones as we grow across the markets we do business with and will continue to raise money for causes we believe in. There is further information on this program on our website at www.phoenixintnl.com/wings and these projects are some of the most rewarding aspects of our business that brings the entire company together in a positive way.