The Argentina panel held at the fourth annual TowerXchange Meetup Americas highlighted the country’s contradictions and challenge; the attempts to improve its competitiveness and investibility and the resistance of municipalities and other local entities to enable mobile infrastructure upgrades in spite of the pressing need for more coverage and capacity. Joining TowerXchange on stage were Clarisa Estol, Secretaría de Promoción de Inversiones en Ministerio de Comunicaciones, Ministerio de Comunicaciones de Argentina, Ahmad Al-Sati, Managing Director, Albright Capital Management, Manuel Aviles, President and CEO, Innovattel/Torresec, Gabriel Leyba, Head of TMT, ICBC Argentina and Alex Sepehri-Nik, Founder and President, Plata Tower Company.
By now, investment in Argentinian infrastructure should be more reality than hype. But since its exposition to the international business world after the election of President Macri in December 2015, the overall change has been slower than hoped, at least for the telecom infrastructure sector and its many players who are still eagerly hoping for Argentina to deliver higher volume of business.
A law in the making
The Argentine government has been open to listen and engage with the international telecom infrastructure investment community and interested stakeholders.
A lot of work has been done in the background and governmental officials have been very active in expanding their understanding of the towerco model and its ecosystem, meeting towercos from across the region to identify the best way to reform the national telecom sector.
In order to solve some of the issues affecting the local market and contribute to the growth of the telecom and infrastructure sectors, the government has been drafting a new telecom law that will be presented for parliamentary discussion after the legislative elections in October. Measures that the law addresses include a shot clock rule, limitations on municipal taxes as well as the promotion of campaigns to educate communities on what it means to install a new site in close proximity and to reassure them regarding their health concerns.
The march of the hopefuls
In the meantime, tens of towercos have colonised Argentina in the hope to gain high volumes of build-to-suit (BTS) projects, driven by an understanding that the country is quite behind in terms of its mobile coverage and capacity, particularly beyond major cities.
American Tower, SBA Communications, Innovattel/Torresec, Plata Tower Company, Tower 3 and Atis Group to name a few established their operations in Argentina to investigate business opportunities and start offering BTS. And as previously reported, American Tower went as far as acquiring a local engineering firm, CyCSA, and its 1,000 urban sites and 70+ staff.
The level of interest in this market is extremely high and as many as thirteen towercos participated in a recent RFP for approximately 200 sites, which was then assigned to four different towercos.
The dynamics between towercos and MNOs
Panellists noted how MNOs are now starting to work with towercos as partners, after some probing and testing, and are more receptive towards their business model. While the government is enabling the entrance of towercos by creating a more conducive regulatory environment and facilitating the deployment of greenfield projects.
Some of the most recent entrants were attracted by the network investments announced by MNOs for the triennium 2016-2019, with Personal leading the way at US$2.5bn followed by Telefónica (US$2.2bn) and Claro (US$1.2bn).
In the case of Innovattel/Torresec, their early entrance into Argentina gave them an edge against the competition and the time to set up the right business in line with the needs of the local market. The management has spent time on the ground to meet potential customers, understand the market and the nuances of jurisdiction.
The pros and cons of doing business in Argentina
Analysing the pros and cons of doing business in the country, the need to enhance coverage, data demand growing at a fast speed as well as high levels of mobile penetration all contribute to making Argentina one of the most interesting tower markets in the CALA region. However, the gap between theory and reality is still quite considerable and high taxes both at a municipal and federal level, a NIMBY mentality, and a business environment very much in the making aren’t allowing the fast developments the tower industry initially hoped for.
Another factor hindering the growth of towercos in Argentina is the fact that MNOs have depreciated their tower portfolios close to or at zero on their balance sheet, but would incur capital gains taxes of 35% if they decided to sell the assets to towercos.
According to towercos, one of the positive aspects of doing business in Argentina is that MNOs were already quite aware of the infrastructure sharing model, thanks to established examples from across the region such as Brazil, Peru and Mexico. When towercos entered Argentina, MNOs were quite ready to embrace the model or at least sit at a table and negotiate, something that took towercos a long time when entering Brazil, back in the early 2010s.
Forecasts versus reality
In terms of growth forecasts, MNOs report that around 1,000 sites have been built over the past twelve months (by both towercos and MNOs), bringing the total national inventory to approximately 16,000 sites. But that would need to at least double over the course of the next three years in order to achieve satisfactory levels of coverage across Argentina, and some commentators believe the number should actually triple by 2020. It goes without saying that these levels of growth aren’t realistic but the volume of BTS in Argentina is not yet where it should be to both meet the growth expectations of many towercos and improve the Quality of Service (QoS).
One of the hopes of towercos is that once (and if) the capital gain taxation is revisited, this will allow a flow of M&A opportunities to open up. However the recent entrance of Telxius in Argentina is likely to significantly limit the chances for towercos to acquire Telefónica’s assets, and this is particularly true since Telxius is already managing around 350 sites transferred by Telefónica in January 2017. This would leave only Telecom Personal’s and Nextel’s portfolios since Claro isn’t likely to engage in any sale and leaseback with towercos, as per its Group strategy.
The threat of inflation
When discussing some of the financial macros affecting the local tower industry, panellists highlighted that when it comes to inflation, they anticipate it to revert to normalcy in the long term. The risks of high inflation still need to be mitigated by managing both revenue and costs very carefully, and the effect on towercos is reduced since the tower industry tends to be a long term investor. At time of writing it seemed that inflation was currently under better control in Argentina; the local currency hasn’t devalued as much as some expected, also as a result of the recent tax amnesty which contributed to US$116.8bn of assets being declared (corresponding to US$9.65bn of taxes and fees).
In conclusion, panellists listed the five top questions/expectations that remain unanswered as of now, which TowerXchange hopes to discuss in tangible detail at the next Meetup Americas, which will be held in Boca Raton, 20-21 June 2018.
1. Can the telecom and tower industries come together and deliver thousands of new sites in Argentina every year for the next few years?
2. What will be the realistic benefits and quick wins of the new telecom law?
3. Financing options are largely available to towercos and other players active in the ecosystem; who needs financial support?
4. Can the regulatory framework for new deployments be streamlined as quick as possible?
5. The government is working to welcome more towercos, enhance competition and accelerate deployment - who wants to offer suggestions and ideas?
