A tale of two cities: Service-Telecom acquires Link Development

Service-Telecom’s announcement of their acquisition of Link Development sees Russia’s number three and four towercos consolidate to offer sites in both of Russia’s major cities. As well as increasing their geographical footprint, the deal has also broadened the scope of Service-Telecom’s infrastructure expertise, with their own agile small cell and light pole experience being supplemented with Link Development’s background in macro towers and great tenancy ratios. TowerXchange caught up with Nikolai Berdin, CEO of Service-Telecom, to find out more about how the deal took place and their plans for the future.

TowerXchange: Congratulations on the acquisition of Link Development! Can you tell us about the acquisition and your motivations for the deal?

The tower market in Russia is growing and we’re on top of that market, the third independent big player by most accounts. We now have around 1,000 towers in our portfolio: 500 which we built through Service-telecom alone, approximately 400 which we acquired with Link Development and another 100 which will be finalised by the end of the year.

TowerXchange: Do you think there’s scope for further towerco consolidation in the Russian market?

At the moment the market is in two parts. As for the towers which the MNOs own, there’s no sign of an immediate deal but we haven’t ruled out the idea of acquiring one of their portfolios.

The second part of the market is the independent sector: Russian Towers, Vertical and Service-Telecom, plus new entrants in the Moscow region and also local companies who operate in each region of the Russian Federation. There are definitely opportunities for growth and for further M&A in this area, to improve and scale up what the independent sector can offer to their MNO tenants.

TowerXchange: Can you tell us about what attracted you to acquire Link Development?

If you look at the landscape of Russian independent towercos in early 2016, we saw only four reasonably active players and in local markets the main  activity was in Moscow and St Petersburg.

We felt consolidation was the next logical step. Link Development was a leader in the St Petersburg market and the best target for us to expand our geographical footprint. No one else has had success in the St Petersburg market, and it has very good potential, so the logic was simple: by buying the leader in the market we consolidated our portfolio and clarified our vision as well as giving ourselves a strong presence in the two major markets in Russia. It hasn’t been an easy journey and we’ve had to work hard to align everyone’s expectations and get the full buy-in of our shareholders, but now the deal is completed, we all view it as viable and long term.

TowerXchange: Can you talk us through your plans to integrate the two organisations:

We decided that we’d like to create one big joint company  with one team, present both in Moscow and St Petersburg. The idea of this is to enjoy the synergies which can be generated by two teams with expertise between them in constructing macro towers, achieving great tenancy ratios and using best practices in terms of monitoring towers. Resolving power issues when three or four tenants mean there’s a huge amount of equipment on a tower isn’t the same as maintaining street poles with only one or two tenants sitting on there. This is why Link can bring us some of the best expertise in the market. Link has been operating in the Russian market longer than any other independent player, and we’re confident that the results they’ve achieved in terms of colocation is much more significant.

At the same time the Moscow team is better positioned to work in a competitive environment, they’re more experienced in growing a portfolio rapidly and has experience in small cells and light poles which is where the market is going today. We envisage that tomorrow’s networks will comprise of several layers, and there will be a place for both macro and small cells in that infrastructure. By joining the companies, we get expertise in both sides as well as expanding our offering across Russia’s two biggest cities.

TowerXchange: Now the Veon deal seems to be off the table, what do you see as the routes for growth for independent towercos in the Russian market?

We’d like to continue to expand operations into new geographical regions. We are already starting up operations in the Urals and Krasnodar regions, plus we now have  professionals in both Moscow and St Petersburg who will continue to grow business in these regions.

We’re also investigating options to acquire local players in regional markets and to continue to use M&A to grow our portfolio in these locations. But putting all this in place we’re aiming to create a platform which will be best positioned to acquire a bigger tower portfolio from an MNO in the coming few years.

There are four MNOs in Russia and each one has its own stance towards divesting towers. Some are rigidly intending to keep hold of their infrastructure and others are more open to working with independent players, so we will keep the lines of communication with them open in the hope that an opportunity will arise, possibly within the next couple of years.