To better understand the drivers behind fibreisation and where Asian telecom players are when it comes to 5G, TowerXchange recently talked with two experts from advisory firm Capitel Partners. In this interview, Puja Goyal and Atirek Gupta share their views on fibre and draw comparisons with the traditional towerco business model. While challenging and very different, one conclusion stands out, fibre is a necessity and those who engage with it will have an edge in Asian telecoms.
TowerXchange: Please introduce yourself and your role within Capitel Partners.
Puja Goyal, Principal – Transactions Advisory TMT, Capitel Partners:
I am a Principal with Capitel and have been with the firm for more than five years. I advise on large tower and fibre transactions in India, China and South Asia, with the recently added responsibility of serving clients in EMEA from our London office. My colleague Atirek is a consultant with the Singapore office and has advised on multiple fibre planning and investment engagements in India and other Asian countries.
TowerXchange: Could you share some details with regards to Capitel Partners’ activities and expertise? Who are some of your clients across Asia?
Puja Goyal, Principal – Transactions Advisory TMT, Capitel Partners:
We are a specialist transaction advisory firm with a focus on addressing the most complex techno-commercial issues for our clients, especially for major transactions and investments.
Our primary focus area is techno-commercial due diligence and planning to support transactions and investment planning for TMT infrastructure such as wireless towers, fibre, data centres, as well as TMT networks such as investments in fixed and wireless broadband and media distribution networks.
We are headquartered in Singapore with established offices in New Delhi and New York, and the recently opened branch office in London. In Asia, we serve regional offices of global infrastructure funds, private equity funds, Hong Kong and Singapore based hedge funds and PE funds as well as major towercos, fibrecos and telecom operators active in the region.
TowerXchange: Fibre is now a buzzword across Asia and beyond. Why it is now so relevant in the telecom context?
Puja Goyal, Principal – Transactions Advisory TMT, Capitel Partners:
There are three primary reasons for the increasing importance of fibre:
a) Deployment of large chunks of high frequency LTE spectrum (such as 50MHz+ on 2300MHz, 2600MHz bands) needs a fibre backhaul;
b) Deployment of small cells, 5G nodes, DAS and other capacity solutions requires last mile and metro fibre connectivity; and
c) Deployment of FTTx networks for residences, buildings and enterprise customers requires a metro fibre network.
We are witnessing all of these phenomena across multiple emerging markets, with the share of the three factors varying depending of the stage of maturity of the specific market.
TowerXchange: Can you share some of the recent projects you have been working on related to fibre?
Atirek Gupta, Consultant – Transactions Advisory TMT, Capitel Partners:
Our clients need our help in areas that need techno-commercial planning and modelling, such as:
a) Commercial due diligence of metro fibre assets specifically to understand the expected utilization of the fibre based on demand from towers, small cells, network capacity solutions, FTTx use cases and lease to ISPs and cable operators;
b) Pricing models for fibre-to-the-tower, including models such as per site pricing, bandwidth-based pricing, bundled pricing (small cells and other solutions), per RKm pricing and IRU based models among others;
c) Fibreco business case for a B2B business model including fibre-to-the-tower, small cells, 5G and other use cases; and
d) Market assessment to establish new fibrecos using a combination of build, buy and partner for assets, starting from the acquisition of a strong fibreco operational platform.
In Asia, we have worked on evaluating fibre and 5G investments in India, China and South Asia.
TowerXchange: Are you seeing that towercos are now eyeing fibre opportunities more than before? And how do you foresee the uptake to compare to the traditional towerco business model?
Atirek Gupta, Consultant – Transactions Advisory TMT, Capitel Partners:
Towercos are well positioned to address the fibre opportunity, especially for use cases that have tower as the central piece of network architecture. We have advised towercos on developing a fibre-to-the-tower footprint by selecting a mix of on-net, near-net and off-net towers and mapping it to operator Lat-Long to maximise tenancy ratio on the fibre asset.
We have advised towercos on developing a fibre-to-the-tower footprint by selecting a mix of on-net, near-net and off-net towers and mapping it to operator Lat-Long to maximise tenancy ratio on the fibre asset
Given that the capacity of microwave is improving, and there are available substitutes such as E Band and V Band mm wave, the pickup of fibre to the tower will be based on a compelling pricing model for the operators so that they are cost neutral, get some benefit from a shared infrastructure, as well as do not lose revenues due to traffic congestion.
TowerXchange: How do fibre transactions compare to tower ones from a financial standpoint?
Atirek Gupta, Consultant – Transactions Advisory TMT, Capitel Partners:
Unlike towers or for that matter data centres, fibre networks are not discreet assets and also do not offer an intuitive understanding of the network. The primary driver for assessing the fibre is the expected capacity utilisation (similar to tenancy ratio on a tower), although unlike towers, there are multiple sources of demand for a fibre asset, as well as multiple areas of incremental investment (such as last mile), which makes the transaction more complex.
The level of comfort on utilisation informs the EBITDA and capex projections, and we believe that the capex projections to replace old fibre, add new fibre routes, last mile connectivity and in some cases network equipment (for lit fibre sale) is much more complex and market-specific as compared to a tower transaction.
TowerXchange: If you imagine the shape of the Asian telecom and tower market in 12-18 months, how does it look like?
Puja Goyal, Principal – Transactions Advisory TMT, Capitel Partners:
Countries across Asia are in different stages of market maturity as illustrated in the towerco lifecycle maturity model illustrated in Figure 1. We model markets moving from macro coverage to 5G deployment based on operator coverage, data usage and spectrum band position in these markets.
Figure 1: Towerco lifecycle maturity model
This lifecycle maturity is also impacted significantly by the competitive landscape of wireless operators in these markets. We believe that:
a) Frontier Asian markets such as Nepal, Sri Lanka, Bangladesh and Myanmar typically have a very strong leading operator such as Axiata, Telenor or Viettel. In such markets, the growth of the tower market will only depend on the competitive strategy and strength of the second operator – if the second operator is content with their market position, or do not have the ability to invest, then the tower market growth will be stable and not exponential.
b) Emerging Asian markets such as India, Indonesia and Malaysia typically have a market leader as well as a strong competitor that makes sure that the competitive intensity among wireless operators is high, which in turn translates into additional investments in tower and network infrastructure. Some markets such as Philippines will have these investments led by regulation as well.
c) Developed Asian markets such as China, Japan and South Korea will be completing the LTE deployment lifecycle in a couple of years followed by significant deployment of 5G and small cells.
TowerXchange: With the industry swiftly moving towards 5G, how do you see the attitude and strategies of MNOs and towercos changing? And how are their investments and financial choices evolving?
Puja Goyal, Principal – Transactions Advisory TMT, Capitel Partners:
The key question for towercos and investors on 5G is to understand how much of the 5G opportunity will be captured by towercos, and what share will bypass the towercos and be captured by independent emerging vendors focused on small cell deployments, fibrecos, and even mobile network operators themselves. This will depend not only on the spectrum band for 5G, but also questions such as usability of same network equipment for 4G and 5G even if both technologies are deployed using the same spectrum band such as 700MHz.
Unlike tower macro deployments, 5G and small cell deployments have an element of real estate acquisition, multiple partnerships with out-of-industry providers such as brand managers JCDecaux, and access to fibre networks. This means that towercos will need new capabilities that are more suitable for 5G network deployments.
TowerXchange: What does 5G mean in terms of spectrum allocation? Are Asian countries “5G ready”?
Puja Goyal, Principal – Transactions Advisory TMT, Capitel Partners:
The emerging bands for 5G are likely to be 3.4-3.6GHz, 2600MHz, and potentially 700MHz and mm wave bands. The high frequency bands imply that the deployments will be very dense, although how much of this deployment will use the existing macro layer remains a question mark and will vary depending on both the existing 4G grid and the spectrum allocated for 5G.
We believe that emerging and developed Asia will begin moving to 5G once the 4G investment cycle is completed by around 2020. The pace of deployment will vary by market, and we remain optimistic that India and China will have massive 5G deployments among emerging markets in Asia given the competitive situation and regulatory landscape.
