Over the last decade, Brazil has been one of the most dynamic and prolific tower markets in Latin America but a deep recession mixed with an intense political crisis contributed to putting a halt to growth and creating a rather dejected telecom landscape for the past three years. Brazil is now back and holding huge prospects for organic growth, technology innovation, investment and acquisitions. Earlier this year, TowerXchange touched down in São Paulo and met with key industry figures to analyse the market turnaround and upcoming opportunities of the Latin American giant. This editorial explores MNOs’ latest moves and strategies as well as new prospects for towercos, vendors and investors.
Brazil is one of the most competitive telecom tower markets in Latin America. Its 209mn population, a high penetration and its competitive telco landscape are huge drivers for both greenfield deployment and co-locations. From an operational perspective, it can be considered an innovative market with all the main players exploring new business models, advanced technologies and alternative energy solutions. Financially, private equity funds, infrastructure leaders and even smaller independent investors can expect plenty of activity as the MNO landscape and tower market consolidate and mature against the backdrop of a recovering socio-economic scenario.
A very competitive playground
Telefónica’s Brazilian subsidiary Vivo leads the telco game with one third of the total subscribers. The company, which owns around 4,000 towers and operates 24,404 base transceiver stations including its co-locations, invested over US$2,000mn on fibre expansion and 4-4.5G network upgrades in 2018. Vivo has set ambitious deployment targets and aims to build 1,500 new sites per year between BTS, co-locations and new builds of their own in specific locations where they cannot find a suitable infrastructure partner. The MNO has previously sold many of its towers in the country and carved out more into Telxius when the towercos entered Brazil.
Since last November, Vivo’s operations have been fully powered by renewable energy and the MNO plans to achieve a 64% reduction on its CO2 emissions by 2020. It has developed different small hydroelectric plants in the state of Minas Gerais to power their assets and signed different PPA agreements across the country to complement their auto-generated supply. In addition, Vivo seeks to improve its operational efficiencies hence is implementing more than 20 initiatives to reduce energy consumption including network modernisation, the replacement of old equipment and the deployment of new technologies such as advanced cooling systems and batteries. Security is a big concern across Brazil and the telco has already installed 6,000 bluetooth locks, reducing thefts by 95% on those sites.
For years, TIM and América Móvil’s Claro competed for the second spot, but in March, the latter consolidated its position with Nextel’s acquisition, which will give Claro almost an extra 2% of the market share. América Móvil’s agreed to pay US$905mn to NII and AI Brazil Holdings BV but the transaction still needs to be approved by telecom regulator ANATEL.
With a portfolio of 11,000 macro towers and around 3,000 small-cells, Claro is the only Brazilian MNO that has not sold any of its assets to a tower company. The MNO owns the second largest portfolio of assets in the country, behind American Tower. However, that could change soon as the company is currently deciding whether they should continue with the current strategy or release some sites via a sale and leaseback transactions or through a carve out - hence via the creation of Telesites in Brazil. Claro has been heavily deploying over the past two years, in an effort to transition to 4G and even to 4.5G - with network innovation high up among the MNO’s priorities. The telco is now reviewing its capex allocation and exploring different alternatives to optimise its network use, including an infra-sharing initiative that will facilitate and boost other MNOs’ access to Claro’s towers when needed.
Energy is a huge theme for Claro Brasil. The company is now modernising its electronic equipment, installing new rectifiers, efficient generators and lithium batteries to reduce cost and emissions while improving efficiencies. As previously reported, the company is also developing the country’s largest private renewable energy generation project, while exploring automated monitoring and access control solutions that can reduce and control the impact of vandalism and theft.
Competitors have to keep up. In 2019, TIM has already invested over US$170mn out of the total US$975mn that the company has allocated for its mobile broadband infrastructure expansion and the development of the fixed broadband business of TIM Live this year.
The Italian telco aims to become a global leader in 5G and has been exploring its deployment in Italy and Brazil. In fact, TIM Brasil is working alongside Huawei and conducting trials on the 3.5GHZ frequency in Florianópolis as the MNO seeks to explore applications related to smart cities, agriculture, self-driving cars and virtual reality.
With around 16% of the market share, Oi is still a strong competitor in the game, while the fourth player - Algar Telecom - retains less than 1% of the market. In June 2016, Oi filed the largest bankruptcy request in Brazil’s history and the company chose judicial reorganisation to preserve its holdings’ value and to continue serving its customers. A year later, the company reached an agreement with two creditor groups on a plan to exit bankruptcy protection and the company is now fully back on business.
Four years ago, Oi sold around 9,000 towers to SBA and America Tower and earlier this year the MNO hired Bank of America Merrill Lynch (BAML) to sell its remaining sites as well as its data centres. Although the company plans to sell its non-core assets, Oi is still building some sites, both directly and through BTS contracts as well as continue closing RANsharing agreements with contestants TIM and VIVO.
Like its competitors, Oi has reached an agreement with Minas Gerais’ electricity provider CEMIG to power its operations with solar in the state and although their priority now is to purchase renewables through PPAs, they are developing a micro solar project in São Paulo to explore the benefits of auto-generation and hoping to replicate that in other areas. The company has also started its first 5G test in Buzios and plans to continue testing its possibilities and requirements. In preparation for that transition, Oi will invest over US$180mn on a fibre expansion initiative across 60 cities by the end of the year.
Is the towerco renaissance real?
New sites’ demand from MNOs is increasing and the huge need for new builds to improve capacity and coverage in new areas will guarantee organic growth again. SBA Communications and Phoenix Tower do Brasil remain optimistic and all the main infrastructure players are expecting large demand for macro sites as well as small cells, shorter poles and DAS as MNOs look at alternatives to densify existing networks in areas of poor quality.
Moreover, ANATEL is currently freeing up spectrum that was previously utilised by analogue TV providers and an auction should take place before the end of the year, which will further intensify 4G deployment efforts. The expected approval of the PLC 79, which the regulator is urgently pushing, will also free up capital spending toward wireless infrastructure and take a heavy burden off MNOs having a positive impact in the market.
Also on the regulatory front, ANATEL recently confirmed that the bidding for 5G spectrum - the largest auction in the history of the agency and a huge driver for new sites - should take place in Q1 2020. Conscious of this transition and its requirements, towercos in Brazil are acquiring fibre portfolios and concentrating in shorter and lighter urban-focused solutions. Along that line, niche smaller players such as Skysites - an infraco mainly focused on urban deployment - could find plenty of business with MNOs while becoming an acquisition target for some of the bigger infrastructure players that want to diversify their footprint. A recent example is the acquisition by Phoenix Tower do Brasil of small cell firm K2 Tower.
An innovative approach will be required, as operators are open to explore solutions that can guarantee cost reductions. From monitoring systems to rectifiers and access control software, towercos will find plenty of opportunities to improve their offer while vendors can monetise this need trough towercos partnerships or dealing directly with MNOs.
Specifically, security remains a top concern and demand for surveillance systems, new alarms and sensors, solid cabinets and access control alternatives will rise, while MNOs have started demanding a more proactive approach from towercos on this front too.
In addition, the push from MNOs to improve their services and the need of diversification to guarantee the expected returns to investors is certainly changing towercos approach to energy. Traditionally, they were very reluctant to any shift in their business model. Now, all the main towercos active in Brazil are at least analysing the potential benefits of integrating energy management in their business offer and some of them are even in talks with different ESCOs and RESCOs and considering partnership and beneficial collaborations. This is part of a bigger regional trend as CALA towercos are indeed going beyond steel and grass.
Back in March, an MNO infrastructure executive told TowerXchange that he’s currently dealing with over 35,000 bills, so having a single throat to choke that includes land, maintenance, energy and security fees would make his life much easier - and towercos’ offer way more appealing. In Brazil, the government wants to push solar and incentivise companies that develop their own renewable energy initiatives. Moreover, the law allows private entities to install their own plants and reinject their surplus back to the grid to sell it afterwards in any point of the country, therefore investing in renewables can bring interesting returns to tower companies while providing a competitive advantage.
Brazil Estimated tower counts
Despite all those encouraging signs, the industry still has many challenges to overcome. As in most Latin American markets, land use and permitting are very complex in Brazil and the power of municipalities remains strong. In some cases, it can take months to get a building permit and the different rules, fees and requirements of each municipality complicate the creation of a national deployment strategy. Although the Brazilian economy has experienced a notable improvement, the currency continues to cause financing challenges to international towercos and investors.
Collaboration and RANsharing among telcos is very common in Brazil and towercos need to be very innovative and diligent to position themselves as the most reliable infrastructure partners.
Flexibility and a cooperative approach will be crucial. Demand will continue rising and the current coverage and site densification won’t be enough, especially with the prompt arrival of 5G. Consolidation in both the MNO and towerco front is expected in the near-term and as mentioned above, technology and strategic innovation will be necessary to survive in this competitive scenario.
