At the 2018 edition of the TowerXchange Meetup Asia, experts from Protelindo, Aird Towers, American Tower, Ascend Telecom Infrastructure, Bharti Infratel and Pakistan Telecommunication Company Limited took centre stage to discuss the dynamics of their respective markets – representing a pool of very diverse realities in terms of towerco penetration, telecom landscape and overall industry development. Here is a report of key findings from the session.
Asia is a very diverse tower ecosystem, home to several towerco business models depending on the circumstances that originally prompted the emergence of towercos.
Towercos in India and China for example have been created as the infrastructure arms of local MNOs, and as a mean to reallocate risks and rewards to – at least initially – favour the operators. Indonesia on the other hand is following the North American steel and grass model and is home to a purely independent tower sector with three large towercos and a plethora of smaller infrastructure developers.
Indonesian MNOs expand beyond Java
On the MNO front, the market is quite imbalanced with healthy levels of competition among all of them in Java and Telkomsel playing a dominant role outside of the island. Now XL is expanding outside of Java and leading 4G deployment. All four MNOs are quite aggressive with their 4G rollouts and the migration to the technology is happening faster than originally anticipated. The market is also pushing towards fiberisation with players such as SMN – Protelindo’s owners – at the forefront of fibre acquisition and deployment.
The market experienced a couple of slow years in 2015 and 2016 in terms of organic growth, mainly as a result of the delays in some much-awaited regulatory changes. On the other hand, 2017 and 2018 were strong years, driven by XL and Indosat and their expansion plans outside of Java. The two MNOs initially sought co-location opportunities and are now working with towercos for build-to-suit projects.
Consolidation hindered by expectations
Commenting on the potential for more consolidation among towercos, Steve Weiss from Protelindo, who has recently acquired KIN, noted that more towercos are actually ready to be acquired. The challenge to consolidation is actually represented by the expectations of private equity investors who have sought 20% returns, in spite of currency devaluation. While it is painful to come to terms with this adjusted reality, funds that have entered the Indonesian market more recently tend to have more reasonable expectations and return profiles.
Pakistan still behind
Pakistan remains an underserved market but 4G is leading the growth, with over 35% growth in data subscribers in 2017-2018. However, the market remains considerably behind in terms of data consumption per subscribers, compared to other regional countries.
The market could present strong opportunities for towercos as 95% of its tower inventory remains in the hands of MNOs. In recent years, MNOs have started to outsource new site deployments which could pave the way for tower divestments in the future.
The government has taken an active role in mandating several forms of sharing, both active and passive. In fact, the tenancy ratio across Pakistan is around 1.25 in spite of the low towerco penetration rate.
Grid still an issue in Pakistan – opens opportunities for renewables
On the operational front, while 98% of the existing towers are connected to the grid, its availability remains a challenge with as many as eight hours per day without electricity in certain areas. This is why MNOs are increasingly relying on solar and wind solutions to power their sites. The push for renewables is also incentivised by the high incidence of thefts of diesel generators and other components.
A new telecom era for India
Shifting to India, the country is experiencing a huge data explosion that is pushing telecom players to further fiberise their sites and urban networks. The real challenge is represented by last mile and intra-city fibre and towercos are currently developing several projects for the government as well as for private players.
While most Indian MNOs are still under financial stress, and dealing with shrinking margins and ARPUs, towercos are studying the commercial model to offer fibre among their products, with India getting close to 30% fiberisation.
The shared feeling among Indian players is that the country is entering into a brand-new telecom era, with consolidation of both MNOs and towercos well underway, a strong governmental push towards universal access as well as innovative moves to promote smart cities, greener sites and beyond.
The Indian government has proven strongly pro-telecom with initiatives such as the 2018 National Digital Communication Policy that aims to facilitate India’s entrance in the global digital economy and for which operators as well as towercos will play a pivotal role. The new policy is going beyond the telecom space to serve sectors that could benefit by digitalisation such as healthcare, education, transport and more.
Smart cities are likely to generate additional revenue streams with mobile VAS such as environment sensors, traffic control, CCTV and more all becoming potential customers for smart poles.
Australia still lagging in terms of towerco penetration
In Australia, the 2G network has been finally switched off and the market is leading the way in 5G testing and deployment. With a complex geography and only 25mn inhabitants, coverage is a real challenge in Australia and the market is still quite behind in terms of towerco penetration.
Axicom – originally Crown Castle – is the largest towerco with nearly 2,000 sites. However, with no opportunities for inorganic growth at the moment, towercos are focusing on build-to-suit activities. Some players are also working on innovative initiatives such as the use of utility poles for telecom purposes or small cell deployment, such as Optus who has recently been awarded a small cell contract.
Conclusions
The panel offered a variety of insights into the dynamics of four very diverse markets. Once again, we were reminded that Asia is not a regional market but a collection of realities at very different maturity stages. While the challenges faced by each country are unique and difficult to grasp during a sixty-minute session, a couple of elements emerged as common trends across most of them.
1. Small cells and other innovations: towercos across APAC have a real opportunity to open a new business channel for themselves as MNOs and governments push towards 5G, fiberisation and smart cities. Questions remain about the viability of the business model but early adopters across various markets are already succeeding in offering more than just towers.
2. 4G overlays (and 5G) drive growth: there is still plenty of opportunities for growth when it comes to reaching strong levels of 4G coverage especially across islands, rural areas and outside major cities. Towercos are playing a pivotal role in cell site densification especially in those markets where MNOs are finding it hard to balance rollouts with shrinking margins, hence more eager to outsource new sites deployments.
3. Consolidation and returns: the global trend of consolidation – both among MNOs and towercos – is well underway in Asia, with India and Indonesia being two of the most active markets when it comes to combining operations to improve efficiencies and strengthen balance sheets. While the consolidation of MNOs can be delayed – if not stopped altogether – mostly due to regulatory concerns, towercos are experiencing different inhibitors. In fact, in most cases, deals among towercos are relinquished due to the unrealistic expectations of investors, which aren’t ready to settle for subpar multiples in spite of the many changes that have affected regional economies (eg. devaluations) over the past few years.
In spite – or maybe in light – of the above considerations, Asia is one of the most exciting regions in the global tower scenario. We are now gearing up for the 6th annual TowerXchange Meetup Asia, taking place in Singapore, 3-4 December. Stay tuned for more news in the upcoming weeks.
Panellists profiles
On stage for an exchange of insights on the state of the market across Australia, India, Pakistan and Indonesia were Tom Andrews, MD, Aird Towers, Sushil Kumar Chaturvedi, CEO, Ascend Telecom Infrastructure, Sachin Naik, COO and Chief O&M Officer, Bharti Infratel, Sudhir Prasad, CEO C&SE Asia, SVP Strategy, American Tower, Moqeem ul Haque, Group Chief Strategy Officer, PTCL and Steve Weiss, CFO, Protelindo.
The session was moderated by Jonathan Atkin, Managing Director at RBC Capital Markets.
