CALA MNOs opt for optimisation and towerco collaboration

The 6th TowerXchange Meetup Americas in July 2019 hosted several MNO executives who explored and discussed the main challenges that they are facing in their infrastructure rollout and management. Entel, Telefónica and Telecom Argentina led different closed-door sessions and took the main stage to participate in a panel discussion, where the three telcos shared their operational headaches and discussed how their infrastructure partners can make their lives easier while releasing some pressure from their balance sheets. 

For years, towers were one of the most valued assets for Latin American MNOs and outsourcing their management was unthinkable. Towercos and the numerous benefits that their business model brought to the table have changed that, and the 6th TowerXchange Meetup Americas demonstrated that synergies and collaboration across the industry continue to grow. MNO leaders have changed their mindsets and an unprecedented engagement from CALA operators at the Meetup proved it.

Telefónica is one of the most experienced operators when it comes to dealing with towercos. The Spanish telecom giant has around 150,000 sites across 12 different countries. Half of its portfolio are traditional macro towers, and over 50,000 of those sites are currently operated by their infrastructure partners, as Telefonica’s Head of Network Nilmar Seccomandi likes to call them. “We have been working closely with towercos over the years so we don’t see them as providers but as our business partners.” The operator has fully embraced the towerco business model over the last decade. Between 2010 and 2013, Telefónica sold tens of thousands of assets across the globe through several sale and leaseback agreements with independent tower providers. Back in 2016, the company launched Telxius and now, over 35% of the telco’s new sites are deployed through its carved-out towerco and other independent towercos.

Entel’s Chile and Peru units are other good examples of successful collaboration. Between 2009 and 2011, the increase of data demand required a very aggressive network rollout from the leading operator in both markets, Entel it decided to co-operate towercos through build-to-suit (BTS) and co-locations. After a decade of prolific partnerships, Entel has started a process to sell more than 2,000 assets in both countries, which will enhance operational synergies with future investors.

Although neighbouring Argentina was one of the latest countries that welcomed towercos to Latin America, market leader Telecom Argentina has quickly understood the advantages of outsourcing, and the company is currently shifting its strategy and increasing the number of new assets that will be built by towercos. Last year, the operator deployed 883 new sites, which is a considerable effort if you take into account the numerous challenges of building sites in the country. This year, over 60% of Telecom Argentina’s 910-site pipeline is in hands of towercos, a notable change in the company’s strategy and culture as, until recently, the operator considered towers to be a competitive differentiator. Competitors Claro and Movistar are not expected to deploy as many sites, but both companies are also strengthening ties of cooperation with Innovattel, Telxius, Atis and the other infrastructure providers that are active in Argentina.

As a good reference, Telefónica allocates over 20% of their annual revenue to cover infrastructure leases. Furthermore, lease costs are rising by ~10% year on year, but MNOs’ incomes are not increasing as quickly. On top of that, MNOs also pay their energy and maintenance costs which, alongside rent, are telco’s most significant expenses. Optimisation is therefore critical and the operator is one of the most advance and proactive players on that front. “Leases, energy and infrastructure maintenance are our biggest costs, so we decided to review and optimise each of those inputs individually,” Seccomandi stated.

Since maintenance cost are very difficult to reduce, Telefónica focused on cutting down energy bills by modernising the equipment, implementing new free cooling systems as well as investing in renewables though PPAs and auto generation initiatives. Moreover, Telefónica handpicked all the sites where costs were higher than revenue and tried to directly renegotiate the rental fees with the landowners, relocating in cases were proprietors were not willing to reduce or maintain reasonable prices. “We didn’t want to relocate any of our sites but in some cases we had to. We have moved more than 500 sites globally, which reduced our leases by 10%.”

Not all MNOs’ sites are profitable and their strategy is often affected by the regulatory obligations to provide coverage in underserved and remote areas. In some cases, stadiums, malls or airport do not offer high returns but MNOs have to deliver the service so it is especially critical to cut down cost at those lower income points of presence. Telefónica has addressed that issue by deploying optimisation systems that reduce energy consumption in low traffic periods.

On top of the above expenditures, Argentinian operators have to deal with high and ambiguous municipal fees, which sometimes are higher than the actual land leases. Industry stakeholders have started to understand the importance of education and the key role that the industry can play by working together as a lobby to unlock the bureaucratic bottlenecks that are slowing down infrastructure deployment in the country. Operators have been working closely with regulator ENACOM and municipalities, and they could use help from their infrastructure partners to design effective educational and regulatory initiatives that can boost social license and reduce local and municipal opposition. “Having a federal telecom law would be the dream for us,” Telecom’s Deployment Manager Alejandro Berenyi stated, “and we need the support of our infrastructure partners to educate and convince both the government and the Argentinian people on the fundamental role of telecom infrastructure for the prosperity and future of our country.”

Social opposition and the lack of a strong regulatory framework is a common challenge in the whole region. Therefore, groundwork is key, as much of the population in rural Latin America have misconceptions about antennas and their potential effects on health. In Chile, the infamous Antenna Law has forced Entel to shift its focus to lower structures and they have been working closely with their towercos partners to educate municipalities and the population on the benefits and positive effect of these solutions.

Eduardo Concha, who manages Entel’s assets in Chile, highlighted another common social misconception that ultimately affects their balance sheets. “Here, landlords tend to think that MNOs are very powerful financially so try to take advantage and demand very high fees.” Four years ago, the Chilean market leader started a renegotiation process and reviewed every single contract across the country to reduce rental costs. In addition, they pushed towercos to also renegotiate the fees, as in CALA this is a pass through and operators sometimes feel that their infrastructure partners don’t adequately push land owners on the matter. “In Santiago, we pushed the Metro to reduce fees because it was critical to connect the passengers as the subway is the most popular mean of transportation in the city. The market here is very competitive and our towerco partners need to also support us in the dialogue with landlords and property owners.” After four years of ongoing conversations and groundwork, Entel has notably reduced its rental costs and, as Telefónica did, they relocated their antennas when landlords didn’t show the expected flexibility.

When asked about their relationship with towercos, the operators highlighted three key aspects that could make the relationship more fluid. First, there is still a cultural paradigm as some MNO executives think that towers are source of competitive differentiation and they don’t want to release or outsource their management. In addition, MNOs claim that while their revenues are constraining, towercos should adapt their offer and provide optimised and affordable solutions. Finally, there is an operational element where towercos can really make a difference: speed of delivery.

Entel’s position is clear: “A change in the business model is definitely needed. Energy is a critical operational aspect as it guarantees our service continuity. Towercos should start providing power for their sites or at least support MNOs with backup systems,” Concha commented, after highlighting that Chile has experienced several natural disasters that have shown the need of strong and reliable backup solutions.

In Argentina, energy distribution is linked to municipalities, which ironically enough are the biggest bureaucratic barriers for both deployment and obtaining energy meters. MNOs would like to obtain an individual meter so they can assess exactly what their energy consumption is. 24/7 reliability is their main challenge and we see again an opportunity for towercos to provide at least backup solutions and monitoring systems to calculate the consumption of each operator.

Utilisation of renewables is increasing in the industry and Latin American operators are investing in greener solutions to cut down cost and reduce their carbon footprints. Telefónica has already deployed hybrid and renewable energy solutions on 4,200 sites and Secommandi highlighted that in many cases, they have collaborated with their towerco partners in order to find the best solution for each site. In Brazil, the regulation allows private entities to develop their own renewable energy projects and sell their surplus, hence towercos can take advantage of the opportunity and secure greener power supply for their clients while diversifying and finding good returns.

Vandalism and theft are one of the most common issues that the industry faces globally and the complicated social and economic contexts of certain countries in the region makes security a top priority on towercos’ and MNOs’ agendas.

Telefónica has reduced theft by 90% thanks to the installation of Bluetooth locks at 5,000 sites across the region. In high-risk countries such as Mexico and Venezuela, the Spanish operator has switched to lithium-ion batteries, which has also considerably reduced theft.

The panel highlighted how towercos could gain a competitive advantage by offering monitoring systems, which could also become a cost effective option for them due their scalability.

Although 5G is not expected to fully penetrate CALA in the near-term, several countries are already planning spectrum auctions and both operators and vendors are testing and collaborating on 5G-technology development in preparation for the future.

5G will require densification and more urban infrastructure, and Chilean market leader Entel is already deploying smaller sites as well as more posts and poles across Santiago and other densely populated cities. “We don’t expect posts to replace traditional macro sites, but we need them to complement our towers and guarantee quality of service. We are massively investing in and deploying on billboards, collaborating with utilities, working closely with municipalities and searching new urban locations to address this data growth. We call this move pre-5G,” Concha stated.

Telefónica, which has already deployed over 100 5G sites in the United Kingdom, is also getting ready in CALA: “We don’t expect an immediate arrival of 5G in CALA, but we are working towards its upcoming challenges. Energy consumption will double and we will need more space and new antennas. We are also thinking about 5G when deploying our 4G sites, therefore we try to rollout new sites that, with a small tweak, can host 5G equipment in the future,” Seccomandi commented. Telefónica is conducting 5G trials in Brazil, Colombia and Uruguay and expects to deploy 5G technology in existing sites in the next two to three years. “We will deploy on existing sites first and densify after. We are exploring every alternative, from towerco collaboration to urban solutions and synergies with utilities, as we know we will need many new sites and typologies in a very short time.”

Most of Telefónica’s sites in Europe are connected to fibre and they will try to replicate that in Latin America, where the company mostly relies on microwave backhaul. “We see fibre as a huge opportunity for towercos and we are already using towerco-owned infrastructure in some of our sites. Fibre could be what towers were ten years ago, and it is critical that MNOs can rely on towercos when we don’t have the financial or operational capabilities to deploy it,” Seccomandi highlighted.

“Steel is just steel in any part of the word,” Berenyi commented, before suggesting that towercos need to differentiate from their competitors by providing an integrated service, where fibre, energy support and security will play a very important role.  However, leasing fibre requires different skills from leasing vertical real estate asset, and towercos still need to figure out if, how and what parts of the fibre network they will build as well as how to make sufficient returns to justify the investment.

Reducing the cost of the land under towers, securing an affordable and cleaner energy supply, and reducing vandalism are some of the biggest operational and financial headaches in CALA, and collaboration seems the best way forward. It’s clear that many of the region’s MNO leaders are willing to form deep partnerships with towercos. Flexibility, dialogue, convergence and innovation will be key differentiators for both vendors and infrastructure developers.