The so-called “steel and grass” business model has always been the default for CALA towercos, especially for those entities with some roots or links to the U.S., the pre-eminent steel and grass tower market in the world. A simple model based on the premises that towercos only deal with the tower and the ground beneath it, with responsibilities including land acquisition, fencing, outsourcing of the engineering function and maintenance of the actual steel structure. A very different model compared to the complex tower + power that towercos handle across Africa or in certain Asian markets. But the wind has changed and TowerXchange reports for the first time on the diversification efforts finally being undertaken by various towercos across CALA.
Since the inception of TowerXchange, dozens of towercos have started operating in CALA. In light of the relative simplicity of the business model, the overall economic outlook for many of these towercos remains positive, driven by great coverage and densification needs.
In recent months, towercos across CALA have started to look beyond towers and entered new business segments including fibre, IoT and energy management. The examples are still relatively rare and TowerXchange is gathering insights that will be shared as soon as available, but one thing is sure: towercos across CALA are increasingly diversifying into fibre and small cells while also starting to engage with ESCOs and RESCOs to provide energy efficient solutions to their MNO clients.
While for the first few years there seemed to be a distinct commonality in towerco business models (if not always in the nuances of the underlying contracts), it comes as no surprise that towercos have now started to differentiate by offering a more holistic set of services, driven by MNO demand for a more integrated approach to infrastructure management. In this editorial, TowerXchange reports on some early examples of diversification while inviting all readers to contact us to provide further insights.
Fibre, urban infrastructure and IoT
Brazil: American Tower – Cemig Telecom and LoRaWAN network
In November 2018, American Tower (AMT) concluded the purchase of Cemig Telecom’s assets in São Paulo, Minas Gerais and Rio de Janeiro. The assets included around 14,000km of fibre-optic network and were part of the divestment put in place by Brazilian utility company Companhia Energética de Minas Gerais.
In December 2018, AMT announced that its Brazilian LoRaWAN network had surpassed 400,000 connected devices and the towerco is targeting two million or more by the end of 2019. AMT is deploying its network in partnership with LoRa maker Semtech and the rollout is particularly relevant for metering and IoT applications as well as smart city networks. By mid-2019, the network should cover 80 key cities across Brazil.
Mexico: American Tower – KIO Networks
Exactly one year earlier, in November 2017, AMT announced the acquisition of KIO Networks’ Mexican subsidiary, RedIT. At the time of the deal, the company owned more than 50,000 concrete poles and around 3,400km of fibre network across various key urban centres.
According to RedIT’s website, to date the firm runs over 4,500km of fibre optic network across 20 cities (Ciudad de Mexico, Monterrey, Guadalajara, Tijuana, Mexicali, Ensenada, Toluca, Queretaro, Aguascalientes, Celaya, Leon, Irapuato, Puebla, Merida, Xalapa, Veracruz, Villahermosa, Tuxtla Gutierrez, San Luis Potosi and Cuernavaca) as well as across the border to San Diego, Los Angeles, Phoenix, Chandler, El Paso, Dallas, Laredo, McAllen and Miami.
Argentina: American Tower – CyCSA
In 2016, the towerco reached an agreement to acquire CyCSA, an Argentinian infrastructure firm which, at the time of the deal, held a portfolio of 1,000 urban sites and 2,500km of fibre optic network as well as exclusive rights to deploy telecom infrastructure across certain locations in Argentina.
Mexico: Phoenix Tower International – undisclosed seller
In Q318, PTI acquired 17 fibre rings, equaling to 974km of network, and is now deploying fibre across Mexico’s key cities. Commenting on the deal, Don van Splunteren, Global VP of Sales and Leasing, Phoenix Tower International said that “…the main driving factor [of fibre deployment] is the exponential growth of small cells’ deployments expected in the foreseeable future. In the United States for example, it’s estimated that over 800,000 small cells will be deployed by 2026… That’s more than what has been deployed over the past 20 years!”
SBA Communications – looking beyond towers?
During the recent Q418 earnings call, the company’s President and CEO, Jeffrey Stoops, was asked about his “latest thinking on fibre” and replied that “we’re looking to expand the things that we do but in areas that we call exclusive real estate that will have some barriers to entry and our ability to control our destiny going forward.” While Stoops didn’t comment directly on fibre deals or deployment, the CEO hinted at a certain openness to diversify beyond towers.
Access to electricity and energy production in CALA
According to the World Bank, in 2016, 100% of the population in Argentina, Brazil, Chile, Costa Rica, Dominican Republic, Mexico, had access to electricity, 99% in Colombia, 98% in El Salvador, 95% in Peru*, 93% in Bolivia*, 92% in Guatemala*, 82% in Nicaragua*.
Grid availability though doesn’t solve all the problems as in certain countries, electricity prices have increased considerably over the past few years. Guatemala, Nicaragua, El Salvador have all seen an upward trend in tariffs as a function of drops in hydroelectric generation, the behavior of fuel prices or the decrease in rainfalls, depending on the main energy source.
In terms of production of clean energy, CALA is definitely at the forefront thanks to its historical development of hydropower and bioenergy. However, in recent years, the region is showing a diversification towards different types of renewable such as wind, geothermal and solar energy.
Chile is one of the ten leading producers of clean energy according to the International Renewable Energy Agency (IRENA) and aims at getting 90% of its electricity from renewable sources by 2050 (at 17% in 2017).
Uruguay is producing a surplus of energy which is being sold to Argentina and Brazil thanks to its mix of hydropower, wind and solar while a surge in energy investment is forecast in Brazil after its economy downturn.
CALA is home to some of the cheapest electricity grids as well as some of the most expensive ones. In perfect CALA style, the energy industry is complex and varied. If you are interested to find out more, we recommend you download the IRENA November 2016 report at this link
* With considerable differences between rural and urban electrification. Click here for more information.
Towercos entering the energy management game – some early examples
I recently attended the MWC in Barcelona and had many meetings with ESCOs, towercos and MNOs. Our conversations covered a variety of issues, but I was extremely surprised by the frequent reference to energy management projects being developed by Central and Latin American towercos.
Phoenix Tower International is said to be working with an ESCO in the Dominican Republic while its sister company Phoenix Tower do Brasil is assessing energy partners for sites across Brazil to reduce electricity bills at peak times. Two of Central America’s fastest growing private towercos havestarted projects with ESCOs at selected sites across their footprints. Even the big listed towercos in Latin America are believed to be exploring partnerships to offer energy services, or even offering backup power from their own battery banks. As you can tell, TowerXchange are not at liberty to name names yet, but the list of towercos looking for and evaluating ESCO and RESCO partners is much longer than we’ve hinted at already - one Brazilian MNO told TowerXchange that virtually every towerco in the country now offers energy services!
The reality is that Latin American countries are generally well connected to the grid, even in some relatively remote areas. While MNOs have hitherto had the responsibility of providing backup power for their equipment, creating duplicate battery banks at many sites, demand for towercos to provide these services has been growing. That pressure has been amplified by MNOs’ commitment to reduce their carbon footprints by exploring renewable energy, and by the rising cost of grid power. Quite simply, MNOs increasingly recognise that they should be cycling batteries not paying for peak rate grid power - and they want towercos to take responsibilities for those energy storage and renewable power projects. While towercos had long resisted this demand, it was always likely that when one relented, the others would follow.
It should be noted that CALA towercos’ energy service offerings are as likely to be ‘back to backed’ to an ESCO or RESCO as they are to be provided directly.
Conclusions
While this editorial just represents a mere introduction to the diversification efforts being undertaken by towercos across the region, this change comes as a breath of fresh air at a time when the tower transaction pipeline is slowing - there are simply less and less investible towers left to acquire in CALA, and less and less investible towercos to consolidate.
Operational efficiency might not be as sexy as a sale and leaseback deal, but it generates long term value for everyone involved. Additionally, towercos can create stronger and healthier relationships with their tenants by offering more and getting involved in reducing their opex.
Lastly, by partnering with one energy supplier rather than letting each MNO choose their own backup power vendor, towercos are lowering the amount of space required, and the number of accesses required to each site, hence decreasing the risks of theft and increasing the overall site security.
TowerXchange welcomes contributions from its readers on practical examples of towercos diversifying beyond steel and grass in developed markets. Contact Arianna Neri at
aneri@towerxchange.com to submit any comment. And don’t forget to sign up for the sixth annual TowerXchange Meetup Americas on 9-10 July to get actively involved in the discussion at our unique gathering of telecom infrastructure experts from across CALA!
Towercos’ business model definition
Pureplay steel and grass: manages only the real estate and tower structure, power is a “pass through” – which means it is a cost which remains the responsibility of the tenant.
Full service powerco: lease rate includes power and O&M, so the towerco is responsible for distributed generation, energy storage and managed services.
Decommissioning: towerco which at least in part specialises in acquiring and consolidating parallel infrastructure in over-built markets.
Build-to-suit: builds new towers in response to MNO search rings, often supplemented by the speculative acquisition of land usage rights at sites which may be of future interest to mobile network planners.
Strategic buyer: derives a significant level of inorganic growth through large scale sale and leasebacks or acquisitions of existing portfolios from other towercos.
Rollup / consolidator: drives inorganic growth through a series of acquisitions, consolidating the assets of other towercos.
Broadcast hybrid: makes significant proportion of lease revenue from broadcast tenants; broadcast towers’ height and dispersed locations make them ideal for MNOs’ rural coverage and microwave backhaul, so many broadcast towercos are diversifying into telecom.
Infraco: towercos diversifying beyond macro-towers into DAS, microcells, small cells, fibre, data centres and/or subsea cable.
