Russia’s largest tower company, and one of the world’s fastest growing towercos, Russian Towers had a record-breaking year in 2018. In this exclusive interview, President Alexander Chub reveals some of the secrets behind Russian Towers’ impressive organic growth, how they supplement that with inorganic growth despite the continuing challenges acquiring legacy towers, while also discussing some of the company’s breakthrough innovations in urban infrastructure deployment and network-as-a-service.
TowerXchange: Congratulations on Russian Towers’ record year in 2018! Please share some of your achievements with our readers.
Alexander Chub, President, Russian Towers:
On the eve of our ten year anniversary in 2019, Russian Towers essentially had the perfect year in 2018. We overachieved all our target parameters despite the complexities of the market and the inhibitors of the macro environment.
In 2018 we built 819 new sites, which includes more than 600 in new locations, and have added over 1,400 new tenancies in total. We have sustained a tenancy ratio of 1.75 despite record-breaking organic growth. A significant majority of our new sites are urban infrastructure such as city poles and electricity poles. Russian Towers now has a total of over 4,000 sites and 7,000 tenants, putting us way ahead of any other independent Russian towerco.
Russian Towers is the market leader in Russia. Our primary competitors are Vertical, which (according to industry experts) has around 2,800 sites, and Service-Telecom with 1,200. In addition there are over a hundred small private tower owners who combined to take the total number of independent towers to around 11,000, out of a total of around 75,000 ground based towers nationwide. While there is no formal towerco license regime, we don’t own and aren’t licensed to own spectrum so we cannot sell connections.
Russian Towers have sustained our exponential revenue and EBITDA growth. Our EBITDA margin compares favourably with other towercos worldwide. Over last few years Russian Towers has maintained an impressive CAGR despite the fact that we’re no longer building from a low base.
With 125 staff, Russian Towers currently has 32 sites per head.
TowerXchange: What is Russian Towers’ customer mix?
Alexander Chub, President, Russian Towers:
We have balanced portfolio in terms of revenue we get from the Big Four Russian MNOs (MegaFon, MTS, VEON, and Tele2). 99% of our lease up in 2018 came from traditional MNOs, although we expect non-traditional tenants to increase to around 3% of new lease revenues next year, driven by B2B connectivity solutions, plus some types of smart city equipment (sensors, loud speakers, traffic control cameras, weather stations, et cetera.).
TowerXchange: How has the geographical footprint of Russian Towers evolved over the last year?
Alexander Chub, President, Russian Towers:
Our business remains essentially demand-led, with approximately 60% of our sites in the City of Moscow, where Russian Towers’ head office is located, and the surrounding region. Our next largest portfolio is in St. Petersburg, where we also have a local office.
While extending coverage is not a specific focus of the company, Russian Towers is now present in 60 regions of Russia, up from 55 last year. For example, Russian Towers has been investing substantially in the Urals, a region with a population close to that of Moscow region, where several cities with a population over one million people are located. The Urals are considered the industrial foundation of Russia, prompting Russian Towers to open a new office to service the region from Yekaterinburg. In addition to Krasnodar, Russian Towers has also opened a new office in Vladivostok as we seek to maximise opportunities in the Far East of the country. While the population is less dense in this part of Russia, substantial government funding can be accessed to accelerate development, particularly focusing on connections with Japan and Korea.
TowerXchange: How has Russian Towers’ product and service proposition evolved in the past year?
Alexander Chub, President, Russian Towers:
Russian Towers continues to challenge the traditional vertical real estate model wherein the towerco is limited to passive infrastructure and the MNO owns the intelligent network equipment.
Let me put the evolution of our service proposition into the context of Russian network infrastructure today. In rural and suburban areas, the site topography is still dominated by macro towers. In city centres we use more and more city poles. For cultural heritage areas, we have developed ten metre, aesthetic, intelligently designed light poles with small, almost invisible, elegant active DAS. Most of the equipment is secreted in BTS hotels, not on the structures, enabling the poles to be optimally integrated into the urban environment. And we are able to maintain quality of service even if the antenna is shared by all four MNOs.
This is an ideal solution for concentrated urban coverage, or sites where permitting and placement is challenging. For example, local administrators are keen on this design, but it is pending the approval of regional administration in St. Petersburg.
TowerXchange: Please tell us about your project to provide connectivity along toll roads.
Alexander Chub, President, Russian Towers:
While there was plenty of vehicular traffic along the toll road between Moscow and Saint-Petersburg, there was not enough mobile traffic to generate sufficient return on investment for any single MNO to justify adding their own base station every 5km.
Russian Towers’ solution was to deploy focused antennas facing forward and backward along the road only, each designed to accommodate all four Russian MNOs. We leverage the toll road owner’s fibre, and provide cabling, antennas and the data transfer equipment to dispatch traffic. Like the aesthetic solutions I mentioned earlier, most of the equipment is located in BTS hotels where each MNO can plug and play their own base station. With this model, the MNOs need to invest in only one base station instead of six. It’s all 5G ready, although we’re using only 4G to date.
We see an opportunity to expand the sharing economy to sell citywide continuous coverage on a plug and play basis
TowerXchange: How far can you take this evolution toward providing network-as-a-service?
Alexander Chub, President, Russian Towers:
We see an opportunity to expand the sharing economy to sell citywide continuous coverage on a plug and play basis.
Russian Towers has historically been a first mover in infrastructure innovations, typically giving us a two to three year head start before fast followers can replicate our approach. So we see this idea of selling seamless coverage within a given perimeter as a strong differentiator from less capable and responsible providers. Selling coverage in a given territory, often selling to a local administration, requires practical experience and expertise – enabled by technology, finance, legal and business model innovations. And it’s all 5G ready: Russian Towers provides the hubs and switches for data transfer, fibre cables and antennas – it’s only the MNOs’ base stations that are not yet 5G, but it’s plug and play, so when the time is right, it’s easy to change that.
Ultimately, I foresee a future in which we leverage virtual base stations to sell traffic rather than selling unique sites. If the base station is software not hardware, and if that software belongs to and is provided by us, then the MNO would only need to plug fibre into our server, which can be provided simultaneously to several MNOs. We are in deep talks for the first pilot of this kind of solution.
When we sell city coverage, we often say to local authorities “you have only one sewer, one tram network – on the same basis there should be only one city wide, unified, seamless network across the territory”. And of course we offer cities specific design of sites we’d like to build for approval.
Russian Towers’ inorganic growth
There have been no sale and leasebacks, and Russia’s carve out towercos have been relatively inactive in leasing up their sites, because Russia’s incumbent market leading MNOs have been reluctant to lease their sites to Tele2 / Rostelecom.
Now Tele2’s coverage is similar in Moscow, networks are less of a differentiator. However, large scale sale and leasebacks remain unlikely in the near term. In the meantime, Russian Towers has added 300 sites in the last year through the acquisition of small, privately owned portfolios of towers in Russia.
Russian Towers incubates selected regional partner tower companies, sharing best practices and training their staff to ensure their work is up to a high standard.
A total of around a hundred small private tower companies own a total of around 3,000 towers across Russia, and the owners of these companies increasingly believe and trust in Russian Towers as their partners – and when the time is right, these relationships prove critical as Russian Towers continues to aggregate the country’s best privately owned sites.
