SBA Communications’ journey from Central America to Argentina

SBA Communications started its journey in the business over 30 years ago and for the past ten years, the leading towerco has been successfully pursuing growth across CALA. In this exclusive interview, Kurt Bagwell, who serves as President of International for SBA – and is one of the top contributors of TowerXchange since its inception – shares with our readers unique considerations into the dynamics of each market where the towerco operates.

TowerXchange: Kurt, I would like to start with an overview of key dynamics across the markets where SBA operates in CALA. Could you please share latest dynamics and insights into each of them?

Central America

SBA started building sites in Central America over ten years ago and now owns over 3,500 sites in the five countries we operate in – Panama, Costa Rica, Nicaragua, El Salvador and Guatemala. Those five markets have been steady and growing for many years and generally, they have good networks that have been densifying with demand and converting over to 4G. Lots of fibre is being installed at the towers, and we are seeing increasing demand for shorter sites (mini macros) as well as full size macros and rooftop installations. A mix of capacity sites and coverage is being added.

I would say these markets are at a medium maturity level – smaller countries where good investment has been made for many years, but there is still plenty of work to do. We enjoy a US$ tenant environment in these markets as well, with all of our tenant leases denominated in US dollars. Most major costs are also denominated in dollars due to the close economic link to the United States.  

The latest big news is Telefónica’s departure from the region, which is partially finalised as of this writing – completed in Guatemala and Nicaragua, pending in Panama, Costa Rica and El Salvador. In some cases, this is a consolidation (Guatemala and El Salvador), in some it is just an ownership change (Nicaragua, Panama, Costa Rica). Overall, we feel TIGO, Digicel, Cable & Wireless and Claro will be more aggressive in these markets going forward given the refreshed landscape. 

We have a dominant position in all five markets and enjoy the benefits of scale in each. We have local offices and local employees, with some centralised support from our HQ in Florida - where many of our employees are bilingual and even trilingual (Spanish, English, Portuguese), which gives us tremendous efficiency when sharing support.

The primary focus of my teams in these markets each day is professional site management of existing sites and maintaining growth both organically and inorganically, through lease-up, amendments, ground lease buyouts and the building and buying of new sites.

The amount of M&A in Central America is somewhat limited going forward given what’s available, and due to our past history of consolidation. We have completed 24 M&A transactions over the past ten years, in addition to building over 1,600 new sites. New tower builds remain strong but competition is strong as well, so we are always challenged to perform well from a “time to deploy” perspective, creatively from a “find solutions that work” perspective, and “efficiently” from a cost perspective so we can offer competitive rates that still work for us and win the business.

These markets all have unique attributes in terms of economic and political activity and a variety of zoning and land use challenges. Overall though, the business environment, land-use attributes and continued demand for more wireless infrastructure in these markets overrides most of the country macro issues. In some severe cases, like the political turmoil in Nicaragua going on this past year, it has slowed network growth somewhat, but not completely. Wireless services are an invaluable, high growth commodity and a staple of everyday life regardless of the macro environment. Of course, we prefer quiet and growing environments the most, free of political or economic issues, but in any case, the networks must continue to grow and evolve. 

Overall, each of these five countries have been solid performers for SBA and we are happy we entered them long ago.

Andean Region

We arrived later in the Andean Region. We started about five years after our Central American investments began. We currently operate in Colombia, Ecuador, Peru and Chile. We have completed 13 M&A deals and continue to actively evaluate others. Build-to-suit is a core activity in these markets as well, with a good backlog of sites in process in each of these countries right now. 

We always like a mix of M&A and developer deals – for volume – and BTS – for lower cost, high quality sites, which produces a steady flow of fresh inventory to keep organic growth high. In Ecuador, we have a dominant market position and in the other three countries we have good solid portfolios while we continue to add more scale. Ecuador uses the US$ as its main country currency, while Peru and Chile have generally stable local currencies. Currency fluctuations in Colombia have been more common and something we watch closely. 

Networks across these markets are in varying stages of development, but all four countries have significant needs for capacity and coverage, with multiple years of cell densification left in front of them. Economically and politically these markets have been generally stable, especially as it affects our sector, and have good growth prospects long term. 

These markets have a very high level of competition, as many towercos have been attracted to the growth prospects. As a long-term owner/operator/builder/consolidator of sites, we feel these markets will continue to grow far into the future. Again, the challenge for my teams is to stay energetic, be creative and perform well for the clients to maintain and grow our position. Competition is always tough, but it keeps us on our toes and very engaged in the latest ways to achieve success in this business.

There are no major carrier ownership changes or consolidations in the recent past or predicted for the near future in these four markets. Each carrier is working hard to balance growing their networks with managing costs, and the challenge to the towercos is the same. Politically and economically, these four markets have seen their share of changes up and down, but nothing of any degree to cause a major shift in the wireless sector. Again, wireless services are such a basic and growing commodity that they are more immune to fluctuations from economic and political highs and lows. 

One other main focus in the region, and really throughout all of our markets, is the quality of the land rights we have underneath our towers. At SBA, we have been in business 30 years, with a long vision for our sites, and we take ground leases very seriously. They are the building block of any good tower business, and we have multiple employees, including in-house legal staff, in every market working full time on improving the longevity and quality of our ground leases, which helps us and our tenants. We work every day to buy out ground leases, extend the term on ground leases, prepay long periods on ground leases, add ROFRs, et cetera. We pursue them to protect our towers, and our tenants’ networks. We have a responsibility to provide quiet enjoyment of the assets our tenants have leased from us, and stabilizing and de-risking the ground leases is a critical element.

Brazil

One main theme – “on the rebound.” 

We entered the Brazilian market with a sale and leaseback purchase of 800 Vivo towers at the end of 2012. Since then we have purchase over 7,000 additional sites in eight transactions and built over 700 sites. We have a centralised office in São Paulo with a full-service staff to perform all functions. 

The customer base includes Vivo, TIM, Claro, Oi and others. Since our entry into the market the country has had its ups and downs politically and economically. The end of the Lula/Dilma era coincided with the country entering a two-year recession, with high inflation and currency depreciation, but it is now back on a growth track with a new government settling in. While the currency (Real/BRL) continues to cause us challenges, the market for wireless infrastructure is very active and growing. 

One piece of pending legislation we think will pass within the next 12 months is PLC 79, which deals mainly with carrier concessions and technical requirements. Altering the legislation as proposed will free up capital spending toward wireless infrastructure and take a heavy burden off a few of the wireline carriers involved. Overall, we feel this bill will have a very positive impact in Brazil telecommunications.

Land use in Brazil is more complex than many countries, as is the permitting environment. We work long and hard to improve our ground lease and land use rights and approvals. We are buying and extending our land rights constantly with a full team of employees. The market situation with the carriers is similar to the U.S. – four carriers, in various stages of subscriber growth and financial condition, with some struggling to balance growth and profitability more than others. Given the sheer market size (209mn people), we feel it can sustain four major carriers, but time will tell. 

We work constantly with all four carriers on a variety of initiatives – M&A, new tower builds, new co-locations, and technology amendments. It is a very competitive tower environment and generally a tough market to do business in from a regulatory standpoint. We feel confident in our long-term prospects due to our seven year and growing history of success, and our long-term focus. Brazil has been one of the most challenging and rewarding markets I have worked in during my 30 years in this business. You’ve got to stay sharp and active to succeed there. There is a lot left to do as the site densification and coverage is not nearly sufficient for the demand, which leaves much room for continued growth.

TowerXchange: Many CALA countries are undergoing elections. What is the likely versus hoped impact across the key markets where SBA operates such as Argentina and Guatemala? 

In Argentina we have a small operation, mainly focused on build-to-suit. We entered the market after the last change of the government, and while things are getting better, there is still a long way to go. We will continue to be cautious in this market as the future is still uncertain. But the market demographics bear out why we are there – a highly educated population, incredible natural resources and future economic opportunity that can be viewed as tremendous. With a large population of over 44mn and vast underinvestment in the three major networks to go along with surging demand, we want to be positioned in this market to seize upon this opportunity.

Panama and El Salvador recently had elections, but we do not expect major shifts in these governments that will affect our business. Brazil’s new government could have the most impact directly affecting the wireless industry given the potential PLC 79 bill mentioned above.

The only market with potential political concerns for our business is Nicaragua. Given the stalemate occurring right now between the current government and the business community it is hurting tourism and foreign investment badly. Again, our business has seen little impact, only that of slower growth, but over time we want this to get worked out and put Nicaragua back on a growth track. The country was doing very well before all of this started one and a half years ago.

TowerXchange: How is the exit of Telefónica from Central America impacting SBA’s operations? And any thoughts on the wave of MNO consolidation (sometimes failed) across the region?

Overall, we feel there will be a net positive from TEF’s exit in Central America, long term. 

TIGO is coming into three markets fresh and excited. Claro is consolidating a carrier in two markets, but they are not the market leader in those, so they are on the prowl to move up the ladder. We will see some churn in Guatemala and El Salvador where this amounts to carrier consolidation. But those markets are still growing, in coverage and capacity/usage, so long-term financially healthy carriers are good for us. In the three other markets where Telefonica’s departure, and TIGO’s entry, is just an ownership change, we expect higher growth and no churn.

TowerXchange: Has the licensing / permitting environment improved at all across CALA?

Licensing/permitting is constantly evolving in Latin America. Generally, it is getting more difficult every day in most countries to build sites – that’s the general course right now, it really never gets easier.

We are proactively working in many countries to help them adopt quality siting legislation. We have full time personnel now in several markets working the regulatory front and helping communities through understanding our business and shaping laws around this is critical. 

TowerXchange: What is SBA’s long-term vision for CALA, expectations for towerco consolidation, possible new markets to keep an eye on? 

As for new markets, I don’t see many possibilities in CALA for SBA going forward. We have entered into all the major markets that met our criteria. There are a couple of others that with the right opportunity might fit the bill. The Caribbean is less likely given the small size of the opportunities, multiple jurisdictions and limited growth prospects.

That said, the countries we are in have huge potential for us for a long time. We have plenty of build-to-suit, M&A, developer deals, small cells, and other growth potential left in each. We are a 30-year-old company this year, have been operating outside of the U.S. for over ten years, and given our business model, resources and long term focus, we see a long runway in front of us.