The criticality of fibre to the tower in readying markets for 4G and 5G was one of the key themes discussed during the past edition of the TowerXchange Meetup Asia. Puja Goyal, Principal within advisory firm Capitel, shared some insightful considerations on the drivers of fibre deployment during her keynote speech at the event and then moderated an interesting panel on the topic. Here is a summary of key findings from both sessions.
Asian towercos are eyeing opportunities in fibre, with towercos in markets like Indonesia and India more advanced than others but in general, they are still looking for the right formula to successfully invest in this segment. In the meantime, fibre deployment efforts by operators, neutral hosts, small cell players and fibrecos are intensifying, as everyone is gearing up for 5G and striving to enhance the quality of service of existing 4G networks.
New fibre alliances are being formed on a global basis, and the M&A pipeline is healthy. On the operators’ front for example, Vodafone has been partnering with Dense Air among others for metro fibre as well as last mile, while independent fibreco Zayo has already acquired multiple fibre networks and small cell player Extenet is actively scouting metro networks and has already added the metro fibre across New York to its portfolio. While the business case for towercos to invest in fibre is there, the game is getting tougher as various specialised players are strengthening their positions.
Given the involvement of so many other stakeholders, why should towercos start deploying fibre?
There are some straightforward drivers as to why towercos should get involved in fibre.
Returns: First of all, fiberised towers ensure better returns than those on microwave and the revenue incrementally grows for fiberised towers utilised as hubs for small cells, 5G and enterprise connectivity (FTTB). 5G and small cells require fibre so, while fibre as an asset might be less easily replicable than towers and scale harder to achieve, it soon won’t be an option but a critical need. Additionally, 5G is expected to increase the tenancy demand by as much as 6x compared to 4G.
Access to capital: MNOs lack the capex availability to invest in fibre while towercos have access to cheaper capital and connections with infrastructure funds. In light of this and their experience in enabling infrastructure sharing, towercos could have a positive influence in bringing the cost of fiberising sites down.
Bundled products: Towercos own and manage tower portfolios and are able to assess the demand for fiberised towers before investing in the deployment. Additionally, towercos can bundle fiberised towers with more products such as small cells and 5G nodes. And they can emulate the tower opex model in their fibre operations and incorporate fibre in their MLAs on a “consumption basis”, with bolt-ons for small cell connectivity.
Familiarity with the opex model: Towercos already utilise recurring opex based models and can leverage this know-how in their fibre contracts too. Towercos can charge a monthly opex per pair per km, based on the distance of the tower from the operator’s metro fibre ring, or per site with a flat rate for all towers in the city and finally per GB, applying a flat rate on consumption.
Negotiation skills: Additionally, towercos are quite used to negotiate with real estate providers, and can use those partnerships also to expand their fibre network. They can target a variety of customer segments including large and medium enterprises, small businesses and SoHo (small office, home office).
Towercos still need to define what 5G means to them
Given the above, towercos might seem simply “slow” in embracing fibre but this could also be related to the fact that they are still trying to figure out what 5G means for them. Will 5G simply entail additional loading or a full new tenancy? Are existing towers able to accommodate 5G equipment at the required height and do they have enough capacity? Towercos need to find correct answers before they can fully embrace the fibre game.
5G planning is essential and that should define the use cases for last mile and metro fibre. But while 5G is still being tested, fibre is already required to improve the quality of service of 4G, which remains a priority for many operators and one of the reasons why fibre is still seen as a competitive advantage.
The opportunities for towercos (perhaps better defined as infracos) to provide fibre extend to areas such as cloud RAN, where fronthaul will require fibre to function and ensure the necessary low latency.
Depending on who deploys fibre, a certain business model and pricing structure apply
The chosen network architecture will depend on the business model and who deploys it.
1) Tower centric fibrecos
Fibrecos focus on connecting business customers and predominantly serve enterprise and data centres with long-term contracts and revenue visibility. They are mostly B2B players providing either metro fibre or including last mile connectivity. Examples include Reliance Jio, Lightower as well as most towercos.
2) Carrier-neutral fibrecos and / or metro fibre providers
This segment mainly connects operator-captive towers to the access or metro ring. They utilise already connected towers as hubs to deploy small cells and work in both residential and commercial environments. Examples include Eurofiber and operator enterprise businesses.
3) Operator fibrecos
Predominantly focused on connecting residential households, thus their deployments depend on household needs, affordability et cetera. Examples include ACT, operator FBB and third-party regional providers.
Similarly, the pricing structure can be adjusted depending on the business model and network architecture with options including end-to-end provisioning with monthly payments per node / small cell, IRU based pricing, bandwidth sale chargeable on a consumption basis or dark fibre monthly opex payments per km with escalators.
The payback of fibre is similar to the tower economics, only the EBITDA is generally a little lower. The upfront yield can be challenging with a single tenant on fibre but usually, when one opts in, the others follow. And as MNOs densify their presence through small cells, fibre owners are likely to enjoy returns close to those given by amendment revenue on towers.
Towercos can leverage their ability to invest capex at lower cost of capital and can already bundle macro-towers with fibre networks to create attractive pricing options for their clients. Additionally, given their existing relationship with mobile network operators, the MNOs themselves may stop deploying scarce capital into fibre if towercos offer an attractive (and less capital intensive) alternative.
However, towercos shouldn’t forget that while there are some similarities with the tower model, fibre deployment is fundamentally different and requires a whole new set of skills and know-how. Towercos being able to skilfully take over fibre projects could be very attractive to MNOs, who have found the efforts to acquire trained manpower quite burdensome and they are likely to prefer to outsource instead. Towercos on the other hand wonder if they should wait for the demand for fibre to ramp up before investing in new manpower and training.
Once they have decided to enter the fibre game, towercos should pick their target segment and business model (B2B or B2C), select a techno-commercial architecture and a pricing structure. The opportunity for organic growth combined with the possibility to expand inorganically by consolidating existing fibre portfolios is creating an attractive scenario for towercos.
Fibre across APAC: examples shared by the panel
Joining Puja Goyal on stage for the panel, Alka Asthana, CTO at Bharti Infratel, Syed Buland Iqbal, Project Manager – Fibre Deployment, Jazz, Stephen Farrugia, CTO, Broadcast Australia, William Heapy, Director, Planning & Strategy, Axicom, Gayan Koralage, Group Strategy Director, edotco Group, Steve Weiss, CFO, Protelindo and Zhibing Xu, VP of Wireless Small Cell Product Line, Huawei.
Across Asia, fibre reaches 30-35% penetration across a few markets (eg. Indonesia) but in emerging markets such as Myanmar it still sits at 10%. The disproportion with broadband penetration – which generally reaches 70-80% across most Asian markets – is still considerable.
India
In the case of India, the country is home to several fibre players, but sharing isn’t common yet. Reliance Jio has pushed fiberisation across its sites to 60%, with the country’s average sitting at around 20%. MNOs are swapping fibre pairs with each other but haven’t created a scalable sharing system, which only towercos would be able to properly pitch.
While a rationalisation effort would be required in India, with tens of players including government agencies, MNOs and cable operators all actively deploying fibre, parts of the MNO community remain against sharing fibre. An attitude that recalls the inception of the towerco era, when owning a tower portfolio was still seen as a competitive advantage by MNOs.
Indonesia
Indonesia has an uneven distribution of fibre capacity, with upper class areas enjoying relatively reliable access to fibre, especially due to competing cable TV providers. Fibre is still largely owned by operators but there’s considerable efforts by towercos such as Protelindo and STP to enter the business.
The acquisition of iForte by Protelindo was driven by the desire to acquire the necessary technical skills as well as existing relationships in the fibre sector. Protelindo found that while the effort to acquire a fibreco with a solid track record and credibility was quite complex, the first couple of years delivered great results especially in the corporate market segment.
In fact, at the time of the acquisition, Indonesian MNOs were still focused on squeezing what they could out of the existing microwave, while now they are getting more serious about fiberising towers. Protelindo also found that the returns on building a tower are quite similar to those delivered by fibre, although much depends on whether the project requires digging or aerial deployment.
Australia
In Australia, fibre often isn’t shared as it is still seen as a competitive advantage. But MNOs are starting to open up to neutral hosts as they can invest in fibre and pairing out fibre strands for each MNO, without them needing to deploy.
Pakistan
In Pakistan, Jazz for example runs its fibre projects in three different ways. On one hand, the MNO sealed pair-for-pair barter agreements with other operators, it also runs 30-year lease agreements and short-term leases of fibre pairs that last one year.
