edotco: the sustainable towerco

How should towercos keep innovating while achieving their targets in today’s ever-changing telecom landscape? This was the broad theme of edotco’s CEO, Suresh Sidhu, keynote at the fifth annual TowerXchange Meetup Asia. This year’s keynote by Suresh Sidhu complemented the speech delivered last year on the importance of unleashing skills across multiple countries and operations. This year, the CEO highlighted an equally relevant factor for the success of modern towercos: the importance of marrying structure with agility to create a sustainable organisation capable of navigating through this volatile industry.

The towerco business model has been expanding swiftly across South and Southeast Asia and has become more dynamic. From the MNO perspective, towercos are now a necessity, and the tower transaction deal flow across Asia has been exciting, presenting plenty of opportunities for the future.

Whilst Asian tower markets do share some common features, each country presents its own set of challenges and local issues, making a multi-country operation like edotco’s complex and unique.

Towerco penetration (defined simply as the proportion of towers owned and operated by towercos in the region) over the past four years has grown from 59% to over 67% and Asia enjoys a vibrant build-to-suit (BTS) industry across many countries. On the other hand, while the flow of sale and leaseback (SLB) transactions is quite considerable in Asia, tower deals present a high degree of “emotional complexity” and procedural hurdles which require time to come to fruition, making SLBs slower in nature.

In the countries where edotco operates, the majority of MNOs prefer not to build their own towers, which allows the towerco to have a very strong pipeline of BTS orders. Another positive factor strengthening its operations is that the tailwinds of 4G densification are stronger than the headwinds MNOs are facing. For example, in the markets where edotco is present, ARPU has held up at an average of US$6.18-6.11. And the tailwinds aren’t going to diminish anytime soon, with 4G and smartphone penetration still in the early phases with a long runway for growth.

There is widespread agreement that 4G is a top investment priority for MNOs across the region. This is also pushing countries to look at the spectrum availability and assess ways to rationalise it.

Malaysia for example is currently undergoing a spectrum rationalisation effort which could potentially see a shut down of 2G or 3G in order to free up much needed 4G-suitable bands. Sidhu noted that while 2G is very much a necessity in many rural areas, questions are arising as to whether 3G will survive as a viable technology.

At the same time, operational challenges such as power, and diversification opportunities such as fibre and small cells are becoming a reality for towercos. Sidhu cited the case of Indonesia where MNOs have started to put pressure on towercos to adopt a tower and power model while towercos are very much focused on expanding portfolios and entering the fibre business. Or India, where fibre is a necessity and towercos are also heavily involved in green energy initiatives.

edotco has recently taken over the energy management of Ooredoo’s assets in Myanmar and carved out Celcom’s O&M business in Malaysia along with its staff to augment its business and better serve captive towers.

In Malaysia, edotco deployed in-building solutions in stadiums ahead of the Asian Games and Sidhu noted how that project was deployed in just four weeks, when the organisers realised that due to the high volume of data expected during the event, networks were likely to congest, and stadiums could be left with no coverage.

edotco is increasingly focused on partnerships and collaboration such as the one sealed with Huawei to deploy the world’s first multi-operator small cell in the high traffic area of KL Sentral - a busy transit hub.

While the drivers are positive for edotco and for the towerco business model as a whole across in Asia, partner MNOs continue to feel the pressure. In fact, the Return on Equity (RoE) has been going down considerably from 2013 to 2017, with figures shifting from 52% to 22%. This reflects the huge investments MNOs made in 4G for which they are yet to reap the desired returns. In addition, the continued shift to spending by customers to Over The Top services is also pressurising revenues. edotco has seen customer demands on cost increase with the lease rates applied to new BTS having decreased up to 9% in certain markets between 2014 and 2018. And the question for towercos is how they can successfully operate and achieve the expected returns if the MNOs’ RoEs never recover to previous levels?

Sidhu highlighted some of the challenges faced by Indonesian towercos, as an example of the evolution of a mature industry now looking to re-energise itself. In Indonesia, towerco valuations have dropped from 10.8x to 8.4x since 2016. Additionally, many tenancies are now towards the end of their timeline and some are not being renewed, while MSAs are being renegotiated. As previously mentioned, MNOs have been putting pressure on towercos to take over power while also pushing back on US Dollar indexation and to reduce lease rates.

So how can towercos deal with times like this?

The answer is for towercos to combine scale and skills, to marry structure and agility to remain relevant. While edotco has been leveraging its multi-country scale and know-how to gain new business, ensure customer satisfaction and achieve good economics, the company has embarked on developing a skilled organization that is able to adapt and respond to the ever-changing landscape in a timely manner.

Sidhu reinforced that the best way for towercos to create a long-term sustainable organisation is to look beyond traditional methods and find ways to marry structural initiatives with agile ones. He highlighted the importance of equipping the workforce with the right tools and ensuring they understand the organisation’s drivers so that they can think on their feet and make quicker decisions when required to. This will in turn result in more empowered, motivated employees who will be driven to add value to the company’s overall mission.

Sidhu shared how centralising the procurement operations at edotco was challenging at the beginning but once realised, eliminated many overlapping tasks and led to an increase of productivity as well as considerable savings. He also shared how the company ensures teams are equipped with the right skills to achieve continuous improvements in customer management.

He went on to share that to future proof, towercos should acquire the necessary skills to work with Artificial Intelligence (AI) and machine learning (e.g. to analyse large amounts of data), robotics (such as drones), automation and digital predictive analytics as this ensures that the workforce has accurate sets of data to enable them to make the quicker decisions and removes manual tasks allowing for employees to focused on more skills based, value added areas.

He reminded us that while towercos play a key role in consolidating sites and making sure that tower networks are increasingly efficient and not overlapping, they should also start analysing their data to predict demand for future sites as well as densification requirements.

In conclusion, Suresh Sidhu reminded us all that the towerco business is continuously evolving and we should embrace this change by finding the right mix of structure and agility that gives everyone the right context and mandate to get things done. Clear guidelines to ways of working, web-based platforms, a common cloud system and business automation initiatives should not be viewed with paranoia but with positivity.

Sidhu concluded by citing Jeff Bezos and challenged us all to keep innovating because “what’s dangerous in business is not to evolve.”