Overcoming the regulatory challenges of running a tower business in CALA

There is no single, unified telecom tower market in Central and Latin America, in particular due to the wide range and constant change in regulatory landscapes from one country to the next. Investment in towers may be inhibited one year, it may be encouraged the next thanks to subtle but important changes in Federal policy and Municipal implementation. This analysis summarises discussion and debate of tower industry regulation during the 6th annual TowerXchange Meetup Americas.

This commentary draws on anecdotes drawn from various round table discussions at the TowerXchange Meetup Americas (July 9 and 10, 2019), plus remarks from an insightful panel session chaired by Chuck Green, CEO of the International Digital Infrastructure Alliance (IDIA), featuring contributions from Carol Echeverria, COO of Continental Towers, Susanne Kandel, VP and General Counsel for Hispanic America at American Tower, and Josh Koenig, VP and General Counsel for International Business at SBA Communications. While some quotes are drawn from the panel and thus attributed, TowerXchange’s round tables are hosted under the Chatham House Rule, thus quotes are not attributed. For the sake of clarity, you should not assume that unattributed quotes originate from one or other named panellists, as in most cases they do not.

“When we think about regulation, we think about the policies and paperwork that allow us to build or continue development of tower projects in Central and Latin America (CALA),” said Carol Echeverria, COO of Continental Towers, during the regulatory panel session at the 6th TowerXchange Meetup Americas. “Each country in the region is very different, even though we try to secure a consistent and complete set of permits, and undertake the same checks for every site. The situation is made more complex by different municipalities’ implementation of Federal policy and those municipalities’ local priorities. As such, there is very little commonality in regulatory frameworks – it’s not a single region in a regulatory context.”

“It’s difficult to discuss regulation in the region on a wholesale level – every country and municipality is different,” concurred Susanne Kandel, VP and GC for Hispanic America at American Tower. “At end of the day, the regulators are trying to do the same thing for most part: improve connectivity for people, balanced against aesthetic and health concerns.”

Josh Koenig, VP and GC for International Business at SBA added: “SBA’s experience with the regulations in this region is long and diverse. There are markets like Costa Rica where we worked with the regulator to craft regulation which has enabled infrastructure to be deployed in an orderly manner over the years. We’ve also stepped into less organised countries where regulation has been put in at a later time.”

“The deployment of infrastructure in Latin America has outpaced regulation, so the tower industry has been able to survive, albeit in not always in as organised and transparent a way we’d like to see,” continued Koenig. “This has been a distinguishing factor, for example, between Africa or Asia and CALA: here most towercos are not regulated by the telecom regulator – there is no need for a national license to operate except in Chile, for example – so our focus has been more on the permitting process, including at a local level. Where there is Federal regulation applicable to towers, our focus has been on local enforcement thereof. For example, Chile and Nicaragua have National regulation but it is the Mayors who are on the front lines of implementation.”

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Both SBA Communications and American Tower have a formal government and regulatory affairs functions. Their focus on is on information gathering, relationship building including face to face at the diplomatic, Federal, and local municipal level. In CALA, the focus tends to be both on priority municipalities, and on regulators that are receptive to precedent and comparison. Both American Tower and SBA Communications are typically willing to share model regulation as exemplars.

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Panel moderator Chuck Green, CEO of the International Digital Infrastructure Alliance, asked: “If each negotiation effectively starts with a blank sheet of paper at municipal level, and there is seldom a Federal telecommunication infrastructure licensing regime in CALA, and given that your focus is more on the zoning and permitting issues that speed up or slow down deployment, is there a need for better education and understanding of the socio-economic benefit of towers? And of the fundamental differences between towercos and MNOs?”

“American Tower has a robust Public Affairs team in each market that deals with these issues at a local level,” replied Susanne Kandel. “We’re on an education mission, for example debunking health concerns, and we’ve had some success reaching out to regulators and municipalities and sharing knowledge on such topics. We’ve taken people from regulators and municipalities on tower tours to physically show them our business and our business model and how we can help their communities.”

“Another important facet of our role is working with Federal regulator to understand the way their regulations play out in practice, through working with the DOMS (Direccion de Obras Municipales) back and forth to get the concessions,” added Kandel.

“Dialogues with regulators tie into concerns about the speed of deployment and expansion of wireless networks: closing the lag to the U.S. and other markets,” added SBA’s Koenig. “There is growing convergence in regulation – for example on rights of way and small cell deployment – and those debates are ongoing in U.S. too. More and more governments have prioritised further deployment of wireless infrastructure; some candidates have even run on it!”

“Regulators don’t like to be told what to do, but giving them examples of what has worked well for others has helped. Educating them on the tower industry: our impact on economics, environment and efficiency, the fundamental benefits of co-location. This all tells a story of how to expand wireless infrastructure efficiently in a way that gives wireless service to the customer at the lowest cost,” continued Koenig.

“What is the most persuasive data you can put in front of municipal authority that they would be most responsive to, in terms of recognising the need to accelerate permitting?” Asked Green.

“You might touch upon a range of concerns from health issues, community needs, security, development, population growth and how the infrastructure they have now won’t cover that,” said Carol Echeverria, COO of Continental Towers. “Local teams mark the path.”

“The way you can ‘sell it’ to a municipality depends on the objectives of that municipality. We already understand the economic benefits of connectivity, we invest the time to understand the municipality’s specific requirements,” added Susanne Kandel, VP and GC at American Tower.

“The quickest way to transform siting regulations is to get something done at Federal or State level – we’ve talked a lot about that in Argentina for example, albeit there is reluctance to step on the toes of powerful municipalities,” replied Koenig. “Educating municipalities is a local game. We gather information and put it together so its easily digested. We’ve disseminated videos and hosted gatherings of Mayors to talk about best practice and benefits to communities. Every market is local to some degree, and education has to be done face to face at a personal level.”

“We’ve asked forward-thinking municipalities to educate people – community engagement is critical” added Continental Towers’ Echeverria. “Some communities still have health and privacy concerns; one needs to understand the main, local concerns, and respond by proposing how connectivity can enable a better quality of life for the community.”

“I’d agree that we must strike a partnership with municipalities at a local level,” added American Tower’s Kandel. “That said, engagement at the Federal / State level is most efficient – the tone at the top trickles down. For example, Colombia pushed the Digital Agenda at Federal level and that trickled down to the municipalities. In contrast, the previous Mexican government was very pro-telecom efficiency, exemplified by Red Compartida and the programme to lease municipal land for telecom infrastructure, but unfortunately that didn’t trickle down to the extent we’d like.”

“It’s not just about deploying faster. You can deploy fast by simply targeting municipalities that don’t have a permitting regime,” added Koenig. “We’d welcome a transparent, uniform regulatory regime that all actors can follow. The way for independent tower developers, and for our industry as a whole, to gain credibility is to follow the existing rules. It is counterproductive if we don’t respect those rules. As an industry, we need to set example of good behaviour.”

Where permitting regimes are particularly opaque, or where the regulator simply doesn’t have the resources to address permit applications in a timely manner, MNOs and towercos will often find that they have to build without permits in order to achieve coverage targets. “We’ve acquired towers in some markets where the majority of sites are permitted and there is a clear path to regularisation,” said one towerco, “but in Brazil, for example, site permitting regimes were non-existent so the MNOs had to build anyway and, as many of Brazil’s towers were sold, it increasingly became the towercos’ role to conform with the laws that were later implemented. It’s important to distinguish between non-compliance that is bad behaviour versus unpermitted towers that could never realistically have been permitted.”

In one of the round table breakouts, an independent tower developer shared a pragmatic perspective, which might be considered typical: “if we understand the path to permit, sometimes we’ll take the risk and not wait to receive the permit as long as we have that path to regularise.”

What does our industry need to focus on to improve permitting processes, and reduce this risk of sites being built without a full set of permits?

At a level of Federal / State dialogue, this can be tied in to what governments are seeking to achieve for their citizens within Digital Economy initiatives. In order to facilitate the continued rapid deployment of communications infrastructure, the tower industry needs improved siting regulations, for example by:

- Reducing the number of touchpoints

- Avoiding duplication of processes and of fees

- Agreeing transparent and predictable processes and fees

- Instituting single windows

- A framework which limits the municipalities’ right to unreasonably object

Towercos often lobby for ‘shot clock model legislation,’ which the WIA helped secure in the U.S., whereby a municipality might have 25 days to reasonably object to a permit application, otherwise the towerco or MNO can move forward with construction. However, it is important to emphasise that such regimes don’t mean that anything goes after 25 days; the towerco or MNO must still comply with pre-agreed the rules and standards, ignorance of which can still result in the tower being dismantled.

Whatever improvements to policies and processes are sought, they must cut across macro sites and small cells.

The investibility of the permitting regime is not just a function of speed and transparency of process. Once a party has invested in a tower, they need some security that another tower won’t be permitted in the immediate vicinity. For example, in Chile a minimum distance between sites is mandated in urban areas, exceptions can only be granted for technical reasons.

On the flipside, a lack of protection of the zone around a tower can have dire consequences. “We can only justify building a tower if we can trust that someone will not build next to us,” said one towerco. “In one country, a number of towercos experienced a new towerco working with an MNO to build towers adjacent to theirs, which they were able to do because of lax zoning regulations. As a result we’ve halted to all investment in that country.”

There are other facets of permitting regimes that can be detrimental to investment. Local authorities must appreciate that if they make it too complex, or too expensive, to build communication infrastructure in their municipality, that investment will simply go elsewhere. “We won’t invest in municipalities that charge US$900 per month in recurring fees – in such stark examples, nobody will invest,” said one towerco.

“Providing it is reasonable, it’s always better to to know that there is a recurring municipal fee,” added another towerco “it’s when it’s unexpected that such fees really cause problems. Your site maybe legal today, but if the municipality changes the rules it may not be legal tomorrow. And if they change the fees, it may not be economically viable tomorrow.”

In many CALA municipalities, agreements are only as long as someone holds office. “We may limit our exposure to such municipalities,” commented one towerco. “Sometimes we can mitigate that in situations where, even if you have a short term lease, you may be afforded some protection if they are obligated to show a compelling alternate need for the land.”

One towerco summed up the permitting situation in CALA succinctly: “The more expensive the permitting process, the longer it takes, and the less predictable the outcome, the more likely it is that sites don’t get fully permitted. Site regulations are only as good as the enforcement of those regulations, and can lead to bad actors ignoring them.”

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As this report illustrates, there are many circumstances when towercos can benefit from presenting a ‘united front’ with their peers in dialogue with regulatory stakeholders.

Filling a void in terms of representation of emerging market towercos, and thus with a particular focus on CALA, Africa and Asia, the IDIA has been founded to give our industry an independent voice. One of the IDIA’s first priorities is the compilation of a global database of regulatory regimes and benchmarks, which will enable targeted interventions in supports of member towercos’ dialogues with Federal and municipal stakeholders. Whether the need is to help regulators understand the differences between MNOs and towercos, to overcome NIMBY concerns, or to work towards an accelerated site permitting regime, the IDIA stands ready to complement and augment local collaborative groups.

Founder members of the IDIA include IHS Towers, Helios Towers, edotco and the IFC. For more information about the IDIA, and to enquire about joining, email IDIA CEO Chuck Green at ccgreen@btconnect.com.

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Towercos are acutely aware of the risk of political interference in the regulation of communication infrastructure, and act both individually and collectively to secure the transparency and certainty necessary to unlock long term, stable investment in infrastructure.

“We’re ready to ‘play defence’ against policy changes that might reduce the invisibility of infrastructure in a market,” said one towerco. “We have built the necessary relationships to maintain constructive dialogues. If a politician comes up with an idea that would be destructive for us – and it should be emphasised that these proposals have good intentions – often it is because they aren’t aware of or don’t understand the private tower sharing industry, or they don’t understand the fundamental difference between MNOs and towercos.”

“We invest in ensuring we have the right relationships on the ground,” added another towerco. “We know the players in government that can step in if necessary.”

There have been examples of towercos, sometimes hand in hand with MNOs, working collectively to influence policy. Examples were cited of an industry organisation in Peru which successfully lobbied to have the local Antenna Law amended and expedited, while towercos in Chile worked together to increase the speed of implementation of the National concession regime. Most towercos in Brazil are members of ABRANTEL, while the International Digital Infrastructure Alliance has been created to provide a voice for towercos across all emerging markets.

“There is strength in numbers and in working together as an industry, and in some cases governments might expect us to come together as an industry group,” added one towerco. “But we’re not always aligned on how we approach things. As such, we use collective lobbying on a case by case basis.”

Brazil is an unfortunate example of the results of a lag between permitting processes and the speed of deployment needed to keep up with demand and with coverage targets. Brazil now has increasingly well-developed regulations around permitting, but at one point it took two to three years to secure a permit (indeed in some municipalities there seemed to be no way to permit a tower), and MNOs couldn’t delay rollouts without risking penalties for QoS and coverage deficiencies, so many towers were built without permits.

The situation is improving, in no small part thanks to the actions of ABRANTEL, but there are still problem areas. “São Paulo stopped granted licenses and started issuing fines,” complained one towerco, “although there are ongoing talks to re-open that market.”

Against a backdrop of political and macro-economic uncertainty, the emerging Argentinian tower market is characterised by many of the same challenges as had been prevalent in Brazil, such as slow permitting. These challenges are exacerbated by inconsistent and often exorbitant municipal fees. Again, the result is that many towers have been built in Argentina without permits.

“Argentina is a mess,” said one towerco. “There are around 2,600 independent municipalities, most with the independent ability to permit, and many use that to hold up new site build for political reasons.”

“Site harmonisation and municipal fees (‘tasas’) remain substantial challenges to be overcome in Argentina,” added another towerco. “The municipalities call them fees for inspections, but inspections cost a fraction of the cost of those fees, besides which the inspections seldom happen at all. The fees are really taxes, and thus might ultimately be found to be unconstitutional.”

Towercos are working with the Argentinian regulator INACOM and Invest Argentina, seeking to achieve some harmonisation similar to the U.S. regulatory environment. However, it is tough to find common interests among towercos in Argentina, as each seems to have slightly different issues and priorities; for example, some have negotiated a deal on fees with certain municipalities, and they don’t want destabilise such delicate situations.

Argentina’s tax regime, and the depreciation of existing towers, continues to inhibit the potential for the sale and leaseback of towers in the country.

“There are favourable siting regulations in Panama and Costa Rica,” said one towerco, “and we’re actively working with other Central American governments to try to bring in better site permitting regulations. We’re looking for, and often finding, fair, predictable permitting regimes that offer a reasonable tenor, without excess cost.”

Costa Rica was a greenfield market for towercos, and most of the country’s tower stock was developed under a regulatory regime that first movers drafted with the regulator. As a result, there is a transparent, compliable regime in place, which the government is increasingly inclined to enforce.

In contrast, Guatemala was described as having “out there legislation of telecommunications” which “would benefit from a stronger regulatory framework.”

Chile will be one of the first countries in CALA to embrace 5G, for which the regulator SUBTEL anticipates a need to more than double the country’s current tower stock (9,148) to ~20,000. The need is particularly acute in urban areas such as Santiago, where wealthy property owners still often have a NIMBY (“Not In My Back Yard”) mentality, and where rooftop sites are both scarce and expensive, so expedited deployment of short poles and small cells will be critical, as will be partnerships with municipalities and utilities to leverage existing sites.

Several towercos presented a united front to the Chilean regulator SUBTEL, seeking a mechanism that makes it easier and faster to deploy cell sites, particularly the capacity sites needed to improve QoS.

Previously, it could take 12-18 months to secure a permit from the DOMS (Direccion de Obras Municipales) in Chile, which represented a significant bottleneck since aviation, environmental and other permits took much less time. The goal of the open discussions with SUBTEL is to pre-approve site standards then, if the both the application and build is compliant, site building can commence whilst permit approval is pending. In return, SUBTEL is asking that a comprehensive database of sites be compiled.

The outcome of SUBTEL’s deliberations is expected in September / October 2019.

Peru is another market in need of both sites and capital for 5G, with a potential auction of 3GHz spectrum anticipated next year. There have been suggestions that the country’s tower inventory needs to rise from 11,202 today to 15,000 sites by 2022. Also like Chile, there is as much demand for short urban pole sites and small cells as macro sites.

When it comes to securing urban rooftops in Lima, another challenge must be overcome: “around 90% of buildings in Lima only had a permit for the ground floor, so using a rooftop may require regularising the rest of the structure, risking a penalty fee for the landlord, or worse still maybe a demolition order,” said one round table participant. “Fixing that may require an amnesty to regularise illegal property.”

Again, industry stakeholders in Peru co-operated and successfully lobbied to have the Antenna Law amended to expedite rollout. Small but important changes included an “automatic license, which helps with deployment”, 250m zoning for public sites, and a requirement to hide cables inside structures.

“Build-to-suit is easier in Peru than in many countries,” said one tower builder, “but the problem remains that many local governments don’t always follow national policy – even with a full set of permits, the local population or municipality can still block site installation. We have a 70% success rate in building sites, even when fully permitted.”

“We’re completing better than 70%, but it’s still a problem,” added a towerco.

The NIMBY mentality has escalated to the point of violence in Peru: “we had a site burned a couple of years ago,” said one round table participant. Some towercos have been able to defuse escalating community tensions by donating land or lights for a soccer field, for example.

“Regulatory issues are only going to get more complicated as we move into the 5G era,” concluded IDIA CEO Chuck Green. “More and more stakeholders within regulatory authorities and municipalities are intervening as debate extends from permitting macro sites to rights of way for small cells. Our agenda and our dialogues with regulators must evolve to be prepared for that.”

“The need for network densification for 5G represents a unique opportunity for all stakeholders to work together more closely in a way that a focus on a single greenfield or rooftop doesn’t require,” said Susanne Kandel of American Tower. “This is a practical opportunity to negotiate rights of way and work with municipal land to deploy small cells and bring significant benefits to communities. At the same time, we must appreciate that there are often limitations on what concessions municipalities are able to grant, for example a local government may not be able to grant land rights or easements beyond their term of office – that makes our economics more challenging.”

“If municipalities can be the landlords on many sites, that’s a decent way to partner with them,” said Josh Koenig of SBA Communications. “Such partnerships are often difficult in the public sector, but paying reasonable fees for the use of land is consistent with the strategies we’re following.”

“There needs to be a convergence and an acceleration of dialogue. We need to put improvements in wireless communications infrastructure at the front and centre of National Agendas, perhaps partnering with financing sources like the IADB or World Bank in order to have broader dialogue,” added SBA’s Koenig.

When Central and Latin America begins the rollout of 5G, and cell sites are splitting and infill and indoor sites are being sought, the dialogue with regulators will shift from today’s focus on coverage to a focus on densification. The criticality of swift, fair permitting will be accentuated, but new priorities will emerge like the proliferation and aesthetics of smart poles.