Beyond Steel and Grass

It is no secret that towercos are expanding beyond core tower sites. Nor is it a secret that the telecom industry is undergoing significant change driven by both 5G rollouts and the shifting data consumption patterns triggered by the Covid-19 pandemic. But how exactly are towercos thinking about this shift and what are they doing across Asia to keep working closely with their customers and offering new services that can continue to meet their demands? On a panel moderated by Paul Butterworth, VP Asia Pacific at Sitetracker, we found out: 

In markets across Asia, competition is becoming fierce as consolidation is increasing competition and margins are tightening. Many towercos are realising that to win business, the way they think about their relationship with their customers has to change. There is a growing consensus that towercos should move away from thinking of their businesses as a tenant/landlord relationship and towards becoming strategic partners that are essential components of telecom companies operating models.

With new cost pressures and competition of their own, MNOs across Asia are looking to towercos to help them drive efficiencies in their existing networks and act swiftly to rollout capacity and coverage upgrades.

Part of this transformation is a focus on digitising and automating processes, which extends not only to equipment used on site such as drone technology, remote access, and real time monitoring systems, but back office and operational functions as well. It is important that towercos keep track with these ambitions and can fit into MNOs plans.

Attendees at TowerXchange Meetup Asia learnt of numerous towercos who have implemented client portals that can streamline the business interactions between their business and MNOs and allow the two parties to communicate in a more transparent and interactive manner.

Without the use of a client portal, it was far more difficult to understand exactly what was on a tower in a timely manner, and to be able to ascertain the viability of adding additional equipment. Digital transformation here has enabled faster 5G rollouts in markets where this has begun, which has yielded strong financial returns for towercos. 

This is something that is not lost on Sitetracker. “New digital experiences for towerco customers are helping streamline co-location lead times.” Butterworth explains. 

“As well as being more efficient for the towerco and a better experience for the customer, investing in a digital client portal can enable towercos to access revenue from a site faster and until this becomes the norm, offers a market differentiator.”

“These efficiencies extend from co-location requests to the planning, building and maintenance of sites once you bring service providers and their delivery partners into the portal.” he concludes.

Across Asia many towercos are also exploring the potential of fibre as a tangential and complimentary revenue source.

Those who are big proponents are keen to point out that unlike towercos moving into managing power, fibre provides a significant business case in its own right. While both offer an additional service beyond the core land and structure, towerco ambitions to manage power were primarily motivated by winning business in challenging locations. Fibre on the other hand can exist as a true revenue source in its own right.

Proponents are also quick to emphasise how similar the financial characteristics are between fibre and towers - which they argue makes fibre an equally attractive investment to shareholders in a towerco. These characteristics include long term contracts and high initial capex followed by high margins.

Seeking out telecom infrastructure that matched the profile of a core tower business was pioneered by US based firm Crown Castle, who have moved onto to become a global leader in small cells and fibre. But interest has since spread globally, with prime examples in Asia including Indonesian based Protelindo.

The largest independent tower company in Indonesia, acquired fibre player iForte in 2015 for US $80mn. At that time the company had 750km of fibre in its possession, but since then Protelindo has grown this to over 70,000km, the majority of which has come post 2018.

However, there are differences between fibre and towers as well. While it is possible to look at an individual tower as an isolated business, which is evidenced by some towercos choosing to look at tower cash flow on a site by site basis, this is not possible with a fibre network. 

Due to the connected nature of a fibre network, the whole is greater than the sum of its parts. Again, while it is possible to value towers at price per tenant, or price per tower, an equivalence of pricing fibre by the kilometre does not ring true. As fibre becomes more dense, it has more and different value to its owner.

One drawback of investing in fibre, which is often touted by those less keen to move into the space, is the need to prioritise and manage capex beyond the core tower business as a towerco diversifies. 

“Fiberisation of sites is a big investment.” Butterworth claims. “You have to decide as a towerco if you are going to go down the build route or the buy route, or a hybrid of the two.”

Diversification also comes with a need to acquire new skills and expertise, and evolve into a different type of business.

Protelindo and others have found that there are business lines associated with fibre that you don't have with towers. For example, leasing fixed broadband is very different to leasing a tower. There are pre-agreed dynamics when leasing a tower, but for when moving into fibre both parties are negotiating new deals, which leads to complexities in terms of determining when a fibre installation and tenancy is commenced. This is easy with a tower, as a simple RFI will suffice.

But depending on the design of a fibre network, it could be argued that the tenancy has not commenced until there is a full ring.

“Fibre deployment also continues to face the disparate data problem, where critical information across a fibre network could make or break the business model. You could end up building off network when you might not need to, or fail to make better use of on network pathways and shared backhaul services if this data is missing.” Butterworth explains. “We’re helping towerco clients with our fibre deployment operations package to solving this disparate data problem to help make the right decision on fibre.”

If the extra work establishing these new skills, commercial contracts and processes sounds daunting, Protelindo and others would remind you that they have been able to significantly deepen their relationship with their customers.

Increasing the number of touchpoints with an operator, means the nature of the relationship has evolved from being a tower provider or a fibre provider to a valued strategic partner. Whether this be through towerco radio frequency engineers helping MNOs or fibre network design teams helping them find the most efficient route to capture more of their towers, the benefits are undeniable. 

 Covid-19 has accelerated growth and changed network architecture

 Towercos have not been immune to the consequences of the significant shift in data consumption patterns triggered by the Covid-19 pandemic. Markets across Asia have seen dramatic spikes in consumption - from Malaysia (14GB per customer pre pandemic to 25GB by the end) to Bangladesh (a 100% increase from 2GB to 4GB per customer).

This growth was anticipated, but not expected until at least 2025, putting MNO coverage and capacity requirements behind by half a decade. Supporting this requirement has created a significant opportunity for towercos, but the unique situation their operator clients find themselves in requires a different model than before.

Regulators have been helping operators to meet these requirements by awarding more spectrum and upgrading 3G spectrum to 4G spectrum. Operators are also working on upgrading the quality of their networks, but despite best efforts, there are still many network blackspots. In Malaysia there is an estimated 5,000 of these blackspots.

Some more industrious towercos have developed tools using open-source data to work out where these blackspots are and have started to pre-emptively build sites there to proactively sell to operators. This is a distinctly different strategy to the traditionally more passive sales dynamic between towerco and operator.

Many of these new locations are in municipal areas where macro towers are unsuitable and the land is owned by local authorities. 

In Butterworth’s opinion, “History shows customers will find you if you have the right asset - location and availability is king.  That may still be the case, but with rapid changes across Radio Frequency design, ORAN and edge computing, competition is fierce.”

“Outbound sales and marketing from towercos is getting smarter with market alignment and segmentation strategies, sales process automation and smooth digital experiences for colocation and digital twins all growing in popularity.” 

Sitetracker have partnered with CRM leader Salesforce to help towercos manage this new sales environment with their Sitetracker Telco cloud system.

As 5G rollouts continue across Asia, there will no doubt be new dynamics established that will see new business models required for towercos to continue to add value. For example, we are already beginning to see full site-as-a-service solutions that can enable 5G co-locations and make rollouts economical for operators. 

As ORAN trials continue and momentum builds, towercos see themselves as a logical third-party to host the technology which will drive further for business models to expand. Whatever shape it may come in, the future of the towerco business model is undoubtedly beyond steel and grass.