On April 19 2022, two landmark transactions signaled a turning point for the Philippine tower industry, completely shifting the telecom infrastructure landscape of the country.
Philippines Long Distance Telecoms Company (PLDT), announced it had sold just under 6,000 towers to pan-Asian towercos edotco and EdgePoint Infrastructure in two separate deals worth a combined US$1.47bn.
While EdgePoint has not yet released the details of its transaction, PLDT has confirmed the $US1.47bn figure. edotco also revealed that it spent US$798.7mn on its towers, meaning EdgePoint forked out US$671.3mn for its share of the prize.
On a price per tower basis this works out as EdgePoint paying US$228,800 for its 2,934 towers, whereas edotco paid just under US$40,000 more per tower at US$268,700.
Smart (the brand PLDT conducts its wireless operations under) has signed a ten-year leaseback deal as anchor tenant on the entire portfolio. In its press release, Smart announced that “in addition to space, the towercos will also be responsible for providing operations and maintenance services as well as power to the sites.”
It also disclosed that “the sale and leaseback will be complemented by a new tower build commitment of 1,500 towers in total over the next few years”.
edotco has confirmed it is responsible for 750 of these committed BTS orders, suggesting that the new sites have been split evenly between the two companies.
In the wake of the deal, TowerXchange considers what this means for EdgePoint and edotco, details the history of the Philippines tower industry, and explores what brought us to this point, before examining the operating conditions and future news we may expect from the country.
EdgePoint Infrastructure continues Asia hyperscale
The DigitalBridge and Abu Dhabi Investment Authority-backed EdgePoint Infrastructure acquired its 2,934 towers in the Luzon Island group through a newly established joint venture between themselves, SMS Global Technologies and ComWorks Inc. SMS-GT has been a leading provider of site acquisition, power solutions and tower construction for over 25 years in the Philippines, while ComWorks Inc is one of the country’s largest wholesalers of telecommunications services and mobile network equipment.
Independent tower companies in the Philippines must be at least 20% owned, or in a consortium with, companies with at least five years of experience constructing, owning, operating and/or maintaining towers in the country.
At the time of the deal, CEO Suresh Sidhu said, “EdgePoint is delighted and honoured by PLDT’s faith in our capabilities. We look forward to working with PLDT in true partnership. We also look to bring to bear the vast experience of our local partners, Comworks Inc. and SMS-GT.”
“We are committed to building a world class operation to expand next-generation connectivity solutions, bridging the digital divide in the Philippines and creating new job opportunities in the sector. The Philippines telecoms sector has tremendous potential, and we look forward to being part of its future.”
Its entrance into the Philippines marks the third country that EdgePoint has penetrated since its formation in November 2020. Other significant transactions include the acquisition of Indonesian Towerco Centratama, and an SLB deal for 4,247 towers with IndoSat Ooredoo. EdgePoint consolidated its operations in Indonesia in March 2022 with a transaction that saw Centratama become its primary vehicle for the country. Centratama is led by CEO Raymond Yan.
EdgePoint has also conducted a number of transactions in its home country Malaysia, establishing a portfolio of around 1,000 towers in the country. Malaysian efforts are led by CEO of EdgePoint Towers Malaysia, Muniff Kamaruddin.
Once closed, the PLDT acquisition will take EdgePoint’s tower count across Asia to over 13,000. Speaking with TowerXchange upon the company's public launch in the summer of 2021, Sidhu commented that EdgePoint sought to become a leading digital infrastructure player across the ASEAN region. He also outlined ambitions to extend its footprint beyond towers into edge computing, integrated shared antennas and a whole host of assets suitable for urban network connectivity.
Entrance into the Philippines marks a key milestone on this roadmap for EdgePoint.
edotco progresses with its journey to 70,000 towers
2022 has been a busy year for edotco, having already made headlines with an entry into its ninth market in Asia. In March 2022, the Axiata carve out entered the ever-changing Indonesian tower landscape with an acquisition of 1,021 towers from its parent company for a total of US$52.2million. edotco had been eyeing up Indonesia for a while and disclosed at TowerXchange Meetup Asia that Thailand was also a target for immediate growth.
Once closed, its acquisition of 2,973 towers from PLDT will take it over the 50,000 mark of owned and managed towers. The PLDT towers acquired by edotco are primarily located in Luzon, Visayas and Mindanao.
Unlike EdgePoint, edotco had already begun building and leasing towers in the Philippines. By the end of 2021, it reached 25 towers, and since then has increased its organic rollout to 100 towers. This deal will make edotco the largest tower company in the Philippines with 3,073 towers in the country.
edotco expects that the 750 sites they are responsible for building as part of the deal (which sits on top of a 400-site order book already secured) will be in strategic locations that have high colocation potential due to the network rollout of 4G and 5G in the country. Another contributing factor to edotco’s optimism is due to 89% of the acquired portfolio being ground-based towers (GBT) with the majority of these exceeding 40m in height. GBTs are easier to manage due to more straight forward access as well as offering increased opportunities for lease-up relative to smaller towers or rooftop sites.
edotco CEO Adlan Tajudin said the deal presented “a highly strategic acquisition for edotco as it diversifies and strengthens our pan-Asian platform with exposure to a nascent, high-growth market with strong governmental support.”
“With an established platform in the Philippines, edotco can play an instrumental role in developing the nation’s digital economy infrastructure while accelerating its organic and inorganic growth strategy.”
Telecoms reform – A new operator and the common tower policy
But how did we get to this point? A 6,000 tower transaction marks a significant turning point for the Philippines that is over four years in the making.
Because the Philippines telecom industry was lagging behind other Asian countries, a series of reforms were announced by the country’s President Rodrigo Duterte towards the end of 2017.
The first was a plan to open up the telecommunication sector to foreign competition with the intention of challenging the comfortable duopoly that had been established between state-backed PLDT and its private sector competitor Globe Telecom.
The selection process experienced several delays due to multiple revisions of its terms, but they were finally agreed in September 2018. Eventually, China Telecommunications backed DITO fought off competition from an array of local and regional competitors and has gotten off to a flying start, exceeding targets by amassing 5 million subscribers and building 4,500 of its own towers as of the end of 2021.
In addition to the establishment of a third operator, a common tower policy was drafted by regulator Department of Information and Communications (DICT). The legislation supported objectives to significantly increase coverage and capacity across the country. Industry experts estimate that the Philippines requires 70,000 sites to hit its coverage goals – a far cry from the 17,850 TowerXchange counted in the country in 2019.
The common tower directive dictated that the two established MNOs, who between them owned all of the towers in the country at the time, could not own or have stakes in the new towercos that would be tasked with scaling the infrastructure.
The policy didn’t require Globe and PLDT to sell its existing assets, although both Smart and Globe have elected to take this path. Despite making their plans known before PLDT, Globe has been biding its time and waiting for the industry to gain local operating experience before proceeding with a transaction of its own.
Operator and towerco licences were not the only policies holding back telecoms in The Philippines. Permitting has long been a frustration for infrastructure growth, a fact that is not lost on the DICT. They themselves announced that one of the key reasons for the country’s slow deployment rate of telecommunication towers has been the red tape associated with its permitting requirements.
With the passing of a Joint Memorandum Circular (JMC) signed by multiple concerned agencies in July 2020, there was optimism that independent tower companies would be unburdened by their permitting requirements, which would help to facilitate bigger, better and quicker connectivity. The JMC resulted in the permitting process to build new towers reducing from over 200 days to just 16 days. One of the fastest in the world.
In addition to enforcing strict deadlines into law to make sure that documentary and permitting approval was easier for independent towercos, the DICT have also updated its website to digitise the process.
While still not a seamless workflow, feedback from the active towercos in the Philippines is that progress is being made, and they are happy with the DCIT’s approach at a national level.
The main permitting headaches now extend to working with local governments and municipalities – a significant headache for towercos investing in street furniture and urban sites required for network densification in Manila and other major cities.
Build to suit hits new heights
A new favorable regulatory framework, immense build to suit opportunities, the entrance of a new operator raising the tenancy ratio ceiling, and the incumbent MNOs’ announcements that they were interested in selling their existing tower portfolios has spurred huge interest in the Philippines.
The DICT initially licensed 23 tower companies, including international players, newly formed local towercos from industry veterans with experience elsewhere in Asia, and local investors and real estate funds pouring into the sector.
MNOs were initially slow to embrace independent tower companies, but a big shift in outsourcing build-to-suit activity has been noticed since halfway through 2021. Both Smart and Globe have since transitioned from relying on legacy turnkey mobile service providers for site rollouts, to now working almost exclusively with towercos.
There are many instances of sites where permitting has been agreed and construction has started that are being transferred onto towerco balance sheets for MNOs to lease.
There is also an expectation that once Dito’s network has been fully established, there will be significant network adjustments from Smart and Globe, which in turn will lead to a new wave of BTS and co-location opportunities for tower companies.
4G networks are essentially non-existent outside of Manila, which has led the towercos active in the country to feel confident that they will have build-to-suit contracts coming its way as networks need to be rolled out and densified for a long time. Towerco analysis of coverage across the Philippines has estimated that there are over 10,000 network blackspots that need to be filled.
Who else is active in the Philippines today?
PhilTower Consortium is part of Pan-Asian digital infra platform Global Network Inc - led by group CEO Devid Gubiani. Philtower have predominantly focused its attention on helping with capacity requirements in the metro Manila area, and have also expanded beyond macro towers to leverage expertise in street furniture across the urban landscape.
In June 2021, Philtower signed a 500 tower build to suit contract with Globe, and in December 2021 secured funding from Australian investor Macquarie Group.
Frontier Tower Associates (the Philippine operating company of Pinnacle Tower) has taken a different approach, focusing primarily on sites that can help connect remote Islands and rural locations across the archipelago. The company has established itself as an early leader in the market with significant backing from KKR private equity and founder Patrick Tangney, who has had success launching towercos in Myanmar, at the helm,
Local conglomerate Aboitz Infrastructure have created a towerco by the name of Unity that are also rolling out sites across the country. Aboitz have partnered with international private equity player Partners Group.
Former EPC company LBS Tower, who have been responsible for supplying and building over 8,000 towers owned by the MNOs, is planning to transform its business model to become an independent tower hosting company.
The international towercos who secured licenses have been slower off the mark on the build to suit front - but are making their presence felt with a number of sites rolled out.
SBA Communications completed its first seven sites in early 2022, while American Tower subsidiary Transcend Towers Infrastructure signed a 150 site build-to-suit agreement with Globe Telecom in Luzon. American Towers current presence in the Philippines sits at 97 towers, as reported in its Q421 results.
Emerging market powerhouse IHS Towers have also secured a license in the Philippines but are yet to begin leasing sites in the country to TowerXchange’s knowledge.
Operating conditions in the Philippines
In contrast to the 50,000 or so new towers that need to be built in the Philippines, many of the existing towers are relatively old, and not suitable for co-locations in its current state. This means that edotco and EdgePoint are now likely to need to strengthen and renovate its acquired sites, in addition to rolling out innovative site designs that can withstand the tough weather conditions much of the country is exposed to.
Securing power to sites remains one of the most challenging operational priorities for tower operators active in the Philippines. While this is less significant for sites in the major metro areas such as Manilla, where grid availability averages out at around 90% - there are plenty of locations in more rural and remote areas where grid availability is poor or non-existent.
The Philippines’ geographical make up of over 7,000 islands means full grid coverage is an extremely distant reality – if it is to manifest at all.
While diesel gensets and Lead Acid batteries are found across the country, there is a hotbed of sustainable energy innovation in the Philippines.
In recent years, MNOs in the Philippines have been driven by regulations and their own 2050 net zero goals to invest in renewables and new battery technologies, but there is an acknowledgment that this carbon reduction will occur in small steps. One solution that has been embraced is fuel cell technology as a sustainable and proven approach to meeting the national policies on clean energy and social responsibility.
President and CEO Alfredo S. Panlilio, who also serves as PLDT Chief Revenue Officer, has commented in the past that “PLDT and Smart are active advocates of sustainable development. As we face daunting challenges on how to protect our environment and promote more equitable social development, Smart’s cutting-edge technologies can play a significant role in rallying the right socio-environmental mindset and driving a greater sense of responsibility to the planet.”
Smart have since rolled out fuel cells on a trial basis at 90 of their sites across the country in partnership with Danish firm Advent Technologies.
With significant experience developing minigrid technology in Myanmar, Yoma Micro Power have also expanded into the Philippines, and should offer a fresh solution for poor or off grid sites.
With the increased Capex potential that a sale to edotco and EdgePoint brings with it, investment in renewable energy across the country will no doubt increase in the form of fuel cells, solar and wind energy.
What’s next for the Philippines?
The deals are expected to close in a staggered manner, as towers are transferred between PLDT and the tower companies. The first of these is expected in May 2022, with the full number of sites closed by the end of the year.
With significant build to suit activity still to come for the foreseeable future, a new MNO building out a network from scratch and an estimated 15,000 towers still in the hands of Smart and Globe, the Philippines will continue to be a hotbed of inorganic and organic towerco growth. If you want to meet all of the key players, or learn more about the Philippines, make sure you join us at TowerXchange Meetup Asia in December 2022. Email me at Jack.haddon@towerxchange.com for more details.
