In March, state-owned China Tower released its 2023 annual results, detailing stable, topline figures with a notably strong performance from its Two Wings businesses, tempered by subdued numbers for its core tower business. Lead Asia Researcher David Tran looks at the impact of the latest set of results from the world’s largest towerco in detail.
By the looks of its overall business performance, the world’s largest telecoms infrastructure provider China Tower is on a solid footing to position technological innovation as the centrepiece of its corporate strategy.
Consolidation and stability were the main themes of its Annual Results for 2023, highlighting a 2.0% increase compared to 2022 in operating revenue to CNY94.01bn (US$13bn), and sound operational performance leading to double-digit profit growth of 11% year-on-year (YoY). EBITDA edged up 1.1% YoY to CNY63.551bn, with an EBITDA margin of 67.6%, demonstrating stable standalone operating profitability of the business.
Operational consolidation
Whilst its headline numbers provide room for optimism for China Tower’s respective business divisions, a key aspect of the core tower performance provides intrigue.
China Tower’s tower count had risen steadily until 2022, increasing from 1.872mn in 2017 (its earliest published set of figures made available) to 2.055 million in 2022. However, in its FY23 results, China Tower’s tower count slipped 0.4%; or a net drop of 9,000 towers.
During the same period its tenancy ratio increased from 1.44 to 1.74 tenants per site. The slight dip in its tower count, coupled by a climb in its tenancy ratio in 2023 to 1.79, indicates a shift towards more co-location as China is rolling out 5G and operators are densifying their networks.
Its mainstream Telecoms Service Provider (TSP) business increased 3.4% like-for-like to CNY85.88bn. This was aided by strengthened resource sharing, in particular the installation of new 5G infrastructure, to which 5G base stations are installed on its sites. The number of installations of 5G base stations grew 9.5% year-on-year to 586,000, taking the overall tally of 5G base stations in the country to 2.347mn, supporting 5G network coverage plans and China’s aspirations of becoming world-leading in 5G deployment.
“We completed approximately 586,000 5G construction demand in 2023, of which more than 95% were achieved by sharing existing resources,” the company said. This implies about 29,300 new sites were required for 5G deployment in the whole of China in 2023 and a larger number decommissioned over the same period.
Despite registering positive overall results, revenue is down in real terms, driven in part by the impact of new commercial pricing agreements. In 2022, the boards of China’s three main mobile network operators – China Mobile, China Telecom and China Unicom – approved new five-year rental agreements with China Tower, enabling the trio to continue the buildout of high-efficiency networks and accelerate the construction of low-carbon infrastructure.
As the MNOs each have a large shareholding in China Tower – owning a 38%, 27.9% and 28.1% stake, respectively – it effectively means China Tower is receiving less in rent than previously. This large MNO shareholding is one reason China Tower trades at a substantial discount to its publicly traded peers.
Overall company performance
Embedded within this is its One Core and Two Wings (OCaTW) business – the One Core element involves constructing tower and distributed antenna system infrastructure that is shared among its TSP tenants, and the Two Wings strategy which comprises its smart tower and energy businesses.
China Tower’s non-TSP revenue increased substantially in 2023. While TSP revenues declined 1%, Smart Tower revenues increased 27.7% YoY and its Energy Business increased revenues by 31.7%. This performance suggests that the strategy is paying off, as growth of the business compensates for a dip in performance of its core tower business.
Smart Towers
Its smart towers operation is a mid- to high-point monitoring service, transforming macro telecom towers to digital towers. By the end of 2023, approximately 217,000 telecommunication towers were upgraded to digital towers, covering more than 40 important national and livelihood areas including forestry and grass, environmental protection, water resources, agriculture, transportation, land and emergency.
For last year, the Smart Tower sharing business revenue was CNY2.56bn, accounting for just over one-third (35.1%) of smart tower revenue. Tower monitoring revenue was CNY4.73bn accounting for 64.9% of smart tower business revenue, emphasising the commercial potential of its digitally intelligent-led service proposition.
Fulfilling the energy market’s potential
Its Two Wings performance includes healthy numbers from its energy business, comprising a battery exchange marketplace for light electric vehicles and power backup systems. Energy revenue totalled CNY4.21bn, a year-on-year increase of 31.7%, crystallising its move towards smart energy and helping China to deliver on its carbon neutrality goals.
Energy and IoT have in recent years been shaped by the company as a commercially important business areas for the future. In 2019, China Tower created two new subsidiaries to extend a philosophy of smart sharing to energy and “intelligent connections.” In carving out subsidiaries Tower Energy and Tower Zhilian – both organisations integral entities within its Two Wings strategy – China Tower created the world’s largest consumer of telecom energy equipment and services, and a landmark new centre of innovation as towercos diversify beyond focusing on sale of “vertical real estate” for the co-location of antennae equipment for MNOs to develop IoT, civil and government services.
Most of China Tower’s sites are equipped with a standby power supply systems to ensure uninterrupted service from build-to-suit towers in the unlikely event of mains power failure. This means that China Tower has the world’s largest distributed telecom energy storage system.
Tower Energy leverages China Tower’s extensive experience of managing energy efficient backup power battery banks, its large-scale procurement advantages, its professional maintenance capabilities, and the company’s intelligent monitoring system. As such, Tower Energy’s primary responsibilities are power assurance and energy services, including both backup and primary power generation, as well as battery charging, power conversion, and energy storage for financial, transportation, medical, and low-speed electric vehicle customers.
Commenting on the 4Q23 results, analyst Jefferies said: “For new energy, power backup (using used lithium batteries) contributed 41% of rev and grew 48% YoY. We believe this business will continue to benefit from gov's initiative in new energy and power storage.” The Hong Kong-based firm added: “China's push for digitization and decarbonization (the DD of "LDD") could drive better-than-expected growth in C Tower's new businesses.”
IoT venture
China Tower carved out Tower Zhilian to encompass several key offerings from their business development department in the fields of social information, government services and the Internet of Things (IoT). Essentially the remit of Tower Zhilian encompasses “intelligent connections”, or to use tower industry language, serve “non-traditional mobile tenants”. Demand for and usage of social information and IoT services is developing rapidly in China, so Tower Zhilian has a large and growing addressable market.
Leveraging the communications infrastructure resources and specialisation capabilities of its parent company, Tower Zhilian has been accelerating the transformation of “communication towers” to “social towers” by focusing on sensors and services for ecological environment protection, land, agriculture, forestry, security, emergency, transportation, and satellite positioning.
Since inception in 2014 as a result of a carve out from China's MNOs China Mobile, China Unicom and China Telecom, China Tower has continuously deepened the concept of sharing beyond towers and rooftops. China Tower has actively transformed itself from a focus on industry resource sharing to a focus on social resource sharing, promoting the expansion of a vision of a “telecommunication tower” to that of a “social tower;” high quality, high reliability sites and resources that can be fully and efficiently shared by multiple business and government stakeholders.
China Tower is a leader across alternative business lines in the towerco market. Other businesses are looking for inspiration in this dynamic industry. TowerXchange’s latest report, Tomorrow’s Towerco, highlights some of the most groundbreaking use cases in the tower market.
