The world’s largest towerco is intent on accelerating its growth strategy, including plans to further the commercial progress of its smart tower and energy segments of the business – China Tower’s ‘Two Wings’ pillar of its anchor One Core and Two Wings (OCATW) business strategy.
The company’s anchor One Core business – combining the traditional tower business and its DAS indoor connectivity business – accounts for 88% of the company’s revenue, with the Two Wings business representing 12% of the company’s total revenue.
Operating revenue grew steadily in the first half of 2024 to RMB48,247mn (US$6.796bn), an increase of 3.8% year-on-year (yoy). EBITDA reached RMB33,045mn, an increase of 3.2% yoy, with an EBITDA margin of 68.5%. By 2027, China Tower hopes to see its revenue grow by 5%, with its One Core strand of the business taking up 3% growth, and Two Wings 2%.
China Tower has high hopes for Two Wings. This is because the business segment grew faster than the core business over the past few years. Since China Tower had modified its OCATW strategy in H2 2019 since the concept’s inception the year before (its Two Wings originally consisted of a site application and information business), Two Wings accounted for just 7% of the total business. It therefore believes it can continue to increase its revenue proportion, but capex constraints mean the rate of growth may not grow at incredible pace,” says Edgar Fu, Investor Relations Director, China Tower Corporation (pictured).
“Even if we are building the Two Wings capex involved in the Two Wings business won’t be more than RMB5bn per year in the next two to three years,” he tells TowerXchange. Fu adds that the energy business, which accounts for 4% of the company’s total revenue, might be spun off, although no timeline has been set. This was to ensure that cash flow from the overall business would not be used to fund the energy business, according to Fu.
Its energy services include providing power backup capacity services – for instance the lithium-ion batteries or assets-based batteries it owns can be used to provide a battery exchange service where drivers of light electric vehicle (such as delivery drivers) can replace those batteries when they are low in power. China Tower also runs solar energy on 2% of its total number of sites. These are mainly deployed in the rural, coastal areas where it does not have grid access to power those sites.
China Tower’s traditional tower operation hinges on the demand and the pace of 5G development carried out by the country’s three main MNOs (also widely known as carriers or telcos in the active infrastructure market) - China Mobile, China Telecom and China Unicom. “We are not able to build lots of tower without any 5G base station mounted on them. It’s quite a passive business on the One Core side,” says Fu, who will be speaking on a special China Roundtable at this year’s TowerXchange Meetup Asia, 26-27 November, at the Shangri-La Hotel in Kuala Lumpur.
Core tower operation
Despite the general feeling that China Tower can scale its business faster than the traditional business moving forward, China Tower’s core tower business remains a highly unique operation. This is especially considering it currently owns 2,070,000 towers (virtually all are ground-based macro sites) – a count that is ten times as much as the next highest tower owner. China Tower has 95% market ownership in Mainland China. The second largest towerco in Mainland China is China Guodong, which has a footprint of up to 30,000 towers, mainly situated in the Yangtze River Delta region.
The remaining approximate 300 other towercos that form the Chinese tower market are relatively smaller, domestic players. Local tower services are limited in functionality – with no power backup, servers, shelters, cabinets or repair and maintenance services – and lack significant expansion capabilities.
These local towercos have their own union, according to Fu, that sets pricing and standardise the tower’s characteristics when providing services to the telcos. “We are more focused on how to provide better ways to construct towers with low costs, premium service to the customers, rather than benchmarking ourselves against much smaller players,” continues Fu.
Demand for tower buildout within China Tower has been at a high rate since 2015, but even more so than currently today, says Fu. That year saw the exponential demand from the MNOs, who were accelerating 4G connectivity. So some 200,000 4G towers were then built during the year, with a further 150,000 sites built in 2016. Since 5G deployment launched in the second half of 2019, China Tower received 500-600k 5G build-to-suit (BTS) site demand per year, building towers at a rate of 40-60k towers annually.
Reflecting on why 4G tower demand was so high in relation to the current pace of 5G tower rollout, Fu says: “4G had huge construction demands in the latter stages of its development between 2015-17. During that period of its development, Data traffic requirement grew 100% each year in those three years.
“For 5G transmission speed is at least 10x faster than 4G, but in terms of the data traffic requirement, it doesn’t seem to be growing as fast over the last five years compared to 4G, with only 20-30% CAGR (compound annual growth rate) experienced in the past five years. That’s why 5G network deployment has grown quite steadily during this period.”
Fu notes that the Chinese carriers have been buying 5G base stations from the country’s largest OEMs, Huawei and ZTE, with the equipment accounting 90% of all 5G base stations in Mainland China.
Site decommissioning efforts
Tower rollout has been offset by 2G and 3G site decommissioning and consolidation of rooftop towers. Each year these kinds of site decommissioning projects accounted to roughly 60-70% of the annual rate at which the towers were built – equating to an approximate average rate of 30,000 sites removed each year since 2019.
During the publication of China Tower’s 2023 annual results, where it was revealed that the company’s tower count slipped 0.4%, or a net drop of 9,000 towers, the company stated that it had “completed approximately 586,000 5G construction demand in 2023, of which more than 95% were achieved by sharing existing resources”. This took the overall tally of 5G base stations in the country to 2.347mn, but it also implied that 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.
Reflecting on those results and the eye-catching rate of tower phase-outs, Fu notes that it was as a result of a five-year pricing agreement which China Tower had signed with China Mobile, China Telecom and China Unicom in 2022 that allowed the telcos to have a more nimble approach towards decommissioning tower sites. Fu adds the prime focus for its decommissioning strategy centred on consolidating rooftop sites, as it was easier to do so than with macro sites. Decommissioning sites in locations that were going through urbanisation projects was also a central focus.
“We decommissioned sites in these areas and built new towers nearby after a new residential area or commercial area was built. We call it satellite city,” voices Fu. He adds that China Tower should see net tower growth increasing at the rate of between 10-20,000 per year over the next four years.
Serving China’s connectivity requirements
Whilst its tower build expansion plans breathe excitement for a 5G centric China, Fu says it is nearly impossible to precisely know how many towers would be required to achieve full coverage. He expresses that it is dependent on how many will use 5G, as well as the less affluent regions and village locations that were still using 4G. Fu also points towards 5G monetisation as inherently important for the widespread growth of the spectrum: “It is dependent on whether enterprise want to deploy more 5G rather than focusing on the consumer market,” says Fu. “Until today, it is still around 75% that is the consumer market, rather than the B2B business. So there’s not enough demand from other customers. So they’re not willing to spend money on building a dedicated 5G networks for autonomous driving, AI factories etc.
“It’s hard to build the data traffic requirements in Mainland China in the short run,” Fu continues. “That is why the deployment of 5G is relatively slower than our expectations at the moment.”
China Tower’s business model is not fully dependent on the demand it gets from MNOs, but how it works with wider society. For instance, China Tower’s smart tower business has seized upon several opportunities including surveillance. At least 50,000 of its towers have high-definition cameras coupled with AI recognition algorithms. The company has also developed a number of applications including providing real-time monitoring of large swathes of farmland, enforcing fishing prohibition along the Yangtze river, forestry fire prevention and other national initiatives.
About 75% of its smart tower business relates to its work in developing the country’s economy. China devised a Digital China strategy a few years ago, giving China Tower more opportunities to develop service propositions around IoT monitoring, data analysis, transmission, and cloud resources. It is also investing in AI through its servers, which will, in turn, help local governments and customers save on long-term capex.
“We can use AI to make the process more efficient, and help save overall social resources as well. That’s why we opened out our asset base and related resources to the wider society rather than serving the telco industry,” says Fu.
Such concerted expansion and service-orientated efforts mean China Tower will not be contemplating overseas expansion. Fu concludes that the tower business is a politically sensitive market, and therefore, would not risk moving into regions where it is not familiar. This is coupled by the workload of its 23,000 staff, who have to manage a footprint of over 2mn towers. This equates to a ratio of close to 100 tower sites to manage per employee, which is on top of helping the carriers fulfil their 5G rollout goals through tower buildout.
Despite this, its One Core and Two Wings strategy shows that the direction of travel of China Tower as a business is very much one about tower growth, 5G and innovation.
