Is Japan ready for a towerco explosion?

TowerXchange: Tell us about your journey to launch JTOWER, and what are some of your biggest challenges and proudest achievements to date?

   

Atsushi Tanaka, CEO, JTOWER: I am the founder and CEO of JTOWER, a Japanese Infrastructure sharing firm that I launched 11years ago. I started that my career as a telecom analyst at Goldman Sachs and then after I did that for three years set up a broadband company called eAccess with my former boss in 1999. I was CFO of EMOBILE, which ended up being acquired by Softbank (one of Japan’s four MNOs) in 2012.

At eAccess we initially focused on providing ADSL services and broadband, but then also entered the mobile space as EMOBILE in 2005 as the government wanted to issue a new licence to improve competition.

We raised US$3billion in funding and went out and built a mobile network from scratch. I realised that in other markets across the world, towercos were buying the tower portfolios of MNOs and facilitating sharing.

I thought Infrastructure sharing made a lot of sense, but we had nothing like this in Japan. When I realised this, I thought it offered a great opportunity. There was very little sharing, and until recently that was still the case.

So our greatest achievement so far is making that happen! We started with indoor solutions in 2014. I started this venture independently and had little leverage with MNOs. I approached them and asked about leasing them their towers, and building their new sites, but we didn’t get much interest.

The decision to pivot to indoor solutions came after speaking with building owners and real estate developers and managers to explain about the sharing of communication infrastructure in their buildings.

They liked the sound of it, because it meant they could minimise the space they were using to host the equipment and could save on electricity costs. With the building owners on board, it was easier to sign up the MNOs as tenants, but they were still hesitant to let us own or build their outdoor sites.

This changed when the government assigned 5G spectrum to four operators (NTT DOCOMO, KDDI, Softbank and Rakuten Mobile) in 2019. One criteria of the spectrum allocation was that the operators had to cover parts of Japan where they didn’t have a 4G footprint.

There’s a reason they were not there themselves, they were low traffic sites that did not justify the capex investment. So at that time we went back to them and offered to build the sites and they were far more receptive.

We also cut two deals to acquire towers from 2021 to 2022. 207 towers were agreed to be purchased from NTT West and NTT East, and a further 6,002 towers from NTT DOCOMO.

We have started building in rural locations as well, and by March 2024 we will have 150 towers. One of our criteria for building a tower is that we need to make sure that there is a co-location with a second operator. As a result, all 150 of these towers will have a minimum tenancy ration of 2x.

Its probably important to mention now that while I started the business from scratch, we have secured equity investment from Japan’s MNOs. This gives a unique relationship with them, as we are still neutral and independent, but we have close relationships, and they have an interest in us succeeding and growing as a business.

TowerXchange: After working for 11years at JTOWER, what is it that you like about working in the tower space, and what advice would you offer someone looking to enter the industry as a career?  

I think its fair to say from my journey as CEO of JTOWER that working in this segment of the industry offers you the opportunity to really make a difference from an environmental standpoint and fundamentally change how the industry is structured.

As I mentioned, the building owners were receptive to the idea due to the fact they needed less space and had more costs. We also reduce costs for MNOs both indoors and outdoors, and its great to be able to revolutionise the mobile infrastructure industry and have an impact on tangential industries like real estate.

We are also reducing the need for more towers, which means less steel is produced and this has benefits to the physical environment and on carbon emissions.

JTOWER has its routes in Japan, but you have expanded into Vietnam as well. what does the business look like there?

Vietnam is similar to Japan, in the fact that the vast majority of outdoor towers are still owned by MNOs, but ahead of Japan in the sense that pretty much all of the inbuilding connectivity is shared.

There are a number of IBS companies in Vietnam. On 31 July 2017, we completed the acquisition of the largest IBS company in Vietnam, Southern Star Telecommunication Equipment Joint Stock Company (SPN) through a special purpose company (VIBS Pte Ltd.) jointly established with Japan South East Asia Growth Fund L.P. (JSEAGF) and jointly funded and managed by Development Bank of Japan Inc. (DBJ) and Risa Partners Inc. (RISA).

This portfolio includes over 230 IBS.

Recently though, with the change in attitude from MNOs and the ministry in our home market, we are more focused on Japan. While the Vietnam business is still successful, we are not prioritising expanding anywhere else for now.

TowerXchange: What do these domestic opportunities look like for JTOWER? What is your strategic vision for the business over the next five years?  

MNOs are no longer competing on networks, rather they are competing in the non-telecom fields such as ecommerce and other services they can offer subscribers.

The ministry is also far more supportive of encouraging sharing now, at the same time MNOs are looking to make their networks more efficient. We see this as a big opportunity for JTOWER.

Primarily, we will be interested in making further acquisitions on both towers and BTS sites. There are a lot of towers in Japan (~220,000 according to TowerXchange data), so our over 6,000 site transaction with NTT group is just a small percentage of what we could own for them.

We are in conversations with all the MNOs in Japan about further sale and leasebacks, and we are in a good position to buy the towers from them if the economics make sense for both sides. The 6,002 tower sale from NTT DOCOMO might very well be the first domino to fall.

Today, all energy equipment in Japan is managed by MNOs. Whether that be a backup generator or backup batteries. Right now we are focused on migrating the NTT sites, but as we own rural towers there may be opportunities in the future to invest in energy equipment and allow operators to share them on our sites.

Grid power is getting more and more expensive in Japan, and we have seen in other markets, even with a good grid, towercos are providing energy monitoring services to help reduce operator costs. This could be the direction the Japanese market travels in as well, so we would be happy to help if the demand form MNOs is there.

We are also working with a Taiwanese firm to develop the sharing RU (part of the base station), complying with Open RAN technology. We plan to launch this service by the end of this fiscal year.

Our equity relationship with the MNOs comes into play here, as we are able to have discussions with their radio engineers about the equipment they need and the services we can provide.

Alongside this, we are also expanding our indoor services, upgrading sites to 5G and working with real estate developers to cover new developments with 5G SA technology.

TowerXchange: We've spoken about 5G rollouts being the catalyst for infrastructure sharing in Japan. Can you just tell us a little bit more about the strategies that MNOs are taking towards 5G? 

The strategy varies from one mobile carrier to another, but I think its fair to say Japan is slightly behind where we expected to be with 5G deployment.

Two years ago the government put a lot of pressure on Japan's mobile network operators to reduce the price of their tariffs. doing so had a significant impact on their revenue which made them far more cautious to spend on the Capex required to build their networks.

A solution they employed was to use existing 4G spectrum for 5G so the handset can see 5G but actually you don't have much difference between 4G and 5G, because it's still using the existing spectrum band. Now however, the major operators are starting to deploy 5G standalone. We're hoping to see this pick up significantly by the end of the fiscal year.

We also see our 5G mmWave RU sharing project helping with 5G deployment. Handsets in Japan hardly access mm wave spectrum and due to the propagation of this spectrum, it will be hard for MNOs to find enough space for new base stations indoors, and hard for the structures to support new base stations on existing outdoor sites.

We think there will be demand for our Radio Remote Unit when this new spectrum is going to be deployed en-mass, to keep costs of deploying these frequencies as low as possible. Some industry observers are concerned that moving more into the active space can effect towerco valuations.

Starting as an in building solution provider, we have active network equipment at the core of our business, so we think we are in a good position to capitalise.

We already have experience monitoring and servicing active equipment from the indoor business, so these competencies can help us offer these services to outdoor networks as well, especially if MNOs are using our Remote Radio Units.

TowerXchange: What is the outlook for the towerco industry in Japan? JTOWER are the only towerco for now, will that change?  

Japan has a healthy Mobile market, with lots of towers still owned by MNOs, so that naturally makes it attractive to investors.

Furthermore, the Yen is quite weak now, relative to a few years ago and the Bank of Japan has kept interest rates negative at -0.1%. We secured a cost of capital of roughly 2.5% for the leverage we needed to secure the NTT assets.

We do see the big infrastructure funds looking at the Japanese market. I don’t know if they have any specific plans to make an investment here yet, but based on activity elsewhere in Asia, it could make sense.