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Tower Business
More mobile operators are spinning off their tower
infrastructures in search of growth, shareholder
value, and better margins. Now the questions are:
Will the growth continue? Is the value sustainable?
Can margins be improved?
Captive or independent tower companies are emerging like never before as more
telecommunications companies sell or spin off their tower holdings. Because towers make
up the bulk of their capital investments and, especially in emerging markets, most of their
operating costs, mobile operators are opting to share towersrenting them from other telcos
or tower companies instead of making ongoing financial investments in infrastructure. In the
process, mobile operators are searching to cut costs drastically and maximize profits.
But has it really been a success? Are tower companies creating value for their shareholders and
their mobile operator clients? In this paper, we answer these questions and examine what tower
companies and mobile operators can do to create a sustainable business and shareholder value.
Figure 1
Recent tower deals
Deals
Country
Year
Deal size
Number
of towers
Enterprise
value
per tower
Australia
2008
$39 million
140
$278,571
Indonesia
2009
$503 million
3,630
$138,606
India
2009
$170 million
1,730
$98,266
India
2010
$1.8 billion
17,500
$102,857
India
2010
$304 million
37,500
$73,697
Ghana
2010
$428 million
1,876
$228,305
South
Africa
2010
$430 million
3,200
$134,375
India
2012
$3-$4 billion
50,000
$60,000
to $80,000
As early movers, Indian tower companies have become global industry leaders with Indus,
Reliance Infratel, and Viom managing 110,000, 50,000, and 41,000 towers each, respectively,
ahead of industry pioneers American Tower and Crown Castle with 49,000 and 22,000 towers
each (see figure 2). However, recent industry developments and regulations in India have raised
questions about the sustainability of independent tower businesses. In particular, the exit of some
of the newer operators, which were the primary engines of Indias tower growth, is affecting cash
flow and debt repayments and could even push some tower companies to the brink of bankruptcy.
Figure 2
India tower companies are among the global industry leaders
Number of towers, 2011
(thousands)
110
50
49
41
22
7
Indus Towers
in India
Reliance Infratel
in India
American Tower
in North America
Viom Networks
in India
Crown Castle
in the United States
Protelindo
in Indonesia
While some of these developments are specific to Indias market and regulatory situation,
we believe it also heralds the changing nature of tower businesses around the world.
Earnings in this paper refers to earnings before interest, taxes, depreciation, and amortization (EBITDA).
Malaysia. Population coverage has reached 95 percent, and operators have shared towers for
some time now, both formally and informally. As site acquisition in major cities becomes more
difficult, the focus is turning to mobile broadband and the required optimization of in-building
coverage and small cell networks. Infrastructure sharing, consolidation, and optimization are
the way leading operators are most likely to go.
Figure 3
The starting point for improving operations is the typical profit and loss structure
Illustrative
($ million)
46
100
18-20
12-15
146
7-10
8-10
20-25
45-55
20-25
5-8
Gross
revenue
Power
and fuel
pass-through
Net
revenue
Rent
O&M
HR and
and security G&A
Others
EBITDA
Depreciation
Interest
Profit
after tax
Notes: Others includes penalties, under-recovery in power and fuel costs, and provisions. O&M is operations and maintenance. HR is human resources.
G&A is general and administrative. EBITDA is earnings before interest, tax, depreciation, and amortization.
Source: A.T. Kearney analysis
Beyond the profit and loss structure, there are several other ways to improve performance:
Drive comprehensive operational improvements
Power and fuel. Energy costs are often treated as a pass-through to operators, leading to
limited incentives for tower companies to contain costs. Inefficiencies are typically found in
areas such as monitoring electricity and fuel consumption, equipment upkeep, and equipment
configuration, including overly powerful diesel generators. In areas with limited grid power,
these inefficiencies are compounded and lead to high pilferage and leaks. We often see too
much emphasis on technology solutions, such as using advanced batteries for longer backup
or installing cooling solutions to substitute for air conditioners, and not enough focus on
The Rise of the Tower Business
execution. However, significant savings can be realized through better execution by ensuring
correct temperature settings, properly maintaining equipment, and controlling vendor costs.
For example, some tower companies in India use prepaid petrol cards to control the diesel
filled by vendors and set limits based on each sites should-be consumption.
Operations and maintenance. Taking care of site infrastructure is crucial for controlling fuel costs
and avoiding unscheduled downtime. Thorough equipment checks and adherence to preventive
maintenance schedules are vital aspects of sound infrastructure performance. Leading tower
companies focus on improving their ability to track site-level performance and profitability.
Concepts such as tower operating centers (TOC) are rightly gaining ground in the industry.
Estate management and security. Landlords that pilfer power or fuel can be a big source of
problems. Some even resist control with unscheduled outages that result in penalties from
operators. Leading tower companies understand the need for good rapport with landlords but
are also prepared to use security or police to control abuse when necessary. Security costs can
be optimized by adopting a patrolling model instead of a stationed-at-site model. Naturally,
these options vary by location and environmental conditions.
Reduce cost structure of sites
New site designs. Innovative sites focus on reducing the total cost of ownership for tower
companies and operators. This requires not only building structurally lower-cost sites, but also
integrating active equipment components that reduce energy consumption. India, with its
frugal engineering capabilities (jugaad), is poised to drive such breakthrough designs; we are
already seeing some companies pushing in this direction. Similarly, capex can be significantly
reduced by tailoring site specifications to tenancy profiles. For example, a single tenant site in
an area with decent grid power can get the job done with just a monopole for an outdoor base
transceiver station (BTS) that has an advanced valve-regulated lead acid (VRLA) battery. No
diesel generator or shelter is necessary.
Existing sites. Sites are often designed for three to four tenants while the actual number
of tenants turns out to be just one or two. This results in over-configurations, such as a
30-kilovolt-amp (kVA) diesel generator for a single-tenant site. At the same time, tower
companies have under-configured sites, allowing for swapping of generators and batteries.
Identify incremental site, tenancy, and pricing opportunities
Bottom-up site opportunity analysis. Radio network planning capabilities are essential for
maximizing tenancies. Tower companies can map their tower portfolios to operator blind spots
and then approach operators to discuss sharing.
New technologies. When outlining service agreements with telecom operators, tower
companies often fail to charge adequately for new technologies such as 3G or 4G, which
means they do not share in the incremental revenues generated. This can be a significant
missed opportunity when operators deploy universal site cabinets for 2G, 3G, and 4G.
Asset utilization. Tower assets can be used for other tenancies that do not require much space,
such as Internet service providers (ISPs). Although revenues are generally lower than for a typical
operator tenant, the margins can be attractive. Also, the real estate at tower sites can be used for
new business opportunities, such as ATMs or Internet kiosks. The availability of power, air
conditioning, and security can be an appealing proposition for other service providers.
Authors
Nikolai Dobberstein, partner, Mumbai
nikolai.dobberstein@atkearney.com
Sridhar Narasimhan,
principal, Singapore
sridhar.narasimhan@atkearney.com
The authors wish to thank their colleague Rajaganesh Sethupathi for his valuable contributions to this report.
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