Amidst rising costs of coverage expansion to fulfil the rapidly increasing appetite for connectivity, operators globally are under more pressure to balance the books - a trend that is not limited to developed markets.
Capital is also being squeezed by 5G deployments, which arguably have yet to provide a significant return on investment.
This is why operators are looking to their passive infrastructure - particularly telecom towers - to raise much-needed cash. Tower companies are ready to invest and eager to scoop up towers - this is particularly the case in the Philippines, where operators are signing deals worth over a billion dollars each to sell and lease back tower assets.
Globe Telecom and PLDT (Smart) have been quite brazen in this strategy; to date Globe Telecom has sold 7,100 assets, raising a total of PHP91 billion (US$1.5 billion) after sealing what it claimed to be the Philippines’ largest tower deal to date with Phil Tower. Around three-quarters of the proceeds will go towards capex and paying off debts.
The company’s capex grew 17% to PHP50.5 billion - 57% of the PHP89 billion budget for the full year.
PLDT meanwhile, sealed deals to sell over 5,907 towers to subsidiaries edotco and EdgePoint Infrastructure for PHP77 billion. Since August this year, the company has received PHP52.4 billion for transferring 4,025 towers. After deductions for debt and other payments, PLDT saw a gain of PHP16.5 billion for H1. Capex was PHP46 billion, a rise of PHP4.6 billion year-on-year. Its total capex guidance for the year is PHP85 billion, which will be used to deploy fibre cables, data centres and cable systems.
Speaking to Developing Telecoms, ABI Research industry analyst Matthias Foo said that maturing debts are the main reason for their respective tower strategies - but it is also a move to boost network performance in the face of new competition from Dito Telecommunity and Now Telecom.
The former duopoly are still the most dominant players in the Philippines, with Globe holding 87 million subscribers and PLDT 69 million, while Dito Telecommunity had a comparatively low 12 million in Q2.
The Philippines' Department of Information and Communications Technology has also mandated a Policy on Shared Passive Telecommunications Tower Infrastructure (PTTI) ordering operators to construct and share towers – and this has pushed them towards sale and leaseback deals.
With so many towers being sold, what exactly is the negative? Foo noted that one “key drawback” will be “no longer holding the competitive advantage of owning a large number of exclusive telecommunication assets over their rivals.”
“Rival operators, especially the newcomers, can quickly ramp up network coverage by leveraging on the sold PTTIs, which will now be designated as Shared PTTIs. To protect their own interests, it can be noted that Globe has indicated its intent to retain around 5,000 strategic tower sites for their own use,” said Foo.
“However, given the issuance of the policy on Shared PTTIs, ABI Research expects this competitive advantage to erode over time as Independent Tower Companies (ITCs) ramp up deployments of Shared PTTIs across the country,” he warned.
Another challenge will become apparent when these 15-year leaseback deals with tower companies eventually expire, as this will raise expenses - and this could require government intervention to keep prices low for consumers.
“After the expiry of existing leaseback agreements, MNOs may be placed in a disadvantageous situation where lease prices can be dictated by the tower companies, especially in areas where there are no other cellular towers installed. To this end, strong regulatory oversight from the Philippines government may be required to ensure fair and transparent pricing,” added Foo.
Foo pointed out the race between Globe and PLDT is “not a race to the bottom” despite the figures flying around, but rather it is consistent with trend in the telecoms market as margins are squeezed.
“Tower operations are not the core business of a telecom operator. Moreover, offloading tower assets and leasing them back from tower companies are becoming standard practices in major telco markets, such as the US and China, so it makes sense to see this practice being adopted in emerging markets,” he said.
Through multiple lockdowns, the importance of connectivity was underlined to people from all walks of life - this should be a golden age of growth for operators. However, that is not the case, and selling towers is a strategy being used to steady the ship and regain shareholder trust. The right tower strategy is vital for growth and longevity; the question now is who has got it right? This will be revealed in time, but we may be waiting at least 15 years…