Global trends for tower markets

Transcription

1 Error! U nkno wn do cu ment prop ert y name Report for edotco Group Global trends for tower markets 15 March 2016 Amrish Kacker Ref:

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3 Error! U nkno wn do cu ment prop ert y name. Global trends for tower markets i Contents 1 Executive summary 1 2 Introduction 1 3 Definition and identification of efficient tower markets 2 4 Tower ownership models in efficient tower markets 3 5 Foreign ownership of towercos in efficient tower markets 4 6 Initiatives in new areas undertaken by towercos with scale 5 7 Licencing of towercos in efficient tower markets 7 8 Competitive dynamics of towercos in efficient tower markets 8 9 Conclusions 10 Ref:

4 Error! U nkno wn do cu ment prop ert y name. Ref: ii Global trends for tower markets Confidentiality Notice: This document and the information contained herein are strictly private and confidential, and are solely for the use of edotco Group Copyright The information contained herein is the property of Analysys Mason Limited and is provided on condition that it will not be reproduced, copied, lent or disclosed, directly or indirectly, nor used for any purpose other than that for which it was specifically furnished. Analysys Mason Pte Ltd #10-02 Robinson Centre 61 Robinson Road Singapore Tel: singapore@analysysmason.com Registered in Singapore No R Subsidiary of Analysys Mason Ltd Bush House, North West Wing, Aldwych London WC2B 4PJ, UK Reg. No

5 1 Executive summary Analysys Mason has undertaken an independent study to investigate the structures and characteristics of efficient tower markets, commissioned by edotco Group. Through investigating a wide variety of tower markets, we have identified a subset which are thought to be most efficient. We define efficient tower markets as markets where towercos have achieved a high degree of tower sharing. Such markets are characterised by: 1) high proportion of towers owned by towercos (instead of MNOs), and 2) high tenancy ratio of towers owned by towercos. Having benchmarked 20 countries where towercos are active, we identified six countries where more than 50% of towers are owned by towercos and with tenancy ratios of 1.5x and above for the towers owned by towercos, namely the United States, Nigeria, Ghana, India, Indonesia, and Germany. We then analysed market structures and characteristics of the six efficient tower markets. Through our analysis, we find three key conclusions, as shown in Figure 1: Efficient tower markets accommodate a range of tower ownership options Open markets with fewer restrictions have proven to be the most efficient Scale, often through foreign ownership, increases towercos operational efficiency Figure 1: Key trends and characteristics of efficient tower markets and key conclusions [Source: Analysys Mason, 2016] 2 Introduction Analysys Mason has undertaken an independent study to investigate the structures and characteristics of efficient tower markets, commissioned by edotco Group. Through investigating a wide variety of tower markets, we have identified markets which are thought to be most efficient. Section 3 provides details on how we have defined and identified efficient tower markets.

6 By analysing the characteristics of efficient markets, we identify common traits and suggest global best practices for encouraging efficient tower markets. In particular, we look into the following market aspects: Tower ownership models in efficient tower markets, as discussed in Section 4 Foreign ownership of towercos in efficient tower markets, as discussed in Section 5 Initiatives in new areas undertaken by towercos with scale, as discussed in Section 6 Licencing of towercos in efficient tower markets, as discussed in Section 7 Competitive dynamics in efficient tower markets, as discussed in Section 8 Having identified common traits of these markets, we conclude our findings on best practices to encourage formation of efficient tower markets in Section 9. 3 Definition and identification of efficient tower markets Towercos traditionally improve the efficiency of mobile markets by increasing the sharing of passive infrastructure between mobile network operators ( MNOs ). Thus, we define efficient tower markets as markets where towercos have achieved a high degree of tower sharing. Such markets are characterised by: High proportion of towers owned by towercos (instead of MNOs) High tenancy ratio of towers owned by towercos We have benchmarked 20 countries where towercos are active. The markets are evaluated for the share of towers owned by towercos and the tenancy ratio achieved by those towercos. This is illustrated in Figure 2.

7 Figure 2: Identification of efficient tower markets [Source: TowerXChange, tower company reports, press releases, Analysys Mason, 2016] We identified six countries where more than 50% of towers are owned by towercos and with tenancy ratios of 1.5x and above for towers owned by towercos, namely the United States, Nigeria, Ghana, India, Indonesia, and Germany. In the following sections, we will look at the tower market structure and regulations in these six selected markets to understand common traits, based on which we will then suggest best practices for encouraging the formation of efficient tower markets. 4 Tower ownership models in efficient tower markets In the past, MNOs owned, built, and operated their towers. However, increasing competition and declining mobile revenue have forced MNO to focus on their core business. Networks are often viewed as non-core and non-differentiating, leading to more and more MNOs divesting their towers. There are a few ways MNOs can divest its towers, including by spinning off to a subsidiary, forming a towerco joint venture with other MNOs, or selling to independent towercos. We have defined four key groups of tower owners: MNOs: MNOs which still own some or all of their towers MNO-owned towercos: Towercos which are wholly-owned subsidiaries of an MNO Towerco joint ventures (JVs): Towercos which are partly-owned by one or more MNOs Independent towercos: Towercos which are not affiliated to any MNO Tower ownership models that are present in the six efficient markets are shown in Figure 3.

8 Figure 3: Ownership models of towercos in efficient tower markets [Source: TowerXchange, tower company reports, press releases, Analysys Mason, 2016] The six efficient tower markets allow for different tower ownership models. In all six markets, some MNOs still own some or all of their towers. MNOs which divested their towers do so by forming a towerco subsidiary, forming a JV with other MNOs or third parties, or selling the towers to independent towercos. All markets appear to have grown organically with towercos entering the markets at a wide range of times and market circumstances, based on market opportunity. All towerco ownership models can be efficient in promoting tower sharing. In India, for example, Bharti Infratel (an MNO-owned towerco), Indus Towers (a towerco JV between 3 MNOs), and Viom Networks (an independent towerco), all have tenancy ratio of above 2.0x. Key finding: Markets have grown organically into a range of tower ownership models, all of which can be efficient 5 Foreign ownership of towercos in efficient tower markets Different markets adopt different policies regarding foreign ownership of towercos. Most efficient tower markets allow for 100% foreign ownership on towercos, as shown in the table in Figure 4.

9 Figure 4: Foreign ownership of towercos in efficient markets [Source: Tower company reports, regulator websites, press releases, Analysys Mason, 2016] *STP is believed to be majority foreign owned but this has not been confirmed In Nigeria, Ghana, India, and Germany, towercos such as American Tower Corporation, Eaton Towers, and Helios Towers have full ownership of their subsidiaries. In Indonesia, it is possible for foreign companies to hold full ownership of publicly-listed towercos and STP is estimated to be majority foreign owned. The only partial exception would be in the United States, where the Federal Communications Commission (FCC) restricts direct and indirect investments in telecom infrastructure companies to 20 and 25% respectively. However, the US also permits this cap to be waived should the FDI be coming from a country that typically permits similar investments in their markets. While towercos in large markets (e.g. India, Indonesia, and the United States) can easily achieve scale without having to expand internationally, many towercos in smaller markets expand to other markets to achieve scale. This is illustrated in the chart in Figure 5. For example, leading African towercos, such as IHS, Helios Towers, and Eaton Towers, are all present in multiple African markets. Markets which are open to foreign ownership can benefit from transfer of knowledge and expertise from the world s largest towercos.

10 Figure 5: Leading towercos by their number of towers and countries [Source: Tower company reports, press releases, Analysys Mason, 2016] Key finding: Most efficient markets allow 100% foreign ownership which lets towercos deliver the advantages of scale even in smaller markets 6 Initiatives in new areas undertaken by towercos with scale Leading towercos have evolved and extended their business models to undertake initiatives in new areas beyond passive infrastructure sharing. The three key areas where towercos are expanding into are: Energy management: Towercos can take over energy management by negotiating for a fixed energy model with MNOs and invest in initiatives to reduce energy costs, particularly by reducing or eliminating diesel and reducing energy usage ICT solutions: Towercos are well-positioned to offer MNOs, their existing customers, solutions to help extend coverage and capacity such as network planning, small cells (including in-building solutions), as well as fibre backhaul Network QoS management: Towercos can take over network QoS management, ensuring high network uptime by offering remote monitoring solutions as well as disaster recovery management Local market conditions affect the type of initiatives that towercos undertake. Energy and network QoS management are typically offered by towercos that are present in markets with poor grid power, especially in less developed areas. Examples of these markets include India, Nigeria, and Ghana. ICT solutions such as network planning, small cells, and fibre backhaul are typically offered by towercos that are present in more developed markets where the above solutions are

11 required to keep up with ever increasing demand for bandwidth, such as in the United States, Germany, as well as urban areas in Indonesia. Towercos that are most active in investing in these new areas, as well as their initiatives, are listed in Figure 6. Figure 6: Known initiatives by towercos in new areas [Source: Tower company reports, press releases, Analysys Mason, 2016] These initiatives tend to be undertaken by towercos with scale, i.e. towercos with a large number of tower. To undertake the above initiatives, towercos often require a substantial investments. Larger towercos typically have better ability to raise necessary funding for these initiatives than smaller towercos. They are also better suited to trial new ideas and take longer-term decisions and risks as compared to smaller towercos. They also have the scale to build in-house teams of engineers to design, develop and implement their initiatives. Particularly for cost-saving initiatives, a larger tower portfolio also allows for greater economies of scale. Key finding: Towercos with scale are evolving to increase efficiency in other areas, such as offering energy management, ICT solutions, and network QoS 7 Licencing of towercos in efficient tower markets Different markets adopt different policies in awarding licences to towercos. We look into the following aspects of licencing: Restriction in number of licences Requirement for pre-qualification of applicants

12 In awarding any type of telecommunications licence, there are broadly four different methods that can be adopted: Open registration: No limit on number of licences, any party that registers will be awarded the licence/ allowed to operate Competency-based licencing: No limit on number of licences, any party that meets prequalifications will be awarded the licence Auction: Limited number of licences, parties that bid the highest will win the licences. An auction may or may not have pre-qualification requirements. Beauty contest: Limited number of licences, parties that are most qualified will be awarded the licences. Efficient markets may or may not require pre-qualification, but none restricts the number of licenses. Our findings are illustrated in Figure 7. Figure 7: Approach to licencing of towercos in efficient tower markets [Source: Regulators websites, tower company websites and reports, Analysys Mason, 2016] There is no limit on number of licences for towercos in the six efficient tower markets. In fact, we are not aware of any market which limit number of licences for towercos. Limiting number of licences may be detrimental to both mobile and tower markets. In general, numbers of licences are limited only when it concerns the use of a scarce resource, e.g. wireless spectrum, for which licences are typically awarded via auction or beauty contest. This is not the case for licences for towercos. Limiting the number of licences for towercos will thus create artificial scarcity, which may lead to licensees being able to charge monopolistic pricing. This, in turn, may lead to MNOs lowering their investment in improving their network coverage and capacity and less tower sharing.

13 Pre-qualifications are required in Nigeria, Ghana, and Indonesia. To obtain a licence in these markets, parties are required to demonstrate financial and technical capabilities. In Nigeria, for example, the Nigerian Communications Commission (NCC) require licence applicants to submit their business plan, technical plan, and organizational plan along with relevant legal documents. The NCC will evaluate these plans and award licence to applicants that it deems to be competent. Pre-qualifications are not required in the United States, Germany, and India. In United States and Germany, there is no separate licencing for towercos but there is a need to register certain types of tower infrastructure. In India, towercos are required to register with the Department of Telecommunications under the Infrastructure Provider Category-I (IP-I) category but no licence will be issued. Pre-qualification requirements ensure that licence holders have the technical and financial capabilities to promote tower sharing based on global best practices, invest in increasing the quantity and quality of its towers, and invest in initiatives in new areas (such as energy management, ICT solutions, and network QoS management). While this requirement results in a more complex process than open registration, it ensures that only competent towercos enter the tower market. There is no limit on number of towerco licences in efficient tower markets or in any market that we are aware of. Limiting number of towerco licences may be detrimental to both mobile and tower markets as it creates an artificial scarcity, leading to monopolistic pricing that deters MNOs network investment. Pre-qualifications are required in half of the efficient tower markets but not required in the other half. Requiring pre-qualifications adds to the complexity of the process but ensures that only competent towercos enter the market. Key finding: Countries with efficient tower markets award network infrastructure licences to any party that registers or meets qualifications 8 Competitive dynamics in efficient tower markets We look at the current competitive dynamics of towercos that arise as a result of the licencing policy in each of the efficient tower markets. In particular, we look at market share of towercos based on their ownership model and the time of their entry into the market. Lack of restriction in number of licences for towercos in all efficient tower markets has attracted investment, with at least three towercos present in each market. We observe a range of competitive dynamics across the six efficient tower markets, as shown in Figure 8.

14 Figure 8: Market share of towercos in efficient tower markets [Source: TowerXchange, tower company reports, press releases, Analysys Mason, 2016] The presence of a towerco with a substantial market share does not seem to make it less attractive for other towercos to enter the market. For instance, the presence of IHS, which started in Nigeria in 2001, did not deter American Tower Corporation to enter much later in The creation of Indus Towers, which was formed as a JV that combine towers from three large MNOs in India in 2007, did not deter Viom Networks from entering the market in Towercos that entered early into the market do not always end up being the largest. For example, American Tower Corporation is not the first entrant in most of its markets but it has managed to gain larger market share than towercos that entered years earlier. We observe a range of competitive dynamics in the six efficient markets, but differences in competitive dynamics do not seem to have any correlation to the efficiency of tower market. In addition, the presence of a towerco with substantial market share does not seem to make it less attractive for other towercos to enter the market. There are towercos that entered a market late but were able to capture a large share of towers than earlier entrants. Key finding: A clear licencing policy which encourages investment will attract multiple towercos and create a more competitive tower market 9 Conclusions Having analysed market structures and characteristics of the six efficient tower markets, we find three key conclusions, as shown in Figure 9:

15 Efficient tower markets accommodate a range of tower ownership options Scale, often through foreign ownership, increases towercos operational efficiency Open markets with fewer restrictions have proven to be the most efficient Figure 9: Key trends and characteristics of efficient tower markets and key conclusions [Source: Analysys Mason, 2016] Efficient tower markets accommodate a range of tower ownership options All efficient tower markets have grown organically into a range of ownership models. Towers are owned by MNOs, independent towercos and combinations of both in all markets. Towercos have entered markets at a wide range of times and market circumstances, based on market opportunity. All of these tower ownership models can be efficient in promoting tower sharing among MNOs. Scale, often through foreign ownership, increases towercos operational efficiency in new areas Towercos with scale are actively investing in new areas, offering energy management, ICT solutions, and network QoS. Compared to smaller towercos, larger towercos are better able to raise funding, conduct trials, and make long-term decisions and risks. Most of the six efficient markets allow 100% foreign ownership on towercos, which lets foreign towercos deliver the advantages of scale even in smaller markets. Open markets with fewer restrictions have proven to be the most efficient There is no limit on number of towerco licences in efficient tower markets or in any market that we are aware of. Pre-qualifications are required in some of the efficient tower markets. While it may add to the complexity of the licence award process, pre-qualifications requirement ensures that only competent towercos enter the market. Clear and flexible licencing policy which encourages investment will attract multiple towercos into the market, creating an efficient and competitive tower market.