Towercos are required to find solutions for rural coverage and to support the expansion of 5G deployment, which demands considerable investments while also increasing their operational efficiency
During the past decade, we have witnessed an acceleration in telecom tower transactions, leading to the transfer of passive infrastructure assets to different models of tower companies (towercos). These include towercos issued from carveouts, completely independent towercos, and joint venture towercos. The pace varies across geographies, with
Europe experiencing a faster acceleration compared to regions like MENA or Africa.
The towerco economy is recognized to be relatively stable due to long-term lease contracts with MNOs. It has moved beyond its initial stage. However, like any industry, the model is facing challenges due to economic changes, which are causing financial pressure and decreased profitability for towercos.
Towercos are required to find solutions for rural coverage and to support the expansion of 5G deployment, which demands considerable investments while also increasing their operational efficiency. The rise in interest rates and inflation directly impacts the capital expenditure (CAPEX) for construction, operational costs (such as energy), and manpower costs, making these objectives more economically challenging.
Moreover, the tenancy ratio depends on the context of each country and geography and the number of players. Increasing this ratio to optimize revenue and operational costs is challenging. We notice that the tenancy ratios of independent towercos are now higher than those of towercos created via carveouts (Carveout: 1.4, Independent towerco: 2.0, etc.).
In this context, towercos are constrained to find cost optimisation levers and new revenue streams while exploring adjacent business lines. Towercos have to look for new ventures and diversify their investment prfoile However, there seems to be no common trend and benefits from any diversification is not guaranteed.
Strategies for TowerCos to increase revenues and optimize costs
The potential strategies and initiatives include the following:
- Building new sites especially when it comes to rural regions.
- Upgrading existing radio towers
- Increasing tenancy ratio with additional clients like (governments, smartcities…)
- Optimizing the use of spare space on land/buildings. Searching for opportunities to monetize the space for non-telco business
- Increasing the energy efficiency while maximising the renewbales
- Digitalisation and process automation
- Provisioning for edge computing infrastructure
- Co-operating with external companies and local/city telecommunications infrastructure providers
- Negotiating supplier contracts
- Optimizing radio tower locations
Strategies for diversification
A quick overview of the towercos doesn’t lead to a common strategy when it comes to diversification even though there a consensus that this should be the way to go. Below is an overview of the potential diversification business lines:
1. From Towerco to NetCo : Moving from a real estate management company to managing the active parts of a radio site will require expertise and processes, including:
- Know-how of multiple vendors.
- Knowledge of transmission.
- Understanding different radio generations from 2G to 5G.
- Setting up processes for optimization, performance, and QoS.
- Defining responsibilities and SLAs between the towercos and the operators, which will not be an easy task.
This transition will present operational, financial, and commercial challenges for towercos. Aside from a few rare examples, this doesn’t seem to be the trend nowadays.
2. Smart cities : New smart cities are diverse but generally include residential areas, business areas, entertainment, offices, and hotels… Towercos, as neutral hosts, play key roles in enabling these cities with the necessary indoor and outdoor coverage infrastructure, as seen in many smart cities in the Middle East.
3. Mobile private networks : Towercos are exploring potential roles in mobile private network deployment and management to deliver mission-critical communication and emergency service networks, positioning themselves as privileged partners for utilities.
4. Indoor Building Solutions (IBS) : Towercos have become extremely active in providing indoor infrastructure for coverage. This is a significant revenue stream common across different markets. For instance, towercos benefit from the expansion of event venues (stadiums, etc.) by building and operating DAS-based in-building solutions.
5. Enabling transport domain : Towercos are assisting in equipping new metro and train stations with the necessary passive infrastructure to deploy WiFi and mobile technologies (4G, 5G).
6. Edge Data centers : Towercos have a broad reach and can reconfigure facilities to host cloud servers, offering CSPs and enterprises IaaS, MEC, and Edge/data center solutions. This line of business will grow with the deployment of mobile private networks, triggering multiple use cases that require computing capacity close to the client.
7. From Towerco to FiberCo : Entering the FTTx industry could be an option depending on the market's fiber maturity. However, fiber deployment actors with the necessary know-how already exist. Diversification towards fiber is not a prevalent trend across geographies, except in some rare examples.
8. Energy : Power as a service is a potential lever for towerco diversification. The electrical vehicle solutions are just one example.
Towercos are compelled to optimize costs, explore new revenue streams, and consider diversification to remain competitive. While some opportunities like enabling smart cities and indoor coverage infrastructure show promise, others, like managing active network components or entering the fiber industry, are less universally pursued.
The future of towercos will depend on their ability to find a balance between optimizing existing operations and venturing into calculated diversification efforts. Success lies in tailoring strategies to every market conditions, and developing collaborations with key stakeholders beyond the traditional CSPs.
