In parallel, there has been a sharp increase in Private Equity funding for tower acquisitions. The same assets under TowerCos have a 2-3x valuation compared to when they are under telcos. Hence, both demand and supply side drivers are fueling industry growth.
Unlike Europe and the US, the TowerCo / InfraCo industry is still in the early stages of maturity in SE Asia. While there is growth, there are also challenges around regulation/right of access, multi-country operations, and acquiring the right skillsets for the future.
I recently caught up with Suresh Sidhu, the energetic CEO of EdgePoint Infrastructure, over breakfast. Suresh is a highly regarded telco industry veteran, and prior to founding EdgePoint, Suresh was the CEO of edotco, Axiata Group's TowerCo and infra services business. He also held senior leadership roles at Celcom, Maxis, and Sime Darby. His new venture EdgePoint Infrastructure is making strides in acquiring and building tower assets, primarily in Indonesia and the Philippines. It counts DigitalBridge (NYSE: DBRG) as one of its early investors.
Suresh shared his views on 5 themes for the growing industry.
# 1 Recent spurt in the asset divestments by telcos in the SE Asia region
The TowerCo and infrastructure sharing has been a mature model in Europe and North America for many years, but it has taken time to be pervasive in our markets. A few operators here in APAC have tried bilateral network sharing, but it didn't gain much traction due to misaligned stakeholder objectives, lack of trust, footprint asymmetry, and other operational issues. With significant 5G investments on the horizon, telcos had limited choices to raise capital and had to consider divesting and monetizing their infrastructure assets. On the demand side, large global PEs and independent TowerCos have demonstrated a growing appetite and the means to acquire these assets.
#2 Value and growth drivers for independent TowerCos
There are four drivers through which the TowerCos grow and add value:
A) acquiring and building in existing markets
B) acquiring assets in new markets
C) driving operational efficiencies and
D) growing the scope of services.
Clearly, driver A is the highest priority and most compelling as we seek to build scale. However, this cannot happen in isolation. Unless TowerCos can be more operationally efficient (driver C), it is difficult to add value to clients and improve the tenancy ratio.
We also need to recognize the importance of building assets in existing markets as part of driver A. With the advent of mid and higher-spectrum bands for 5G, there is a need for TowerCos to prepare for denser infrastructure demand. Towards this, TowerCos should figure out how to significantly cut down the time to get a site up and running.
# 3 Role that independent TowerCos can play in the B2B private networking
TowerCos certainly can play a role in the in-building infrastructure for private networks. The opportunity to go downstream beyond that may exist but will need to be balanced by the considerations to not bypass their telco clients in the ecosystem.
#4 Communications ecosystem development in the SE Asian markets
There are a few interesting local and niche international players coming into the ecosystem for private and alternative networks. These companies have a specific horizontal competency, such as building connectivity in remote places such as mines or enabling IoT within factories.
#5 Impact of rising interest rates on the TowerCo plans in our region
Small increases are unlikely to impact the ability to raise capital, given the long-term nature of the tenancy contracts. Large, sustained increases will need to be managed, of course. On the other hand, many markets in ASEAN have ample local liquidity. The SE Asian economies may not necessarily follow the same trend or quantum of interest hikes as the US, given local economic considerations. The more likely and tougher challenge may be managing the impact on exchange rates.
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