Detecon’s guide to the South Asian tower markets

Detecon International is a consultancy in the field of information and communications technology (ICT). Detecon is a fully-owned subsidiary of Deutsche Telekom, created - from the merger of the two consulting firms Diebold (founded in 1954) and DETECON (founded in 1977). Detecon has advised on several tower transactions and towerco investments in Southeast Asia. In this exclusive interview Thomas Wehr, Managing Director, APAC Telecom and Jochen Merz, Managing Consultant share their views of the tower markets in Indonesia, Myanmar and Vietnam, and on why infrastructure sharing is not yet thriving in Thailand.

TowerXchange: Could you give us a brief introduction to Detecon and your role within the company?

Detecon is 100% owned by Deutsche Telecom and has international offices in Middle East, Africa, Russia, China, USA, and Thailand. I head up telecoms in Thailand with responsibility for the APAC region. We have roundabout 50 consultants based in Bangkok serving 15 markets in South East Asia. We also have an office in Beijing which focusses predominantly on the Chinese market. We look at towers on a global scale and cover due diligence, mobile and tower market analysis, tower market forecasts, and provide independent reports for investors, evaluating the quality of potential asset acquisitions. We have a 100% focus on telecoms and telecoms infrastructure is a specialist discipline within this.

TowerXchange: How many tower transactions and towerco investments has your team advised on to date?

At this point our APAC regional office advised more than ten; it can be difficult to classify separate engagements as full due diligence; sometimes we have responsibility for only a specific part of a project. Most of our engagements have been in Indonesia; where we did projects with all major independent towercos. We’ve also done some due diligence in Bangladesh, Malaysia and we’re currently engaged in several projects in Myanmar.

TowerXchange: What types of companies have you advised? Have you been more focused on the sell side, buy side or financing transactions?

We’re focussed mostly on the buy side / investor side. Although we’re owned by Deutsche Telekom we’re a fully independent contracting arm. We typically get subcontracted by investment banks, private equity firms and international development aid banks.

TowerXchange: Do you have a particular focus on any specific types of due diligence i.e. financial, legal, technical or commercial?

It’s mostly commercial and technical due diligence as our strength lies in our deep understanding of the Telco industry – we’re not legal advisors. We look into physical assets to determine their value and also provide market forecasts, terms of subscribers, and sites and towers applying our extensive market and operator knowledge acquired over 20 years in the region.

TowerXchange: What do you think should be the main priorities when evaluating a tower portfolio?

Being focussed on the buy side, we have to align the expectations of clients with the reality on the ground. The seller’s view of the value of assets can be ambitious, so we test these ideas and concepts. We use our in-depth industry experience to evaluate major assumptions such as the CAPEX spend needed in the market and OPEX efficiencies that can be realized; then we match and align the buyer’s expectations and judge the right buyer price. We evaluate the Master Lease Agreement (MLA) structure, diagnose technical and commercial risks, assess competitive moves in the market, and anticipate the prospective impact of market changes over the next couple of years. In short, we provide a reality check for the investor.

TowerXchange: How do you solicit new business in tower due diligence?

In most cases there is a referral from parties involved in previous projects of ours as they already know the value of our knowledge and experience; they want us involved in other projects. We often get calls from investors based on the strength of our reputation. We also maintain a network of clients we’ve worked for in the past and make sure to keep in touch.

TowerXchange: How do you think things are progressing in Myanmar and what do you expect to happen over the coming years?

Myanmar is the last green field project and everyone is looking at this market; there’s definitely risk involved but it is also a great opportunity. The incumbent operator MPT is facing strong competition from the two new private operators which come with significant international experience, Telenor and Ooredoo. A fourth mobile license is likely to be handed out soon and this is raising further speculation as Yatanarpon Teleport had difficulties in finding the right international partner due to mismatch of valuations which resulted in lengthy discussions with potential partners. Sustaining 3-4 MNOs will be challenging in Myanmar; the environment in this country is very complicated, but like any green field markets speed matters most. Ooredoo and Telenor have both contracted two independent towercos so they could focus on their core business and outsource a lot of the risks and difficult tasks. Both Ooredoo and Telenor took a different approach to outsourcing with Telenor including power in its outsourcing agreement while Ooredoo wants to manage power itself. The joint entry of two companies is unusual and in previous greenfield rollouts was there was only one new entrant; the sequence of actions in this case makes the process fascinating.

TowerXchange: Our view is that in phase one and two, concentrated along the Irrawaddy River and in Yangon, Naypyidaw and Mandalay, Telenor and Ooredoo’s infrastructure was rolled out aggressively and competitively, with little infrastructure sharing – exacerbated by the incompatibility in power strategy that you mentioned. Does the latest issue of a joint RFP signal a shift to focus on shared infrastructure in Myanmar?

I think so, based on the information we have at the moment; both were initially pretty much looking at their own rollouts because of failed initial collaboration attempts. Infrastructure sharing mechanisms have been facilitated by the regulator in the early days; both companies had to submit their site coordinates and maintain a minimum distance between sites to protect the landscape and avoid overbuild. Both Telenor and Ooredoo are realising how difficult and cumbersome it is to establish wholly independent infrastructure and now they’re engaged in joint discussions on coordinated transmission rollouts and efforts to share existing towers with each other via their towercos. At the beginning there was a bit of ego involved but now they have realised the inherent challenges and are looking for a more cost-effective approach together now that the initial rollout is complete. Sharing infrastructure in the countryside also helps both companies meet the geographical coverage targets required by their licensing agreements.

TowerXchange: Do you foresee consolidation in the number of towercos in Myanmar?

We’re looking at four major ones which received large numbers of towers from Telenor and Ooredoo. I don’t think consolidation is happening yet, but we anticipate a development scenario similar to that of Indonesia where there were thirty towercos in 2005-6; these have since consolidated to four big and two smaller towercos.

TowerXchange: Moving on to other markets in southeast Asia, Thailand seems to be a natural market for future tower transactions. Do you anticipate TRUEGIF being acquisitive? Do you foresee the other operators divesting assets? 

Thailand is a difficult market to implement infrastructure sharing; the three largest providers True, AIS and DTAC are not used to co-operating. The two incumbents CAT and TOT play an important role when it comes to towers due to the concession regime and corresponding ownership battles about the towers. Both CAT and TOT are having plans or are in the process of setting up their own towercos. A few independent towercos were interested in entering the market last year but their attempts were both unsuccessful which sends a pretty clear signal. The Thai market is definitely big enough and there is a potential opportunity for network operators, but at this point they lack the will to begin the process. As for TRUEGIF they’re more of a financial mechanism and were set up to create an infrastructure fund to get access to financial markets; we don’t regard them as a real towerco per se.

TowerXchange: Considering the focus of some of your previous projects, what is your take on the tower market in Indonesia?

We know how professional Tower Bersama, Protelindo, IBS and STP are; we’ve done work with them all. Tower Bersama did very well to acquire Mitratel and gain access to PT Telekom. Tower Bersama gets a headstart on any future Telkom / Telkomsel deals and Tower Bersama Infrastructure Group is focussing exclusively on Indonesia right now. They had been interested in other market opportunities in the region - but it seems they gave up on their international ambitions for the time being; the Mitratel deal makes that a wise move. Protelindo on the other hand went into Myanmar and is now looking at more of a multinational game which bears completely different opportunities and challenges. Towercos such as IBS and STP are looking at enriching their infrastructure portfolio to gain additional revenues.

TowerXchange: Do you see an opportunity to roll up some of Indonesia’s smaller regional towercos?

Most of the small towercos have been acquired, but the small players have good tenancy ratios, and are privately owned with an old established base. The tenancy ratios are at two and above; the companies didn’t acquire and expand so the portfolios are mature. Some of these small local towercos might have just 5-10 towers but they use a good business model and are family owned. They have a limited interest in selling and it’s tough to get information about these firms; they’re in a different league from the big towercos. The hierarchy in this market is: Protelindo, Tower Bersama, then STP and IBS, then a group of smaller towercos who could be acquired or do small acquisitions themselves, then the small regional towercos with a handful of towers who don’t want to sell. Some infrastructure was built by telecom construction companies and then rented to MNOs.

TowerXchange: How do you see the future for the Indonesian tower market? Towercos own 51% of Indonesia’s towers, with Telkom / Telkomsel retaining the majority of the operator-captive assets, with XL Axiata and Indosat each retaining a few thousand more. What is the remaining addressable market for Indonesia’s towercos?

Telkom and Telkomsel hold the majority of remaining MNO-captive towers. As the incumbent operator they naturally see infrastructure as a core discipline and Telkomsel may not want to sell. There is, however, a potential supply from Indosat; they sold 2000 towers to Tower Bersama in the past. The quality of Indosat’s locations is good; they’re older towers in locations where it’s now difficult to get build permits so interest in these is remaining. XL Axiata have been trying to sell some of their portfolio for years; perhaps there is an opportunity for a carve-out to edotco?

TowerXchange are tracking a couple of medium sized towercos in Vietnam; VINACap has rolled up three towercos to a portfolio of 1,930 towers, Golden Towers (backed by Alacazar Capital, who are also engaged in IGT in Myanmar) has around 600 towers. But towercos have 10-12% of Vietnam’s towers. Do you have any observations about the tower markets in Vietnam?

We did quite a lot of business for VNPT, Mobifone and Vinaphone but infrastructure is a sensitive topic in Vietnam and we’ve done nothing in the tower space yet. We have done some infrastructure sharing studies for VNPT as they were keen to understand the potential of commonly utilised network infrastructure. Vinaphone and Mobifone are both dominated by the state; as a result business decisions are not made in the simplest of terms and infrastructure sharing would definitely be a challenge. At the end of the day the government slows down many processes. Even with the intent to share infrastructure assets, it can be difficult to put a plan into action as a result. A lot of this also depends on impending market liberalization; as long as VNPT remains unclear on what to do with its two mobile arms which both have the largest amount of mobile assets, it’s difficult to see how towercos can acquire substantial portfolios in Vietnam.

TowerXchange: Please sum up how you would differentiate Detecon from other tower transaction advisors?

Detecon is one of the very few consultancy companies purely focusing on telecoms and able to combine and cover the strategic, commercial and technical views of tower transactions at an exceptional level of detail; our team of due diligence experts all have 15-20 years of telecoms experience. They are experienced technicians who know how to model a rollout, model markets and understand the technologies employed. Their knowledge doesn’t come from a textbook but from years of practical experience.

We can look at a tower portfolio and get a feel for its quality. We look at each portfolio from an MNO point of view, evaluating the standard of the towers and tower locations. When we perform due diligence on a portfolio we also try to judge the owner’s operational environment including processes, product planning, how they manage risk, and the tools they have to control the business – you need experience to evaluate all of these aspects. Methodologies and models are important to sell a product, but experience matters most.