Editorial: The emergence of the tower industry in Bangladesh

The next tower industry land-grab in Asia may be in Bangladesh, with towerco penetration forecast to rise to 50% within the next two years… if the formative regulatory regime for towercos proves attractive. In this editorial, TowerXchange summarises the mobile market and the tower markets in Bangladesh – finding a market full of contradictions: high population density but a need for rural tower sharing, adequate energy capacity yet three months of extreme grid unreliability, and a market ripe for towerco investment and sale and leasebacks, but held up pending the establishment of a clear regulatory regime for towercos.

Bangladesh is a unique tower market with great potential for future growth. With a population of 160 million this is a small market compared to its largest neighbours India and China; but sizable compared to Southeast Asian markets such as Thailand and Myanmar. Bangladesh also has some of the world’s most dense urban populations (160mn people live in a country slightly smaller than Iowa!), but considerable population remains spread around smaller centres and rural areas; according to the CIA Factbook, Bangladesh is 33.5% urbanised with just under 17mn people in metropolitan Dhaka, and ~4.5mn in Chittagong. Although it has its regulatory issues to overcome and some challenging operational conditions on the ground, Bangladesh is still a huge market and it represents considerable opportunities for telecoms growth.

In 2014, the GSMA estimated the number of telecoms sites at 25,858 and this relatively mature network provides nearly 90% geographical coverage. With 800-1,000 new towers being erected per year, TowerXchange now estimate that there are ~27,000 towers in Bangladesh.

 

Bangladesh has a healthy, competitive telecoms market; there are currently six MNOs: Grameenphone, Banglalink and Robi lead the market with 52.3mn, 32mn and 26.6mn mobile subscribers respectively (Source: BTRC April 2015). The smaller players are Airtel with 8.3mn, Teletalk with 4mn and Citycell with 1.2mn. As of Q4 2014 the GSMA estimated 76% SIM penetration, but it’s still early days for 3G and 4G as mobile broadband penetration is sitting at 6%. “Bangladesh is already 60% penetrated. With around 25% of the population below the poverty line, subscriber growth is already leveling off – but Bangladesh is nevertheless our highest growth country.” said James Maclaurin, former CEO of edotco, in an interview with TowerXchange last year. The CIA Factbook estimated Bangladesh’s GDP per capita (PPP) at US$3,400 in 2014, and suggests that the Bangladeshi economy has grown at an annual average of about 6% over the last two decades.

Bangladesh’s ARPU of US$2 is on par with the subcontinental average, but there is a huge class divide. According to Hardiman Telecommunications, demand for sharing in the small cities / towns / rural areas of Bangladesh will be the salient characteristic of its tower sector.

When people in the rural areas have money, they invest in phones as soon as possible and as a result rural sites are starting to appear. Rural subscribers are keen to use data from the outset which is different from other markets and reflects how ubiquitous demand for data is now; it may also reflect the relative youth of the population, over 50% of which is under 25. Currently a substantial rural population is concentrated in the uncovered 10% of the national territory and further network expansion is still needed. Spectrum will have to be allocated to cover these areas and the 2,100 MHz band for the rural area isn’t there yet; a second round of auctions was postponed in May and should take place in June.

 

The BTRC created a favourable environment for infrastructure sharing in 2011, helping the average tenancy ratio in the country rise to the current level which TowerXchange would estimate at 1.3. Thus far we have seen infrastructure sharing deals between Bangalink and both Grameenphone and Robi, as well as between Airtel and CityCell. A trusted source in Bangladesh suggested that since 2011, Bangalink, Robi and Airtel have shared around 25% of new towers, and also forecast a 20-25% growth in sites (tenancies plus new builds) in the next 12-18 months.

To date edotco is currently the only towerco operating at scale in Bangladesh after their acquisition of 5,300 tower assets from Robi, also part of the Axiata Group. WiMAX to LTE operator Qubee was also included in this agreement to share passive infrastructure, and was the second tenant on several of these assets. The regulator initially blocked the Robi-edotco transaction, which was eventually granted with the towerco acquiring 49% equity instead of the 80% originally applied for. According to local media reports, edotco paid US$68.7mn to acquire 49% of the equity in Robi’s towers, the equivalent of US$140.2mn had they been permitted to acquire 100% which works out to just under US$26,500 per tower. However, it is difficult to use this, the only major tower transaction to date, as a valid benchmark for Bangladeshi tower valuations as this was a transfer of assets from an Axiata opco to Axiata’s own towerco.

edotco has plans to expand on its foothold in this market, and intends to build 1,500 new towers to meet demand from its clients such as Teletalk, the local state-owned MNO that already leans heavily on co-location in their network planning strategies.

With such a dense population, real estate is extremely hard to come by in urban centres and this makes it difficult for MNOs to expand and densify their footprints, which makes infrastructure sharing a high priority. This is in addition to other obstacles such as poor transportation infrastructure, and the existence of many structurally unsound buildings that require strict adherence to health and safety regulations and careful selection of rooftop sites.

The electrical grid is also subject to unique conditions in Bangladesh, prompting one energy storage vendor to declare Bangladesh as home to “one of the most unstable grids we have experienced”. Overall the reliability of the grid has increased to a reasonable level for most of the year, but the region is prone to cyclones and monsoons with high winds and torrential rains leading to flooding from April to June. “For three months a year it’s chaos in Bangladesh with monsoon floods everywhere,” said a participant in the Bangladesh round table at the TowerXchange Meetup Asia 2014. “Sometimes you need a boat to cross a road.”

These storms are difficult to predict, and the power supply is often switched off for safety when they hit. As a consequence, Bangladeshi MNOs and towercos must plan their sites with significant levels of autonomy in mind, especially considering the difficulty in reaching some of the more remote sites; gensets and batteries are still very much in demand and relied on heavily during the three monsoon months of the year. This has encouraged infrastructure sharing as the MNOs see the benefit in avoiding installation of multiple gensets and batteries.

Hybrid energy solutions are also attracting a lot of attention, and carriers and towercos are planning to use them to increase efficiency and autonomy during extended outages. edotco has plans to roll out 150 pure solar installations to support some of its most inaccessible sites.

In spite of these obstacles, the Bangladeshi tower market is clearly poised for growth, and TowerXchange expect to see the current number of 5,300 towerco-controlled assets grow and the level of towerco penetration to increase from 20% to 50% over the next 18-24 months.

There are some initial hurdles to consider: some companies have cited concerns about the immature regulatory environment in Bangladesh and its relations with towercos, especially with regards to equity ownership and taxation. For more information on Bangladesh’s evolving regulatory environment for towercos, read “BTRC has unique opportunity to attract tower industry investment into Bangladesh.”

Speculation has already begun about where the next major tower deal will come from. Bharti Infratel has expressed an interest in the Bangladeshi market; although Bharti’s a local opco, Airtel Bangladesh has only ~7% market share and a portfolio of around 3,800 towers. There are also rumours that VimpelCom may look to divest the tower assets in Bangladesh belonging to its subsidiary Banglalink. At ~6,000 towers this is the third largest portfolio in Bangladesh and a transaction of this size could be a major step towards the acquiring tower company achieving scale in this market. As observed by Hardiman Telecommunications, with such a gap between the three market leaders and the smaller players, consolidation in Bangladesh is practically inevitable. There may also be other interested parties from the Indian telecoms and tower markets seeking further international opportunities; the Indian market is stabilising after the 2012 regulatory restructuring, valuations of Indian tower assets are rising and balance sheets are swelling. There may be opportunities to recapitalise with private equity, while large companies in the Indian market may also look at management contracts as well as acquisitions in Bangladesh.

Overall, TowerXchange feel there is tremendous potential in the Bangladesh tower market. There is a good runway for growth, with multi-SIMing meaning mobile phone penetration may be under 50%. The economics of coverage extension lend themselves to shared infrastructure, and we could see an increase in the number of PoSs of up to 25% in the next 12-18 months. At least three of Bangladesh’s MNOs are keen to focus their investment on 3G and 4G rather than on passive infrastructure, creating an ideal environment in which towercos can acquire and build towers, enabling MNOs to concentrate on expanding and modernising the their networks.