Tower One: a new listed towerco for the Americas

Is there an alternative to starting up as a private equity backed towerco? Tower One was created just over two years ago with a new concept in mind: being a lean, agile, healthy public company that operates in the tower industry wherever is needed, from Canada to Argentina. In this candid interview, its CEO Alejandro Ochoa shares his innovative vision with TowerXchange’s readers.

TowerXchange: Please tell us about Tower One, its operations and footprint.

Tower One was launched in 2015 with an atypical approach to the ownership, acquisition and construction of telecom tower sites. Our view is quite different from the view of private equity backed entities who tend to build portfolios with an exit in mind.

Tower One is listed on the Canadian Stock Exchange and therefore entered the industry as a public firm with a mission to create a long term alternative investment platform for those investors interested in the telecom infrastructure sector, but who might not want to invest in a private equity fund or in larger public towercos.

I am the Chief Executive Officer of Tower One and prior to this role, I was one of the Directors of a Canadian investment firm which is now one of our first investors. To date, Tower One counts on more than 1,200 investors and has operations in Canada, the United States, Germany, Colombia, Argentina and, starting in Q1 2018, Mexico.

Tower One draws on the expertise of some of the top executives from across the telecom and infrastructure industries. Among them, Luis Parra as COO, who used to manage QMC Telecom in Colombia and is a build-to-suit (BTS) expert, and Advisor Rolland Bopp, who served as Chairman, President and CEO of Deutsche Telecom in the United States.

TowerXchange: Why did you decide to list Tower One on the Canadian Stock Exchange?

The Canadian Stock Exchange has sealed agreements with various stock exchanges across Latin America, such as Chile, Colombia and Mexico. Therefore, we can easily register Tower One’s stocks in various local markets as well as attract local capital funds who otherwise wouldn’t be able to invest in Tower One.

Our entity is able to operate regionally and access the capital markets of various countries which helps to diversify risk. Our business decisions aren’t always driven by tower market drivers but also by macroeconomic considerations that allow us to increase the value of our stocks.

You see, if we were investors in the stock market, we’d have to choose between American Tower, SBA Communications and Crown Castle. That’s it. These are mature, large companies where the growth perspectives aren’t as exciting as in a start-up environment, and whose price per stock can be prohibitive to many.

When Tower One listed on the Canadian Stock Exchange, the stock was valued at CAD0.15. We now stand at CAD0.32, and the potential for good returns and growth for our investors is virtually limitless!

TowerXchange: What are the differences between being a public company versus a private equity backed towerco?

When you operate in a private equity environment, the rules of the game are completely different and you have to target very strict key performance indicators. Your investor will often impose to you a certain opex to respect, a given net profitability et cetera, but private equity firms often forget that this is Latin America, and their rules simply don’t work in this region.

Companies like American Tower and SBA Communications can operate also during challenging macroeconomic periods because they have a liquidity surplus. But for some private equity backed entities, the reality of Latin America has proven too challenging. And this is also why I am glad that the crisis hit Colombia as hard as it did, as it helped clear the landscape and consolidate the tower market in a more rational way.

Working in a public environment means that our investors trust us to make the right business decisions and investments and don’t question each and every aspect of our operations.

TowerXchange: Tower One is equally interested in build-to-suit (BTS) as it is involved in the M&A game. Tell us more.

On the BTS front, we serve the same clients - large, regional mobile network operators - across different markets, which really helps us to seal multiple contracts across the region. For a company like Tower One, any deal counts and we will not shy away from a 10, 20 or 50 tower order!

Additionally, we are interested in any inorganic growth opportunity and several funds and banks see us as a possible way to enter the portfolio acquisition game. Larger public entities don’t need to call smaller towercos looking for an exit. It’s the other way around! Tower One is constantly looking for potential deals, whether they are BTS orders or existing portfolios up for sale. But we play a different game than other public towercos.

To give you an example, we were approached by a towerco seeking to sell its portfolio. They said they received a 16x offer by a larger towerco. However, we won’t compete in the multiple game. We offer a combination of both cash and stock, which allows the possibility to keep working with us to grow and make returns superior to a short term vision of comparing offers on a cash basis. This is what happened in Mexico where we met with a tower provider who had the relationships and the agreements with MNOs but lacked the capital to deploy. And we believe that our future partnership with this Mexican firm will generate considerable growth for both of us.

TowerXchange: How can you ensure that Tower One grows at a good pace? 

Our business model is sustainable thanks to the fact that we outsource all the construction, engineering and maintenance to third parties. Therefore, we are able to move very nimbly across the region without the need of an onerous structure. On the other hand, we need solid local partners in each country where we operate.

Because we aren’t looking for an exit, we take into consideration every single opportunity that is presented to us. We want the small orders that other towercos aren’t interested in because if we multiply that order by the many countries where we operate, we will be able to build a considerable portfolio while diversifying operations and minimising the risks.

In a way, the micro-management of an individual country portfolio is less important when a towerco is able to leverage its regional presence. And while we keep expanding in our existing markets, we are also looking at adding a new country to our portfolio every year.

TowerXchange: What are some of the challenges of working in a country alongside an operator-led towerco?

Operator-led towercos are a completely different breed of companies. It’s relatively easy to shift towers from one balance sheet to the other. What’s hard is to deploy towers. And when it comes to BTS, there’s very little difference between Tower One and any operator-led or public towerco. It all depends on how well one knows the market, its dynamics and procedures.

TowerXchange: Why did Tower One enter Colombia in spite of its challenging operating environment?

I am Colombian and I am glad to have the opportunity to operate in my home country with Tower One.

Over the past two years, the depreciation of the local currency in Colombia was such that the investment plans of all mobile network operators changed drastically. Additionally, in July Telefónica dealt with the fine (approximately US$548mn) imposed by a Colombian arbitration court for the installed network infrastructure that the MNO failed to return upon expiration of an agreement with the government over a decade ago. Lastly, the fact that the 700MHz spectrum auction hasn’t been completed yet has resulted in further delays in new network investment by local operators.

On the towerco front, Telesites created much disturbance with its entrance and rumoured take over of Claro’s BTS orders. But eventually it announced that it wouldn’t engage in BTS activities, which to be honest was a relief. In Colombia we have a pipeline of around 150 sites but I have to admit that without the operations we have elsewhere, the current situation in the country would have seriously jeopardised our business.

While some towercos panicked and looked for exits, we decided to invest in other growth avenues in Colombia and sealed important agreements with some municipalities and infrastructure businesses which will be handy when the market picks back up.

Beyond Colombia, we are looking at other markets with interesting growth drivers such as Argentina, which presents broad BTS opportunities at the moment, and Mexico, where we believe there will be various interesting possibilities in the near future thanks to both AT&T and ALTÁN Redes.

TowerXchange: Can you share with our readers some insights into Tower One activities in Argentina?

Argentina is an interesting example of how international investors are skeptical to invest in the country for fear of being unable to repatriate funds. On the other hand, institutional investors who have been operating in Argentina for a while know how to operate following the country’s rules and simply deal with its changing dynamics. Being able to offer an investor a local bond or stock doesn’t only lower our cost of capital, but also allows international investors to comfortably invest in us.

Large towercos entered Argentina in expectation of a tributary reform. Once that happens, it should enable a flow of sale and leaseback deals. But for now, the large towercos aren’t really interested in BTS. Tower One is active in the BTS space and is the number one towerco in Argentina for new deployments. And when the time comes we’ll look at acquisition opportunities.

In terms of the challenges, I’d say that obtaining permits is still the key task we face in Argentina. In fact, MNOs still deploy their own towers while starting to work on BTS and they have worked in this field for decades and are able to better negotiate with municipalities. Only when the deployment of sites will be entirely done by towercos we will be able to improve our relationship with local entities and take over this crucial part of the BTS work.

TowerXchange: Which markets are you eyeing for 2018?

In terms of new countries, we are interested in any market that presents good opportunities.We’ll consider every new potential market from Central America to Peru, Ecuador and even Bolivia.