Converging value chains: towers 2030

On the morning of the first day of TowerXchange’s Meetup Europe 2018, three leading executives from three very different European towercos shared their views. Alex Mestre, Global Business Managing Director; Alexander Chub, President of Russian Towers and Scott Coates, CEO of Wireless Infrastructure Group, joined each other for a discussion about how infrastructure and the role of the towerco will change between now and 2030. The panel discussed converging value chains and how the telecommunications landscape will change. Alexander Chub, President of Russian Towers, pointed out that 12 years ago even having corporate email on a blackberry was extremely rare, so in another 12 years things will change dramatically again.

Key technologies will push ahead these new changes, and coverage and density will be key. Compared to 3G, 4G is focussed on urban and transport infrastructure, and 5G will require a further concentration of urban infrastructure. Density will increase dramatically, and massive machine type communication becoming a part of 5G rollout. Within a couple of years we can expect to see the speed of transmission change again, with speeds of 10 Gbps, and latency and throughput becoming much more important. The knock-on effect of this will be that the typology of sites will also change dramatically: a tower will no longer be just a pole with a connection to the grid and maybe fibre for backhaul. Lower latency will require edge computing or edge data warehousing to eliminate the signal transmission from antenna to data centre. Fibre to the site will become a must, perhaps combined with fixed wireless, base stations won’t be on site any more, but will be at the main datacentre. With RANsharing and new technologies, as well as equipment for IoT and other types of services, the space rented on towers will also change significantly.

Taking all this into account, towercos must re-evaluate their role in the telecoms ecosystem. 5G rollout will change site typology but also the traffic; right now towercos sell space, but in future they may be selling mobile traffic transmission.

There’s some divergence on how this business model will play out. In Europe the towerco model is just taking off, led by Cellnex, who are exploring an infrastructure services model. In the US, Crown Castle are going in a new direction and investing heavily in fibre and small cells. Scott Coates, CEO of Wireless Infrastructure Group, talked about how they have just switched on a DAS solution at Liverpool Football Club. When thinking about infrastructure services, towercos need to consider what else they can deliver to their customer at a lower cost at the edge of their networks.

There are two main drivers for this change: one is the sheer volume of data which needs to be handled, and the other is latency. In terms of current latency and capacity needs, 4G is adequate for that – the panel didn’t dispute the need for densification, but did think that the timescales for rollout would be later than might be expected as operators are focussed on utilising their macro assets. Its early days for the small cells business model as yet, but towercos need to work in advance of demand and be ready for that demand to pick up into the 2020s. 

In terms of defining 5G, it’s not yet clear exactly what it will look like. Lower latency will be critical, intrinsic capabilities will change and operations in mm wavebands will be critical, with massive m2m communication being key. However, it seems that 5G as a ‘line break’ is not so clear, it will be more of a gradual shift over time. The politics of 5G will also play a role, with governments keen to fund infrastructure in order to position their countries as leaders in the market. It may well be that the political impetus behind 5G proves more of a determining factor in its rollout than the technology. Governments are keen to support joint infrastructure if it helps accelerate 5G rollout, and elements of 5G technology such as slicing can impact costs as well. The towercos of 2030 could end up selling slices of a service rather than colocations on a tower. 

Spectrum allocation will be key for 5G rollout, and is currently a battleground for MNOs looking to get ahead of their competitors. Although their future needs are as yet unclear, MNOs need to reserve as much spectrum as possible to protect their future interests. This works well for towercos, as more spectrum needs more towers or space on towers, and network operators will need more on the tower to get the spectrum through. Europe’s choice not to use S-Band shared spectrum may inhibit connectivity in smaller buildings compared to other markets. 

It’s clear that investor emphasis in European towers has changed over the last 10 years. A decade ago, tower investors were private equity firms looking for returns upwards of 20%, but over the last five years the investor profile has been moving towards pension and infrastructure funds with lower expectations of return. 

It’s important for towercos to have a cost of capital competitive with, or lower than their customers, and infrastructure funds being interested in the sector will help to enable this. Infrastructure funds can also allow smaller players to get access to lower cost of capital, which will help grow independent infrastructure.

There will be other players than towercos in the independent infastructure space – infrastructure providers, MNOs and pure fibrecos as well. Countries will need all of these players to invest to make it work. However, if a piece of infrastructure is shared by multiple operators, towercos can cut down the noise from dealing with local councils and layer services into the proposition. This will mean a good chunk of the future market should be sitting on a towerco balance sheet.

Towercos also currently control and manage the customer relationship. Operators will need spectrum, power, equipment, antennas, data centres, fibre and more, and a towerco can either control all of that or can be the interface with the customer which bring together services with independent service providers in each area.