China Tower Company absorbs 1mn towers

Tower companies now own two in three of the world’s telecom towers

Read this article to learn:

  • Reports of the scale of CTC and of their BTS programme
  • Breakdown of the ownership of CTC
  • The valuation of the towers transferred to CTC
  • The implications of the creation of CTC for the penetration of the towerco business model worldwide

China has become the latest telecom market to adopt the tower company business model, unlocking capex and opex savings through infrastructure sharing. With the injection of around a million legacy tower assets into China Tower Company (CTC), towercos now own 2,025,946 of the world’s ~3mn towers. MNOs who retain their towers are now in the minority – this transaction marks a new landmark in the separation of telecom real estate from retail telecommunications, a process many accredit as having been started by SBA Communications, Crown Castle and American Tower in the U.S. back in the mid nineties. CTC now owns ten times as many towers as American Tower, but analysts value CTC around 10% less than AMT.

It remains unclear just how big China Tower Company is. Bernstein reported a tower count as low as 765,000. Local press reports suggest CTC may have as many as 1.5mn towers on their balance sheet. The reality is probably somewhere in between – TowerXchange estimates CTC will have a tower count of 1.16mn, based on local sources in the tower industry, who also suggest that a layer of local independent developers own a further ~20,000 Chinese towers.

The reality is that the usual issues of inaccurate asset registers, MNOs continuing hesitance to reveal the full extent of their networks, and the pace of network expansion, mean it’s unlikely anyone knows precisely how many legacy towers are being injected into CTC and, while the financial terms of the deal to inject China Mobile, China Unicom and China Telecom’s towers into CTC were announced in October 2015, no actual asset counts could be found in local or international coverage.

Shareholders in China Tower Company

CTC-Shareholders

The exact pace of Chinese tower network expansion also remains unclear. When launched, CTC had an initial contract to build 120,000 new towers, with local reports suggesting many of the delivered sites were sourced by subcontracting to or buying from local independent developers. More recent reports suggest CTC has an order book of 409,000 towers, of which 271,000 have been delivered – take those numbers with a pinch of salt. Infrastructure sharing is believed to have reduced China’s new tower requirement by as much as 33%, but the numbers are still huge: various reports suggest CTC could build a further million towers in the next two years, driven by 4G rollout and associated network densification.

What is clear is that CTC will operate any backup power solutions at their sites, providing a full power service, and that China’s MNOs will no longer build their own towers. All three MNOs announcements make statements to similar effect, here quoting from China Unicom: “The Sellers have undertaken to the Tower Company that they, together with their subsidiaries, shall in principle cease to construct any infrastructure facilities (including telecommunications towers) as well as indoor distribution systems for main public transportation venues (including subway, railway, highway, airport and transport terminal), large venues and key buildings (including commercial and residential buildings used by multiple owners and government buildings) from 1 January 2015.”

Comparing towerco penetration worldwide

Towerco-penetration

The creation of CTC has already stimulated infrastructure sharing in China; China Telecom Chairman and Chief Executive Wang Xiaochu disclosed that about 70 per cent of an initial pool of 60,000 towers provided by CTC were put to use in the first half of 2015.

Various analysts ascribe an initial valuation of CTC at CNY214-230bn (US$34-36bn). The transfer of China Mobile, China Unicom and China Telecom’s towers to CTC reportedly yielded an average of just US$22,000 per site, significantly below replacement cost and below the US$80,000 per tower CTC was offering to acquire independent developers’ towers. The low acquisition cost reflects the depreciation of an inventory of ten plus year old towers, towers which were built to gain market share and with less of a view toward longevity and structural capacity, so significant improvement capex will be required. The low price point also reflects the mixed bag of assets being transferred, inclusive of everything from substantial ground based towers, a great many monopoles, rooftops, and even small Wi-Fi offload sites. Few of China’s sites are camouflaged, which also reduces their valuation. With the leaseback rate still under negotiation, the low acquisition cost also suggests lease rates in China may be below the current independent tower average of around US$650-1,000, depending whether the site is rural or urban.

Tower ownership

Behind the public façade of the creation of CTC, and the focus on efficiencies and resource sharing, the reality is that China’s carriers have been cautious about spinning off their towers to CTC, which in part explains the participation of China Reform Corporation in bringing some central government strength and capital to push this critical infrastructure venture to full fruition. The involvement of China Reform Corporation, a kind of sovereign wealth fund with a particular focus on reforming state-owned enterprises, also hints at a potential future IPO of China Tower Company in Hong Kong, which many analysts forecast taking place as soon as 2017.

Several of the key stakeholders in the new Chinese tower market will be represented at the 2015 TowerXchange Meetup Asia, taking place on November 24 and 25 at the Marina Bay Sands, Singapore. For more information visit www.towerxchange.com/meetups/asia/.

One Comment

georgejiezhu

I don’t think CTC is acquiring independent towers in China.

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