International markets remain untapped potential for tower companies

Editor’s Note: This article originally appeared in RCR Wireless News’ January Special Edition Wireless Infrastructure: The Engine for Economic Recovery. Look for our March Special Edition, coming soon.
The global addressable market for cell tower lease revenue is over $81.5 billion per year. The challenge is that most of this opportunity is not capitalized since mobile operators in most countries own and manage their own cell towers. Some partake in cell site sharing to reduce costs, but the model of third-party management is not widely implemented. The U.S. and Indian markets are the two markets where this opportunity hasn’t gone un-noticed and third-party companies manage operator’s passive infrastructure. In the U.S., cell tower operators like American Tower Corp. and Crown Castle International Corp. managed and/or operated approximately 30% of the over 260,000 cell sites in operation in the United States in 2009. The remaining sites are operator owned and managed or managed by property owners.
In other regions, governments are pushing infrastructure sharing as a means to increase rural build-outs by reducing the overall costs. Chart 1 shows the global forecast for cell towers from 2009 through 2014.
North American tower opportunities
In North America, the total opportunity for cell-site leased revenue is $17.86 billion based on 2009 cell site numbers and average revenue per site. This does not include the opportunities for engineering firms to construct or augment existing towers. Only about 21% of this opportunity was realized in 2009. The average revenue per cell tower is $64,150 and average tenancy ratio is about 2.7.
Even in this recession, cell site business is booming as operators are forced to add new sites to reduce churn and remain competitive. For example America Tower has added 1,300 sites since the third quarter of 2008 and Crown Castle saw a 38% increase in tenant applications and a 12% site rental revenue increase.
For North America, most of the new growth will be in the coastal markets such as New York, Seattle, Los Angeles, Boston and San Francisco. There are also a lot of opportunities in Canada where Telus Mobility and Bell Mobility are launching HSPA networks that require new towers. In addition, a new mobile operator, Globalive Communications Corp. was set to enter the market and began building out a HSPA network, also requiring new cell sites. In the United States the following activities are talking place which will positively impact cell tower deployments:
• New towers are required by companies such as Clearwire Corp. which plans to deploy about 20,000 cell sites and is already leasing over 12,000 sites;
• Verizon Wireless and MetroPCS Communications Inc. are both planning LTE launches for 2010 and although the companies are planning to re-use existing sites, new tower construction may be required or augmentation to existing sites;
• AT&T Mobility will add more sites due to capacity constraints in its current 3.5G network;
• Cox Communications Inc. is building a new CDMA network in the AWS band;
• Sprint Nextel Corp. will have some growth.
The North American cell tower market remains strong even in one of the worst recessions seen since the Great Depression.
Asia Pacific landscape
There are lots of opportunities throughout the Asia Pacific region. However, India and China are most interesting due to the strong growth in both countries and over 1.2 billion combined subscribers. Most operators do not rely on third-party companies to manage their cell sites except in India. India is the second largest market in terms of cell-site lease revenue, but No. 1 in terms of total sites managed. There were over 231,573 sites managed in India in 2009 and cell-site revenues are forecast to reach $3.24 billion. The average revenue per tower is approximately $13,831 per year.
The Department of Telecommunication is offering incentives to those operators expanding into rural markets by sharing infrastructure. Companies sharing with multiple operators gain a reduction in the 5% Universal Service Obligation (USO) fund fee.
The Indian market is very active in terms of the number of companies providing cell-site management and cell-tower operation. There were more than 18 companies in late 2008. As a result, there will be some consolidation in the business as large companies buy up smaller firms. The leaders in the Indian market, based on the number of cell towers, are: Indus with over 100,000 towers; Reliance with over 60,000 towers; Bharti Infratel with over 25,000 towers; and Tata Teleservices with over 22,000 towers. Most other providers have less than 10,000 cell sites.
In China, there are approximately 640,000 cell sites between the three mobile operators. China Mobile has the majority of the sites with approximately 62.5% and planned to add 85,000 TD-SCDMA sites in 2009. China Unicom has about 30% of existing cell sites and China Telecom has the rest, adding more than 67,000 base stations in 2009. The government recently approved passive infrastructure sharing and is even encouraging the practice as a means of increasing rural coverage at a reduced cost. New tower management companies such as Q-ZTG are testing the market with a similar business plan to that used in the U.S. market. It is too soon to determine if this company will be successful in convincing operators to relinquish their tower operations. China is a strong market for new cell sites due to 3G deployments and rural expansion for new subscriber growth.
Africa is also ripe with opportunities
There are approximately 137,000 cell sites across Africa and operators are warming up to the idea of passive infrastructure sharing. The African market presents a huge opportunity especially in South Africa and Nigeria, the two largest mobile subscriber markets in the region. South Africa uses some infrastructure sharing like the agreement between Neotel, Vodacom and Cell C, but not tower management. In Nigeria, Helios Towers is one of the few companies taking advantage of this opportunity. The company is currently expanding its Nigerian operations to 2,000 towers and recently decided to expand its tower business across Africa via a new Pan-African tower company. Customers include: MTN Nigeria, Zain, EMTS, Starcomm, Reliance Telecom and MultiLinks.
Europe
In Europe, cell-site sharing is a more common practice than the use of tower companies. Operators share sites in urban areas to reduce costs and gain access to limited infrastructure space. For example the infrastructure sharing deal between T-Mobile UK and 3UK is expected to provide close to $4 billion in savings over ten years. Recent examples of cell-site sharing include: Vodafone and Telefonica’s plan to share infrastructure in the U.K., Ireland, Germany, and Spain. Orange and Vodafone plan to share cell sites, cabinets, power supply, mast, and transmission across the U.K. for a potential $1.4 billion in annual savings. Passive infrastructure sharing began in Europe around 2001 and now European operators have moved on to radio access network sharing.
In the United Kingdom, about 18% of cell towers are managed by third-party companies such as Arqiva and Wireless Infrastructure Group. Arqiva was recently selected by Mobile Broadband Network Ltd. to provide 5,100 3G cell sites in the United Kingdom. MBNL is a joint venture between T-Mobile UK and 3UK. Arqiva will also have exclusive rights to market another 2,500 sites for site sharing agreements. Other operators practice cell-site sharing, but these agreements are not managed and operated by third-party companies. WIG has a portfolio of over 1,000 active sites in the U.K. and plans to expand through acquisitions.
Conclusion:
The tower management business is quite lucrative and still remains largely untapped. Many of the North American companies would like to expand inte
rnationally, but are concerned about the stabili
ty and profitability of emerging markets. At least two of the top ten tower companies have international business. American Tower has over 6,300 sites in Brazil, India and Mexico, while Crown Castle International has sites in Australia. Primary criteria for international markets include 70% to 80% mobile penetration, stable currency and political climate.
China presents a strong opportunity for growth, but like India, the return will be much lower than the U.S. and other markets. In addition, home grown Chinese companies will have an advantage so tower companies will need to partner with local Chinese companies. Over 50% of new subscribers are from rural markets as reported by China Mobile, which means there will be a great demand for new towers.
Africa also presents a strong market opportunity with very few tower companies in the region. The success of Helios Towers is model which others can follow.
Nadine Manjaro worked as senior analyst for ABI Research’s Wireless Infrastructure Research Service, and contributes to the Mobile Broadband Research Service. Manjaro has completed research on LTE, WiMAX, mobile backhaul, IMS, global spectrum activities, Ultra-Mobile Broadband), mobile network infrastructure vendor analysis and managed services. Nadine holds a B.A. in Economics/Statistics and a B.S. in Industrial Engineering from Rutgers University, and is working towards an M.S. in Engineering Management at the University of Kansas.