05 December 2022

As SBA Communications now operates in the Philippines, Southern Asian Wireless Communications spoke with Nicholas Van Slyck, Senior Director, Africa and Asia to find out about the company’s plans heading into 2023 and the challenges these plans will bring

How would you describe the past 12 months since entering the region?

Well, we have certainly learned a lot. In Asia, SBA currently operates only in the Philippines, and we have spent the past year assembling our team and building sites while we simultaneously learn some of the cultural nuances of doing business in a market twelve time zones away from our headquarters in the United States. The first year was a whirlwind of activity as we sought to establish a foothold in the market and get the operation up and running. Now, things are running smoothly and we are very happy with our progress, but there is still more to do. It helps to have an incredible team on the ground led by industry veterans that are performing at a very high level. One of the things we are most proud of is that with only a short time of operating in the Philippines, our team was among the highest-rated towercos by the MNOs in terms of performance. That is something we can build on as we seek to establish ourselves in the Philippines and beyond.

Is the Asian region an important market now and why? Is there a specific country that is leading the way for you?

With 48 countries and almost 60% of the world’s population, Asia is most certainly an important market. Some of the larger economies in Southeast Asia are growing at a rate of around 7%, which is quite amazing when you think about it. Smartphone penetration is relatively high in countries like Malaysia, the Philippines, Singapore and South Korea and with that comes high expectations for a better wireless experience. We see MNOs continuing to invest in network quality in terms of both coverage and densification and this trend should continue well into the future. It goes without saying that towercos should see their role increase as this process unfolds in the coming years.

Which of your infrastructure solutions has seen the greatest demand from the wireless service providers within Asia? Has this influenced your development in the region?

Well, that would undoubtedly be our towers. We are building high-quality, multi-tenant towers in the Philippines. It is only recently that the carriers in this market embraced the shared infrastructure model, but it makes sense, particularly given the need to densify the networks as 5G deployments accelerate in a country with 110 million people. We are also in the early stages of providing a poweras-a-service solution but see great potential to expand this across our portfolio and to all our customers. The bottom line is that we remain bullish about the growth prospects for both tower and power in the market.

Is there a preference for lease or network ownership within this region? Can you explain why?

In the Philippines and from the carrier’s perspective, the preference seems to be to lease the infrastructure rather than own it. The number of sale-lease-back transactions in the country over the last six months supports this view. MNOs have come to realize that building redundant infrastructure is inefficient and not the best use of their capital. They have decided that it is better to use their resources to invest in network improvements and expansion in order for them to grow subscribers because that is their core business. From their perspective, why tie up precious capital in towers and then have to deal with the headaches of ongoing operations when the whole process can be easily outsourced?

Do you feel demand for green solutions growing and can you give examples of where?

Yes, I do. There have been several technological advancements in solar power over the last decade resulting in greater dependability at reduced costs. We now see solar power as offering a compelling alternative energy solution for our customers. In fact, we have an ongoing solar business in Jamaica where we are using solar power and batteries to provide backup power for one of our customers. Our solar solution has lowered this customer’s energy costs by reducing dependency and power consumption from the grid. This model can be exported to our other markets. In the Philippines, we have a few sites that are located in bad grid areas and there are islands with no grid at all. Solar solutions are an attractive option in some of these areas, but not all. With fuel prices going up sharply over the last 12 months coupled with the fact that carriers and infrastructure companies both want to reduce their carbon footprint, it seems to me that there is a strong case here for more solar-powered solutions in this market.

What do you see as the biggest challenges in this region? Are you experiencing regulatory restrictions at present and if so, where?

For us, the biggest challenge is not with regulatory restrictions, at least not now. Our biggest challenge is twofold: 1) identifying new market opportunities, and 2) finding deals with valuations that are rational, especially given this new environment of high-interest rates. Regarding the first one, we are very selective in terms of expanding into markets. We do not want growth just for the sake of growth, rather we look for high-quality growth in stable markets with three or more healthy operators and those are becoming more and more difficult to find. Related to this is the second point about rational asset valuations. This industry has attracted a lot of investment over the last decade and that has resulted in inflated asset valuations in our view. We want to grow, but the world has become a lot smaller in terms of markets that make sense for us and M&A opportunities that are rational.

Do you have plans to extend your activities into other Asian countries and if so, how?

We always have our eyes open for new market opportunities, but they must meet our disciplined investment criteria. Our approach over the years has been to look for high-quality growth in stable markets, so we are extremely selective in terms of the countries and assets we invest in because it matters. Our stock’s performance seems to support that view. Having said that, we are a growth company as we have been for the last 33 years; so yes, we do have a vision that includes extending our activities into other countries. How we do it is a more complicated question because it varies from market to market. For example, expansion could come in the form of a sizable build-to-suit opportunity in a stable market with three or more healthy MNOs. This was our approach in many markets in Latin America. Another approach is a sale-leaseback transaction much like what we did earlier this year in Tanzania. There we acquired 1,445 cell sites from Airtel, which made us a significant player in that market overnight. The third option could be a hybrid of the first two. Here we would look to do a sale leaseback with a commitment for a decent volume of BTS over a defined period, say two or three years.

Can you name some of the biggest Asian deals you have signed during the last 12 months?

So far, we are only in the Philippines and there we have a focus on a build-to-suit model. We were successful early on in signing agreements with Globe and Smart, which has resulted in a good pipeline heading into 2023. We see build-to-suit as the cornerstone of our growth with a few strategic acquisitions layered in over time. Given our long-term view of the market, we believe that over time and with our great team on the ground, we can achieve a scale that makes sense for us and we can use the market as a base for regional expansion.

What are you looking to achieve over the next year?

SBA is a growth company so the obvious answer is more growth. We see good potential for sustained high quality growth in the Philippines in terms of new builds and lease-up. Our experienced team is one of the best performing towercos – according to the MNOs who rank them – and that should lead to repeat business as long as we continue to operate at the highest levels. In addition, we are seeing an uptick in lease-up as well as energy-asa-service, something we are proactively pursuing. Finally, we are always open to discussing M&A deals that are at price points that are rational and make sense for SBA.

What’s been the biggest lesson over the past year?

Great question. As you know, the tower industry worldwide has undergone major changes in recent years. Carriers want a better value proposition; they want more for less from towercos without sacrificing the quality of service. At the same time, the industry has attracted a large amount of investment and new entrants, both of which have had profound impacts, both good and bad. The investment strategies do not always appear rational in our view, and the new entrants usually have a significant learning curve in front of them. The industry is changing; it is not the same as it was five years ago. Against this backdrop, the biggest lesson for us is to stay focused and not be concerned with what others are doing because that is only a distraction. It is more of a reminder that we need to stay committed to the fundamentals of the business, something we have worked hard on for over three decades, while we seek to be more responsive to our customer’s needs whether that be backup power, green energy solutions or edge data centers. We have an excellent record of accomplishment in delivering high-quality growth, and I do not anticipate that will change if we stay focused on what we do best.

How do you differentiate yourself from your competitors in this region?

Well, there are quite a few companies invested in the tower sector in the Philippines. At last count, we were 26 or 27 companies. Therefore, in such a competitive environment, I see a few things that differentiate SBA from others. For one, when we enter a market, we take a long-term view of things. We are not interested in short-term gains at the expense of the long-term relationship with our customers. The combination of our substantial financial and operational capabilities coupled with a long-term investment outlook gives us a great deal of flexibility and creates unique opportunities for us to work with our customers to explore different business lines and deal structures that simply may not be available to others who have a shorter investment horizon. Not only that, but our decisionmaking process is quick and smooth and once we decide that something meets our disciplined investment criteria, deployment of capital happens soon after. In addition, we have a local team in the Philippines that has a proven record of accomplishment in managing existing tower portfolios and developing new sites. We like to say that SBA has the resources of a large company, but we are small and nimble enough to be effective in the individual markets where we have businesses.