08 October 2024
David Tran, Head of Research – Asia, TowerXchange
David Tran spoke to Devid Gubiani, President and CEO, PhilTower about the new JV formed with MIDC, set to transform Philippines’ tower market.
The Philippines is home to a distinct three-MNO market formed of Smart, Globe Telecom (Globe) and new entrant DITO, underpinned by a common tower policy. The favourable regulatory framework, immense build-to-suit (BTS) opportunities and the prospect of significant sales and leaseback (SLB) deals with Smart and Globe spurred huge interest in the country.
However, its towerco market is bloated with some 21 independent tower companies. Two of those towercos, PhilTower and MIESCOR Infrastructure Development Corporation (MIDC), looks set to alter that dynamic.
In February, both organisations announced that they will merge, creating the second largest towerco and the first public consolidation in the Philippines. The transaction received regulatory approval in July.
The JV would have Philippine-wide coverage and is well placed to support the growing connectivity needs of the country, providing a platform for 4G and 5G mobile network infrastructure across the country.
The merged towerco will operate 3,500 towers inherited from its two parents. In terms of the organisational structure, Devid Gubiani, President and CEO, PhilTower will front the new organisation as Group CEO, with a senior leadership team that will include a CFO and CCO being appointed by the shareholders, the largest of those being investors Macquarie and Stonepeak, and Meralco (who own MIDC and is the largest power co-operation in the country, managing grid connections across much of Metro-Manila).
Its aspirations are high. The new operation is committed to build 2,000 BTS towers within the next three years, potentially lifting its tower count to upwards of 5,000 towers by then if its BTS commitments are honoured from past SLB transactions.
MNO troubles
The expansion of towercos’ businesses hasn’t been seamless, with financial irregularities curtailing digital infrastructure development in the Philippines. DITO has experienced financing issues. Secondly, Smart’s parent company PLDT was rocked by a probe into a US$886 million budget overrun. And even with the country’s third MNO Globe, there were operational challenges. Globe took the decision to focus more on co-locations than new sites in 2023, but nevertheless was still transacting. And with the market slowdown, PhilTower looked at options as to how other towerco market assets would complement its overall portfolio in the event the MNO market would stimulate once again.
With the expectation that Smart would come back to life, said Gubiani, the JV would then be suitably placed to meet any rollout plans. Its SLB portfolio of close to 3,000 and BTS network gave it the scale needed. “We thought we would come out with a very aggressive structure and a very professionally run team to be of extremely good use when the Smart turnaround was going to happen – including the management reshuffle within their organisation,” he noted.
Smart’s new management, to regain its position as market leader by mobile SIM subscribers, came with strong intentions to build its co-location presence by ordering 1,000 sites that are distributed with their partners. Despite a lengthy five-month process of deliberating on the valuation of the merger and the converged entity’s business plan, the JV was then formed early 2024. “We started seeing signs of life, with market responding positively to what we were doing, and so we knew the merger was going to have a productive outcome from day one,” expressed Gubiani.
The company structure of the JV will see both MIDC and PhilTower entities retain the contractual commitments it had with their MNO customers. The only core element of the organisation that merged was both the management and operations team.
Consolidation to follow in the Philippines?
Gubiani predicted that the JV could have a knock-on effect for the Philippines tower market. Despite the feeling the MNO market could turn a corner with Smart and DITO potentially on the cusp of making a bounceback, towerco challenges remain. He believed that the merger could instigate a period of consolidation in the market, and possibly one or two smaller towercos formulating an exit strategy.
“We are in an environment where cost optimisation in the operation is really biting hard because of escalating costs,” said Gubiani. “When you have a portfolio of sites scattered around the country versus somebody that has a big chunk of a few hundred sites in one single geography it’s difficult to be cost efficient. That’s why smaller towercos are looking at executing their exit and abandoning the market.”
Operationally and commercially, the JV may be a productive force, as the organisation will be helping to support Philippines’ goal to hit 50,000 tower sites to achieve the ideal ratio of mobile subscribers per tower. An estimated 35,852 towers are currently installed in the country.
Towers in Philippines are heavier in comparison to other countries to resist adverse weather. The large majority of towers carry standard 2G, 3G or 4G spectrum, with many upgrades earmarked with either more 4G bands or 5G being introduced into those sites.
MNOs are keen to see 4G and 5G capacity densify into the networks, but higher speed coverage, at least for now, is limited to urban and suburban sites, potentially benefitting locations such as the Metro-Manila area in the north, and Cebu City and Davao in the south.
He concluded that there are good times ahead when DITO and Smart come back to the fold. “With our operational excellence in those territories that we have developed demonstrable strength, we would be able to get a better chunk of the build-to-suits that are awarded above and beyond the build-to-suit commitment from Globe.”
TowerXchange Meetup Asia 2024 will take place at the Shangri-La Hotel in Kuala Lumpur on 26-27 November.
