After years of contemplation, telco’s towers are selling like hot cakes these days. Last month, edotco PK, a subsidiary of Malaysian telecoms major Axiata Group, acquired the tower business of Tanzanite Tower, which was a wholly-owned subsidiary of Tower Share (Private) Limited and Pakistan’s largest independent tower firm, for a reported sum of $88.9 million. But the game-changing transaction comes soon.
After collecting Tanzanite’s 700 towers, edotco PK is now considering to amass 13,000 towers belonging to Jazz, Pakistan’s largest cellular operator by subscribers and revenue. The proposed, roughly billion-dollar transaction was first reported by Bloomberg late on Thursday. It is certainly an aggressive push by Kuala Lumpur-based telecom giant to increase its telecoms infrastructure services footprint in South Asia.
Roughly 60 percent of the deal value would reportedly be funded by debt. It is not clear at this stage how much inward FDI Pakistan will receive from this deal.
A confirmation of the proposed deal came yesterday when Dawood Hercules Corporation (PSX: DAWH) announced on PSX that it would partner with edotco Group for this deal. DAWH declared that it would receive a 45 percent equity stake, at a price of Rs17.43 billion (1.743 billion shares @ Rs10 each), in edotco PK. The entity’s remaining 55 percent stake would rest with edotco Group, which is 62.4 percent owned by Axiata.
Should this deal get done, edotco PK, which is operating on the ground through Tanzanite, will become the leading tower owner in Pakistan. And since this tower business is a long-term business, the firm may not stop at that. There are about 40,000 cellular towers in Pakistan, located on some 17,000 sites. Being the early seller, Jazz would likely get to sell all its towers, and perhaps at a better price compared to remaining three operators who will come late to shed their hardware.
But the remaining operators might also join in one by one in coming years. Getting rid of tower assets would allow them to improve their cash flows, thus helping them lower their debt commitments and increase their dividend payouts. But most importantly, a tower-light operation would help telco’s to reduce their capital expenditure significantly even as operating expenditure remains roughly the same.
Through this deal, edotco PK would get bigger and stand a better chance than any other future competitor to acquire the bulk of remaining towers in the cellular sector. A large, independent tower operator will be able to drive efficiencies on a scale that others won’t be able to.
In the process, it may also reduce some of the carbon footprint in the country resulting from multiple towers at one site. As per PTA, back in 2014, the tenancy ratio stood at an abysmal 1.3. That meant, on every 100 towers, there were 130 base transceiver station (BTS) antennas. The tenancy situation is not expected to have improved since, discounting for the impact of Mobilink-Warid merger.
The proposed deal between edotco-DAWH and Jazz owner may change things. The cellular operator wouldn’t need to concern itself with all that hardware, and instead focus on improving quality of its core services. After years of background deliberations among investors, a business case for an independent tower company is now a reality. And higher tenancy in the future will be good for the environment, too.
While the deal may look like a win-win, the telecoms watchdog (PTA) is urged to keep an eye on the developments. As cellular operators outsource their tower operations to independent tower operators, the quality of service metrics must not deteriorate. In addition, the urge for efficiency in the tower business shouldn’t come at the cost of maintaining and expanding cellular services in rural and remote areas.
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