Towers for sale: as foreigners have a business, growing into a crisis

The founders of the company “Russian towers” Americans Self Garth and Peter Owen Edmunds decided to start construction of cell towers in Russia in the midst of the crisis, in 2009. The company now has the largest fleet of towers in the country, and the next crisis gives her the opportunity to become the absolute leader of the market — though it is very expensive.

Now the “Russian towers” no longer have to beg the orders of the operators, and in 2009 to persuade them to entrust the construction of infrastructure third-party company was not easy: worked only one reason that thus you can save. “From this point of view, the downturn in the economy has played into our hands,” says Owen Edmunds.

The idea of creating the company’s founders have borrowed abroad in the world already worked these independent tower companies like American Tower, which is now one of the largest in the world, and Russia seemed to be an attractive market for such a business. While Owen Edmunds and Self — practically veterans of the Russian telecommunications industry. Both came to Russia in the early 1990s: Owen Edmunds started in the holding company PeterStar, Self — posts of financial Manager and minority shareholder of the legendary company San Francisco/Moscow Teleport (SFMT), which began the development of the Internet in Russia. Later part of the assets SFMT included in the company Golden Telecom, which later became part of “VimpelCom”. Self also was President of the group of regional mobile operators “Indigo” and a minority shareholder of its owner — us MCT holding Corp. Self also is the controlling shareholder of the holding company iKS Media.

“Russian towers” Owen Edmunds and Self conceived in late 2007, the next year prepared business plan and negotiated with the operators and investors. Almost 20 years in Russia, the partners had many friends who could help with the development of this business, admits Owen Edmunds. But the year of the Foundation of the “Russian towers” Owen Edmunds and Self believe 2009, in which they received investments from the first shareholders UFG Private Equity and EBRD signed the first contract for construction and lease of 55 rigs.

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“We went on this deal thanks to the personality of Peter. This is a person you can trust,” said managing partner, UFG Private Equity, Dominic reed, who took the decision to invest in 2009. According to him, up to this point, UFG Private Equity has never invested in startups, so before signing the agreement, asked the company to obtain confirmation from the main customer, which was to become the Tele2 company.

“These were very difficult negotiations. We were confident in their own abilities, but without the support of investors, the operator could doubt that we will be able to build him a tower,” says Owen Edmunds. It is expected that Tele2 as an international operator willing to go on the cooperation than the Russian players. In addition, Tele2 has been actively developed at this time and could be interested in savings.

“We saw a real opportunity to save and decided to try it,” — says technical Director of “Tele2 Russia” now Cries. Tele2 always tried to rent the infrastructure rather than building their own, and freed up the money the company invested in the development of new services and improving quality, he added.

Krievs said that the founders were “quite famous people on the Russian Telecom market”, so the absence of a signed contract with investors has not stopped Tele2. “If the result does not suit us, we would not have to continue the cooperation”, — said Krievs. The contract with Tele2 and agreement c investors “Russian towers” was signed at the end of 2009. Tele2 still brings company the majority of its revenues: in the first three quarters of 2015, its share was 37.6%.

Market leader

“Russian towers” is engaged in the construction of antenna mast structures which are then leased to operators: those placed on them base station. Each tower company leases a minimum of two operators. On the horizon of 10-15 years, the clients of the company will spend approximately 30-35% less on upkeep and maintenance of the towers than if it owned them, says the President of “Russian towers” Alexander Chub.

Now the “Russian towers” belongs to more than 1.7 thousand antenna mast constructions: in 2015, the company has built approximately 800 towers, and in 2016 plans to put into operation at least a thousand, said Chub. According to him, the demand is there: operators develop 4G infrastructure, especially in cities and along highways. In the next five years in Russia there will be 10-15 thousand new base stations for the 4G, he predicts. Business “Russian towers” is growing rapidly: the company’s revenue in 2015 has almost doubled compared with the previous year — up to 1 billion rubles, in 2016 the company plans to maintain the pace of growth, says Chub.

The nearest competitor — the company “Vertical” has started to work in 2013 by selecting another favourable point: operators have been actively building LTE networks, and Tele2 — out in new regions, RBC was told by the founder of the “Vertical” George Chumburidze through a representative. “Vertical” inferior “Russian towers” on the number of installations: by the end of 2015 it was about 1.6 thousand towers, to the report of the analytical company TowerXchange published in January 2016. According to Chumburidze, construction of facilities is every day, so his company now more than 1.7 thousand towers. But the source of RBC, close to one of the tower companies, says that “Vertical” is not more than 1 thousand towers, and its revenue in 2015 amounted to about 300 million rubles. the Estimate of 1 thousand towers “Vertical” give analysts J’son & Partners Consulting. “Vertical” does not disclose financial performance; according to “SPARK-Interfax”, in 2014 the revenue of OOO “Vertikal” has exceeded 82 million roubles, net loss was 88 million rubles.

The other player — the company from St. Petersburg “link development” started to work in parallel with the “Russian towers” in 2008. She has 300 towers in the North-West region, in 2016 she plans to build 50-60 new facilities, including a new market in Moscow: the company prepares the land for construction, told RBC co-founder of “link development” Denis Tales. According to him, the company’s revenue in 2015 amounted to 400 million rubles.

Almost simultaneous exit on the Russian market of tower two companies was a coincidence, says Tales: “Partly because we helped each other in the first phase. Our product was unfamiliar to the operators, therefore, argue its benefits it easier for you two.” According to him, doing the same work, “Russian towers” and “link development” taught operators to a new phenomenon in the market and formed the level of tariffs.

Building towers from scratch is worth about 5 million rubles., maintenance, per year spends about 5% of this amount, tells Tales. The payback period one tower is committed to seven years: the lease operator costs about 25-50 thousand rubles per month, depending on the height of the structure, the amount of equipment on it and the region.

Huge opportunity

In November 2015 the intention to sell the infrastructure declared “VympelCom” the buyer will become the undisputed market leader. The operator plans to sell 10-12 thousand towers for $500 million, reported the newspaper “Vedomosti” with reference to own sources. That the operator sent out the investment Memorandum to potential buyers in November 2015 told Executive Vice President, corporate strategy and business development of “VimpelCom” Alexander Popovsky.

In response, the company received eight proposals, but the main candidates for purchase are the “Russian towers”, “Vertical” and the Russian direct investment Fund (RDIF), stated in the report of analytical company TowerXchange. Representatives of the “Russian towers”, “Vertical”, RDIF and VimpelCom declined to comment on the course of the transaction. The proposals of potential buyers was in the range of $0.5 to 0.8 million ($48-77 thousand per tower) of TowerXchange. In the deal, to be held in the first or second quarters of 2016 could also 19.5 thousand structures located on the roofs of houses, according to the study.

80-95 thousand towers and constructions on the roofs is the market for tower infrastructure in Russia by the end of 2015. On this indicator our country ranks first in Europe, where only about 600 thousand towers. 29% of them are in the hands of independent tower companies.

Source: TowerXchange

In the future, VimpelCom may sell 50 thousand towers for $5 billion in Armenia, Kyrgyzstan, Uzbekistan, Tajikistan, Georgia and Ukraine, informed the Agency Bloomberg with reference to sources.

About intention to sell your towers at the end of October 2015, announced the General Director of “MegaFon” Ivan Tavrin. But a little later, the operator has created absolute “a daughter” — the First tower company (PBC), which will constructions: MegaFon has about 14 thousand masts and antenna mast structures of different heights. Sale of the RBC in the future is possible, but the priority now is to create its own operating company, told RBC representative of “Megaphone” Yulia Dorokhina.

The source of RBC in the telecommunication market calls simultaneous interest of operators to sell its infrastructure in a Domino effect. Operators carefully look at each other: in addition to MTS negotiations on the possible sale of the towers is “the big four”, he said.

MTS at the moment there is no plans on sale of infrastructure, said the representative of the operator Dmitry Solodovnikov. Tele2 important for not only the cost of the sale of the towers, but also the conditions for their subsequent lease, says Kries. In the sale of infrastructure would not make sense, if the operator will not be able to save money in the long run, he said.

“Russian towers” will be eligible to purchase the towers for all operators, but if the next will be the three pillars, the company is profitable to buy one of them at the market price and to place the equipment of two other operators, explains Chub. Two other structures the company is willing to buy at a large discount to be removed, he added. The operators have built networks in a highly-competitive environment, ignoring the principles of commercial efficiency, says Chub.

Outside of Russia

Managing partner UFG Private Equity Arthur Akopyan believes that the emergence in Russia of a large Western tower companies, such as Telecom Cellnex, SBA Communications Corporation, Crown Castle and American Towers, in the coming years is not worth waiting for a number of reasons, including sanctions, negative business climate in Russia, falling oil prices and the devaluation of the ruble. The emergence of large foreign players would help develop the “Russian towers” faster, he said, a small competition will disappear, and the market will be structured more closely to the rules.

The market is open for new players, but on the condition that they have the administrative resources and communication, said the head of Department of wireless technologies J’son & Partners Consulting Vitaly Solonin. To compete with large companies like “Russian towers” or the RBC, they will be able only in limited areas, so are unlikely to have a significant share of the market, the expert believes.

More than $200 million investment received by the company “Russian towers” since 2009.

In turn, the “Russian towers” have decided to go beyond the borders of Russia and in February of 2016 announced his interest in the countries of the former USSR and Mongolia. The company has already held talks with all the major operators and regulators in all countries, said Chub.

To invest tens of millions of dollars on a new geographic market makes sense, probably, in Ukraine or in Kazakhstan, says managing partner of UFG Private Equity. Sale of tower operator takes over a year, and the construction of another nine months, says Akopian: “It is difficult, it is not a glamorous business.”