The long-term outlook for telecom towers looked promising well before covid-19, amid ever-growing smartphone use and the pending adoption of technologies such as 5G. Then the virus pushed demand for mobile data to an unprecedented peak and injected new impetus into the task of building out the tower infrastructure needed to extend high-speed mobile broadband access.
Rob Horsnall, head of direct private equity at USS Investment Management, noted in September that telecom tower companies – known as towercos – deliver a “critical service” and as such “are now being priced as core infrastructure”.
In fact, the industry’s growth prospects and dependable revenues led US investment bank Raymond James & Associates to proclaim in March 2020 that “US macro towers are the best business we have ever seen”. Omar Jaffrey, founder of Melody Investment Advisers, offered a similarly upbeat assessment in November, telling us that telecom towers is “a super solid sector, but there’s also good top-line and free cashflow growth. Adjusted for growth, the macro tower sector is a pretty fantastic place to invest today”.
Jaffrey concluded that “the communications infrastructure ecosystem is rather unique and offers durable returns with growth well into the next decade as we go from 4G to 5G and then 6G”.
Global investment accelerates
Ericsson projected last June that mobile traffic per device per month in North America would more than triple between 2019 and 2023, reaching nearly 27GB per month. But investors that venture beyond developed markets may encounter even more promising opportunities and lower barriers to entry than in the US or Europe.
The Philippines, for instance, has adopted plans to build an additional 50,000 towers, compared to fewer than 20,000 at present.
Legislation to allow foreign firms to take full ownership of telecom companies was passed in 2020 – opening the door for private equity investors to enter the sector.
As part of its push into the Asia-Pacific region, KKR acquired Pinnacle, the parent company of one of the country’s leading towercos, in November. KKR’s Michael de Guzman told Infrastructure Investor that Pinnacle was now in “advanced talks with the Philippines’ top telcos to build more towers”. Guzman added that “it’s a first mover situation, where we feel if we’re one of the first to invest in this sector we can secure contracts”.
Partners Group has established a new platform to build and operate telecom towers in the Philippines with the aim of securing long-term contracts with telecom providers. Andrew Kwok, the firm’s managing director for private infrastructure in Asia, told us in May that there is a “clear need for more tower infrastructure” in the country. “The Philippines is experiencing strong GDP and population growth rates yet lags behind other South-East Asian countries in network connectivity.”