One big attraction of these models for TowerCos is that MNO customers would be unlikely to switch providers due to the complexity involved. This barrier to switching would not only protect a TowerCo’s active investments but also its passive investments by bundling them together.
Indeed, over time the return on passive investments might improve as MNO customers continue to refine their models to fully utilize the infrastructure. For instance, TowerCos could take back assets currently located on third-party sites (e.g., antennas). By consolidating and managing these assets—and no longer paying a third party—the TowerCos could provide a more holistic service and gain additional revenue. Furthermore, by building their skills in managing active assets and working more closely with MNOs, TowerCos could gain strategic insights for expanding into adjacencies that so far have usually been of limited value (e.g., small cells and distributed antenna systems (DAS)).
TowerCos Can Structure Active Assets for the Long Term
In the past, TowerCos have shied away from active investments. They prefer secure, very stable returns over the long term, and active assets look more volatile than passive infrastructure because they carry commercial risk that passive investments do not. More specifically, traffic might fluctuate over time. But based on our experience working with clients, it is possible to structure active asset agreements in ways that make them resemble passive infrastructure, with predictable returns for decades.
There are several common elements in passive infrastructure agreements that TowerCos and MNOs could adopt for active asset agreements:
- Use volume estimates to make long-term commitments.
- Agree to new activities and development over time.
- Develop pricing models that satisfy both parties for both existing and new assets.
- Incentivize both parties to pursue efficiency initiatives.
- Balance agility with good governance and clear requirements for approval on key decisions.
- Reduce operational risk for both parties by clearly defining the commercial terms, provider obligations, relocations and decommissioning, and the capital plan.
Some TowerCos Have an Advantage
Passive infrastructure operations are generally low complexity and often have relatively lean staffs, while active assets demand a wider range of capabilities due to the scope, tasks, and organizational requirements. Thus, expanding from managing a traditional TowerCo to becoming an integrated (passive and active) service provider to MNOs poses significant challenges—and some TowerCos and MNOs are better positioned than others to tackle these challenges, which include:
- Asset Scope. In addition to the passive elements (e.g., structural and technical facilities, storage surfaces, lease contracts with landlords and tenants), active assets involve managing the operations support systems, monitoring the network operating center, managing the equipment vendors, and fulfilling operational KPIs and service level agreements (SLAs).
- Tasks. In addition to passive infrastructure tasks (e.g., construction, maintenance and collections), TowerCos need to coordinate with the MNO team to drive network planning and rollout, active operations and maintenance, the network operating center, as well as the integration with the MNO network team (e.g., on traffic forecasts to determine network requirements).
- Organizational Requirements. Given the new range and complexity of tasks, management needs to beef up staffing, including a full network team (internal and third-party).
When taking all these requirements into account, the TowerCos in the best position to take advantage of the emerging opportunity are probably carve-outs that are still MNO dependent. The parent MNO could provide the TowerCo with the expertise necessary to make the move. MNOs that still operate their own infrastructures are also well positioned. They could initiate a carve-out of both their passive and active operations, thus ensuring continuity of expertise and functional ability. Additionally, a few of the largest independent TowerCos with experience in managing active assets (for instance, in DAS, small cells, and private networks) may have many of the capabilities necessary to manage active assets as a service.
Conversely, most independent TowerCos lack experience managing active assets and so face the greatest challenges. If they don’t move quickly to acquire expertise and win the right to take over these MNOs’ operations, others will block their path. At the same time, MNOs need to decide soon what their role will be in this space given the pressure from 5G rollouts and the opportunities to unlock substantial value.