edotco Malaysia eyes higher market share
By Chester Tay
The Edge Markets
KUALA LUMPUR: As the leading Asean mobile tower provider, edotco Group Sdn Bhd is perceived as the dominant company in its home turf here. However, it captures less than 20% of the total market share.
But edotco chief executive officer Suresh Sidhu is unperturbed by this. In fact, he sees it as an opportunity for the group to grow.
“Malaysia is a very attractive market for edotco, and not just because it is our home base. It is the country where we have the lowest share of the overall market, except Myanmar. In most of the countries that we operate in, we command more than 20% market share. Thus, we can do more in Malaysia,” he told The Edge Financial Daily in an interview recently.
edotco, a 62.4%-owned subsidiary of Axiata Group Bhd, owns about 4,000 telecommunication towers and manages another 5,000 towers for its customers in Malaysia through its wholly-owned unit edotco Malaysia Sdn Bhd.
edotco Malaysia managing director Wan Zainal Adileen Wan Puteh said there are currently about 22,000 telecom towers operational in the country.
“In Malaysia, we are still seeing demand for more [tower] sites. On our part, 2018 will be a year where we will be working closely with our customers to build more towers,” he added.
According to a 2016 industry report by TowerXchange, edotco Malaysia had the third-largest tower count in the country, at 3,600 as at end-2014, after YTL Communications Sdn Bhd’s 5,000 towers and Maxis Bhd’s 3,800 towers.
DiGi.Com Bhd, which ranked fourth in the report at the time, had 3,400 towers, followed by the combined portfolio of 3,200 towers owned by 14 state-backed tower companies (towercos).
Suresh said the Malaysian telecom tower industry has been growing consistently at a pace of between 1,000 and 2,000 towers per year.
“In the last few years, this pace of industry growth was probably okay. But given the increasing investment in 4G by [mobile network] operators, perhaps it can accelerate a little bit over the next one or two years.
“Data growth is really driving the change, basically customers want more and more what we call ‘infill’ to boost capacity on top of existing coverage. These infills or towers as we call them could be a lamp pole, a camouflaged structure or maybe a signboard. In Kuala Lumpur we can only [affix new small cell antennas] on lamp posts or street furniture now, and no longer build a tower,” he added.
Nevertheless, Suresh concedes that erecting towers in Malaysia could be a “complex” task compared with other markets.
“Malaysia is a market where we have to do a lot of innovation, coupled with a lot of complex stakeholders management, to build a new tower site. Take a new site in Kuala Lumpur, for example. Wan Zainal and his team will have to talk to many people, from the Kuala Lumpur City Hall to landlords, property developers and maybe the works ministry if the site is located near a road or drain,” he said.
Suresh said edotco is also interested in taking ownership of existing towers in both domestic and overseas markets.
“We are always open [to opportunities], but we take quite a disciplined approach to deals. The desire is there. We believe we can still grow … we have a capacity for growth, but we always want to make sure that any deal will be done on appropriate terms. So, yes, it is still a major focus, but we will only act when we think the deal is right,” he added.
The group’s immediate focus is to complete its acquisition of 13,000 towers in Pakistan from Pakistan Mobile Communications Ltd for US$940 million (RM3.73 billion). The deal is set to be completed by this month, which will increase the group’s portfolio to 31,000 towers — making it the eighth largest towerco in the world.
“We understand that the local companies are moving towards asset-light business models through outsourcing. That is good for us and we are very keen to work with the industry. At this stage, there is nothing major that we see about to happen, but we continue to be open to customers and even other towercos who are looking to maybe exit,” he said.
Suresh said in mature markets like Malaysia, there are less reasons for a mobile network operator to own telecom towers going forward because the difficulty of getting a site and the costs associated with it along with the operating expenditure, are increasing yearly.
“Industry regulation is moving more to common access [to a telecom tower]. That is what happens in mature markets where regulators want operators to compete on services, they want to have good quality services everywhere, and consumers pick operators based on what they like, be it price or network quality,” he said.
For edotco Malaysia, Suresh pointed out that more than 60% of the company’s towers are shared by more than one tenant, which is equivalent to a tenancy ratio of 1.64 times for the third quarter ended Sept 30 this year (3QFY17).
For edotco Group, the tenancy ratio stood at 1.5 times as at third quarter of financial year 2017 (FY17).
“The best industry practice is that if you are somewhere between 1.6 times and 1.8 times, that is a good tenancy ratio. [The company will be] profitable, stable and generating good returns that exceed its cost of capital,” Suresh said.
“Ebitda (earnings before interest, taxes, depreciation and amortisation) is always good in this business, but it is a capital intensive one. It is whether your return on capital can get above that, so normally we have to get quite a high tenancy ratio to achieve that,” he added.
For the first nine months of FY17 (9MFY17), edotco Group posted a net profit of RM152 million, which was 22.45% lower than RM196 million a year ago, despite revenue growing 9.68% to RM1.13 billion from RM1.03 billion in 9MFY16.
Suresh attributed the weaker earnings to unfavourable foreign exchange (forex).
“We are very pleased with the 2017 performance [and] we have also demonstrated a strong stable Ebitda over the last three quarters. [However,] at the end of the day, there has been a little bit of a drop in net profit, but all of that was entirely due to forex from many of our multi-country businesses. It is some of the things that we have to live with,” he said.
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