The digital landscape in the Asia-Pacific region is experiencing a profound transformation, propelled by the surge in short-form videos (SFV) and the advent of 5G technology. Platforms like TikTok and Instagram Reels have become pivotal in driving data consumption, with SFV accounting for over 50 percent of internet traffic in advanced mobile broadband markets.

This trend is particularly pronounced in Southeast Asian countries, where majority of the population, especially in Indonesia, the Philippines, Thailand, and Vietnam, are avid users of these platforms. The Ericsson Mobility Report from June 2023 underscores the dominance of SFV in data consumption, highlighting the changing patterns of internet usage across the region.

The evolving digital landscape is also marked by significant advancements in screen technology and the integration of artificial intelligence into daily life through devices like smart glasses. This technological leap is set to bridge the virtual and real worlds, offering a more immersive internet experience.

The transition towards a 3D Internet is expected to exponentially increase data demands, with predictions indicating that 3D content will consume approximately three times more data than current usage levels. This shift underscores the necessity for enhanced connectivity and infrastructure to support the burgeoning data needs.

EDOTCO At the Forefront of Connectivity Solutions

Central to this metamorphosis is the role of tower companies like EDOTCO, which has carved a niche for itself as one of the world's largest towercos. Operating in nine countries, including Malaysia, Indonesia, the Philippines, Bangladesh, and several frontier markets, EDOTCO stands at the forefront of addressing the connectivity needs of nearly 700 million people across its core markets.

The rise of tower companies in the Asia-Pacific region is marked by a blend of opportunities and challenges, set against the backdrop of a rapidly evolving technological environment. The opportunity landscape is vast, with about 75 million individuals still unconnected and a million 'dark spots' where connectivity is sub-optimal. This scenario presents a compelling case for tower companies to intensify their efforts in bridging the digital divide, ensuring that more people can access reliable and high-speed internet connectivity. EDOTCO is deeply committed to this cause, focusing on eliminating coverage gaps and enhancing data capacity to cater to the escalating data demands projected to double in the coming years.

The advent of 5G technology, marking the end of the 3G era, opens new frontiers for tower infrastructure demand. With the repurposing of spectrum and the rollout of 5G, tower companies are positioned to benefit from the increased demand for tower infrastructure. This transition towards a 3D internet demand for a denser network of tower sites is essential not only for embracing the metaverse but also for integrating edge computing to fine-tune network performance at the local level.

EDOTCO's narrative of growth through strategic acquisitions and organic expansion highlights the dynamic potential of the tower industry in Asia-Pacific. With a portfolio exceeding 58,000 towers and a colocation ratio of 1.6x, EDOTCO's focus on innovative technologies and efficient capital expenditure has propelled its growth. The company's emphasis on sustainable and shareable infrastructure, such as street furniture and small cell technology, aligns with the evolving needs of urban environments and digitalised landscape of the future.

Navigating Through Challenges and Opportunities

The journey of tower companies in the Asia-Pacific is fraught with both significant challenges and unparalleled opportunities. On one hand, regulatory challenges, especially in the realm of fibre optics, present substantial barriers to the expansion of network infrastructure. The complexities of pricing regulations and the quest for a sustainable business model for fibre deployment demand innovative solutions and strategic foresight. Moreover, the macroeconomic risks tied to frontier markets necessitate a balanced approach, wherein growth ambitions are carefully weighed against the realities of operating within less stable environments.

Adding to these challenges are specific industry hurdles that tower companies must navigate to maintain their growth trajectory and market relevance:

1. Shareholder Value Creation to Navigate Macroeconomic Challenges - Over the past four years, our markets have navigated challenging macroeconomic indicators, including fluctuations in local currencies against the U.S. dollar, inflationary pressures, and shifts in market interest rates. Consequently, towerco multiples have experienced a decline. Nonetheless, there is optimism for a more favourable outlook in 2024, as macroeconomic indicators exhibit promising trends. EDOTCO places paramount importance on generating shareholder value. To do so, we adhere to a value creation cadence framework spanning five critical areas: B2S, colocation, exploration of adjacent services, Capex/Opex optimisation, and innovation alongside hygiene factors. This framework not only creates value but also preserves it. With these strategies firmly established, EDOTCO is poised to significantly enhance business valuation to navigate macroeconomic challenges' effects over the past four years.

2. The Interplay Between Data Growth and Spectrum Scarcity - As data consumption skyrockets, the demand for spectrum intensifies, placing unprecedented pressure on existing resources. This surge in data traffic challenges networks to adapt, amplifying the urgency of addressing spectrum scarcity. Across our industry footprint, mobile network operators often find themselves constrained by less than 100 MHz spectrum allocations. However, a promising horizon emerges with gradually refarming mid-band spectrum from 3G to 5G. As this transition unfolds, we anticipate a significant acceleration in 5G deployment, signalling a new era of connectivity and innovation.

3. Intensified Competition Due to Market Saturation - The tower industry is highly saturated in countries like Malaysia, the Philippines, and Indonesia. In a small country like Malaysia, with a total population of only 33 million, there are over 100 tower companies serving five major MNOs, creating intensified competition. On the flip side, this provides MNOs with many options and incentivises towercos to ensure continuous improvement in its offerings and drive innovation to produce leaner business models.

4. Discipline Deployment to Ensure a Win-Win Situation - Prior to towercos accepting deployment orders, they must ensure that analytics-assisted order acceptance is carried out to ascertain if a potential order is parallel with/near another towerco site. In adherence to this unwritten 'bro code', tower companies refrain from constructing parallel sites in areas already covered by fellow industry players.

5. MNO Consolidation Impacting Tenancy - The landscape of MNOs in Southeast Asia has seen significant consolidation, aimed at harnessing enhanced synergies. For instance, the merger of Indosat Ooredoo and Hutchison 3 in Indonesia and the union of Celcom and Digi in Malaysia led to decommissioning thousands of network sites. Such consolidations inevitably result in reduced tenancy ratios and fewer co-location sites, posing a direct challenge to towercos's business models.

Despite these formidable challenges, the outlook for tower companies in the Asia-Pacific remains optimistic. The demographic shift towards a workforce dominated by Gen Z and Gen Alpha by 2030 will dramatically increase data consumption. Projected to drive 80 percent of global data usage, these digital natives could see individual consumption soar to 214 GB per person per month—a stark contrast to the 13.4 GB recorded in 2022, according to the Ericsson Mobility Report. This anticipated surge in data demand underscores the critical need for a robust digital infrastructure to deliver faster data speeds and lower latency.

TowerCos as Strategic Partners Supporting 5G Expansion

The deployment of 5G technology is central to meeting these evolving demands. By 2028, 5G connections will encompass approximately 50 percent of the Asian population, marking a critical transition from 4G to 5G networks. The rollout of 5G has already seen significant progress in 2023, with coverage reaching 80 percent in Malaysia, 70 percent in the Philippines, 16 percent in Indonesia, and 4 percent in Bangladesh. However, the unique characteristics of 5G technology, including its reduced propagation radius compared to 4G, necessitate the deployment of additional tower sites to ensure comprehensive coverage.

This expansion presents a financial challenge for MNOs, as constructing more towers significantly increases capital expenditure. The experience of Philippines-based operator DITO Telecommunity, which secured a 15-year $3.9 billion loan for its network rollout, exemplifies the costly nature of 5G deployment.

Across Asia, we observe that MNOs’ profitability is not growing proportionately with revenue growth. As seen in the exhibit below, the percentage point EBIDTA margin change for 70 percent of MNOs have been negative. Given this, it is likely that MNOs would lack the financial capacity required to spend on 5G.

With MNOs facing profitability pressures, the role of towercos becomes increasingly important. By offering Open RAN networks and leasing infrastructure in an Opex model, towercos can help MNOs mitigate financial burdens and concentrate on core business activities.

The critical role of tower companies in the swift adoption of 5G cannot be overstated. Infrastructure readiness remains a pivotal element for successfully deploying new technologies, positioning towercos as an essential enabler of future connectivity. The integration of insights from the burgeoning SFV market, the shift towards immersive internet experiences, and the demographic trends towards a more digitally native workforce underscore the urgent need for a robust and flexible digital infrastructure.

As the Asia-Pacific region continues to navigate these transformations, EDOTCO is at the heart of enabling this digital evolution, pioneering efforts to enhance connectivity, driving technological innovation, and fostering a more interconnected nation to compete in the global digital economy.

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Gayan Koralage is a sought-after thought leader, futurist, and seasoned speaker and writer of the TowerCo industry in Asia. He focused on the mobile and neutral-host telecom tower industry, concentrating on critical topics such as the business rationale for 5G, network disruption, digital economy, digital transformation, and inter-generation opportunities.

Since 2013, Gayan has been the driving force behind EDOTCO’s inception and expansion, propelling it to prominence as one of the top six tower companies globally. His efforts have led to an impressive presence across nine Asian markets, solidifying EDOTCO’s status as an industry leader. In his current capacity as the Director of Group Strategy, he assumes a pivotal role in shaping the organization’s long-term strategy, overseeing pricing strategies and commercial initiatives.

EDOTCO Group was named Asia Pacific Telecoms Tower Company of the Year for six consecutive years by Frost & Sullivan and was recognized as one of three ASEAN Unicorns based in Malaysia.

For more information, visit www.edotcogroup.com

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