edotco expands footprint in Pakistan with two acquisitions totaling 13,700 towers at US$1.0289bn

Addition of Towershare and Jazz assets makes it the world’s eighth largest towerco by sites

The summer of 2017 marked a significant milestone in Pakistan’s tower market, with edotco successfully executing on the country’s first landmark sale and leaseback (SLB), acquiring Deodar, market-leading MNO Jazz’s carveout towerco. This portfolio of 13,000 towers, along with an earlier acquisition of Towershare’s 700 towers means edotco will now own ~40% of the towers in the country. As Asia’s largest (and fastest growing) multi-country tower and infrastructure company, edotco is optimistic on the growth potential of the Pakistani market and will be scaling its operations accordingly to serve its customers with end-to-end and customised offerings.

TowerXchange: Congratulations Suresh on your announced acquisitions of Towershare’s subsidiary Tanzanite Tower in Pakistan as well as assets from Pakistan Mobile Communications Limited (PMCL). How did edotco get started in this market and what attracted you to it?

Suresh Sidhu, CEO, edotco Group:

We have been in business development activities for several years in Pakistan. We see excellent opportunities in the country for an independent towerco like us.

As a country with a relatively low mobile penetration rate at ~73% and data penetration rate ~24%, the opportunity for long-term growth in the mobile and data sphere is substantial.

Pakistan has a mature and clear regulatory and licensing framework for towers and telecom infrastructure even though the market is still at early stages of development. In addition, we see a thriving mobile market with four MNOs backed by international shareholders who have committed to investing into the country, presenting us with the opportunity to enable their growth further. The concept of infrastructure sharing is picking up in Pakistan and we believe we can play a key role in this transformation.

TowerXchange: Can you share some details on the 700 towers you are acquiring from Towershare?

Suresh Sidhu, CEO, edotco Group:

The Towershare portfolio has a colocation ratio of 1.6x and consists of over 70% urban with 40% being ground based towers.

The portfolio was built largely from acquisitions, with the majority of towers coming from previous WiTribe assets (post acquisition, Towershare leased back these towers to WiTribe). Tanzanite has all key MNOs and WLL players as tenants on these towers, with Ufone being our largest customer after WiTribe.

TowerXchange: And similarly, what can you tell us about the PMCL portfolio, of just over 13,000 towers.

Suresh Sidhu, CEO, edotco Group:

PMCL, which operates under the brand name Jazz owns a unique tower portfolio established over its 20+ years of operations in Pakistan. It is a balanced portfolio in terms of the urban-rural mix, and mainly tracks with the population concentration of Pakistan along the Indus valley with greater concentration of sites in the Central region, followed by the South and Baluchistan and KPK and North regions.

About 80% of the Jazz towers are ground-based as opposed to rooftop structures. Of these, a large majority are ready for colocation (hosting additional tenants) without any further strengthening capex required.

The current tenancy ratio of ~1.3x on this portfolio means edotco has potential to further collocate these towers with all MNO/WLL operators in Pakistan who need to achieve greater coverage/capacity targets.

All key MNOs and WLL players in the market have customer contracts with Jazz for sharing on their towers.

TowerXchange: With the Tanzanite transaction, it was 100% edotco, while the latter included a local partner Dawood Hercules Corporation Limited (DH Corp) who will own 45% equity. Can you share some of the thoughts behind these two approaches? What does DH Corp bring to the table in addition to the financials?

Suresh Sidhu, CEO, edotco Group:

Having the right local partner in our markets is an important strategy that edotco is always open to. On the Deodar deal specifically, having Dawood Hercules as our local partner was a major advantage from an operational and strategic point of view. The key terms of this engagement with Dawood Hercules allow full control and consolidation of assets of interest to edotco.

To be clear, Dawood Hercules is entering as a 45% shareholder of the combined portfolio. When we did Tanzanite, we needed an entry into a reasonably-sized asset in Pakistan and in the interest of time we felt that we should acquire that asset first on our own.

Dawood Hercules is a highly reputed listed Pakistani holding company conglomerate. To date, Dawood Hercules has established successful investment collaborations with IFC, GE, Mitsubishi and the World Bank. They are financially strong and well-integrated in the country and we believe will be an excellent partner in this business venture.

TowerXchange: And to clarify, this is a sale and leaseback with PMCL? What are the proposed arrangements moving forward with PMCL/Jazz as a tenant?

Suresh Sidhu, CEO, edotco Group:

Yes, this is a sale and leaseback transaction, and key terms of edotco’s long-term contract with Jazz are standard for such transactions and are benchmarked against international standards. Jazz will become edotco’s primary anchor tenant for this portfolio of assets.

TowerXchange: What does the current landscape look like in Pakistan now in terms of tower asset ownership by Ufone, Telenor, and Zong and their potential interests to divest?

Suresh Sidhu, CEO, edotco Group:

In its annual report for 2014-15, the Pakistan Telecommunications Authority (PTA) reported the total tower count stood around ~40,000 for the period. (TowerXchange currently estimates 34,305 total towers in the country).

Telenor, Zong and Ufone each own and operate portfolios sized between 5,000 – 10,000 towers. Currently, Pakistan has a mobile and data penetration of around 73% and 24% respectively which provides a significant opportunity for further organic growth.

With the introduction of 4G in the market and the need to deploy efficiently in the market for the MNOs, there are many positives for towercos. We think scale and scope of services are the key determinants of future success in this industry. The next few years will see an increased focus on optimising operational efficiencies and adapting to respond to ever-changing technology and exploding data consumption needs.

Given the need to invest in the core network, it is likely that the MNOs will look to monetise their passive infrastructure over time to remain competitive.

TowerXchange: As edotco continues its operations in Pakistan, what is some of your current thinking around network overlap and potential decommissioning? Also the contrast between parallel infrastructure in urban vs. suburban, and also the need for network extensions and rural coverage?

Suresh Sidhu, CEO, edotco Group:

Currently, Pakistan has approximately 40,000 towers in operations. Many of these towers are underutilised with the vast majority of the towers having low tenancy ratios and urban overlaps as much as 50-60%. Given this situation and an increased focus by operators on the reduction in operational expense, site consolidation is a major industry discussion point. For a towerco, this can be a key driver for establishing a higher colocation ratio for Pakistan. Having said that, consolidating large portfolios (in the magnitude of thousands) is an exercise that needs careful planning and execution. Consolidation typically guarantees total operating costs to go down and the benefits to be shared among all parties involved.

As for suburban and rural coverage, we believe the network overlap is not significant enough yet to consolidate in scale.

Achieving geographical mobile coverage in rural areas has been a challenge with Pakistan being a large country. The country is now starting to push mobile coverage to underserved areas through USF grants and this again is an opportunity well-suited for a towerco, where capex outlay predicated on expected multi-tenancy fits very well with our business model.

TowerXchange: To clarify, what is the current prevailing towerco business model in Pakistan – grass and steel or tower+power or mix?

Suresh Sidhu, CEO, edotco Group:

In the absence of substantial independent towercos to date, the prevalent business model for tower sharing in Pakistan has been mainly through inter-operator sharing on either commercial and/or barter agreements.

edotco has an end-to-end spectrum of service offerings in most of its markets, and we have seen different customers opting for customised asks. Our primary service offering will be the tower+power model. Through this model, our customers will be able to lease tower and ground space together with DC energy solutions.

Given the energy challenges of the country, we believe our customers are likely to adopt more complete service offerings, which will give them the most competitive total cost of ownership (TCO) rates as well as the highest up-time SLA.

TowerXchange: Could you help shed some light on the operational realities in Pakistan?

Suresh Sidhu, CEO, edotco Group:

Currently, less than 5% of the edotco sites are off-grid. The quality and consistency of power in Pakistan has improved significantly in the past few years due to enhancement in power generation and investments to improve the grid. We expect further improvements in the coming years as many additional large power generation projects come online that will substantially add capacity to the grid.

Other geographical challenges like the terrain and weather have become part and parcel of operations, and while Pakistan will have its unique conditions, we have experience from other markets to draw upon. Ultimately, we believe we have the patience and resilience to overcome these obstacles.

TowerXchange: Lastly, what will this mean in terms of your local team presence and strategy to grow manpower?

Suresh Sidhu, CEO, edotco Group:

Our current Pakistan operations are headquartered out of Islamabad and now post Tanzanite we have further offices in Karachi, Lahore and Peshawar bringing our full set of solutions and services closer to a wider range of customers.

Since we established in Pakistan we have been engaging mostly in business development activities with a small number of key executives based in Pakistan while leveraging on the expertise available at the Group. The completion of Tanzanite extended our resources and skill in terms of people considerably.

With the completion of Deodar, we will need to further develop our talent and believe the knowledge sharing opportunities between our new employees and our employees across the region will be a key element to developing a competent team. Human capital and talent are abundant in Pakistan and we believe the combination of the new team on the ground, experts from Jazz, the industry and our global talent available at edotco will result in a team that is able to continue providing quality services to our clients in a timely manner and meet the evolving market demands.

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