Continental Towers Expansion Beneficial To Region

The International Finance Corporation (IFC), a member of the World Bank Group, announced in July that it is providing a US$120mn package to Guatemala's Continental Towers, which will aid the firm's expansion plans in Central America. Tower sharing is already a common theme in Africa and Asia Pacific, and it is our long-held view that the practice will increasingly become prevalent in Lain America as operators look to minimising cost when accelerating network coverage.

Besides Guatemala, Continental Towers, a joint venture between Terra Projects and Credit Suisse, also has a presence in Costa Rica, El Salvador, Honduras, Nicaragua and Panama. The investment, comprising a US$40mn loan and an US$80mn syndicated loan, will go towards Continental Towers' financial expansion into Nicaragua as well as doubling of the number of towers the firm has in the region.

Sharing Will Aid Subscriber Growth
Latin America Mobile Penetration Forecasts (%), 2009-2016

While mobile operators could simply share their infrastructure with peers, the process is seldom smooth-sailing since they are competing on the same landscape with concerns such as subscriber data being leaked further hampering collaboration. Consequently, independent tower companies provide an alternative, in addition to allowing mobile operators to reduce the amount of fixed assets on their balance sheet, and channel resources into their core business of providing telecoms services. Tower companies should have a more efficient operating model due to specialisation and economies of scale, and save mobile operators the trouble of making decisions such as where to build their base transceiver stations in order to maximise coverage.

Nicaragua is one of the three countries in Central America where the mobile penetration rate has yet to cross the 100% mark. Nicaragua has only two mobile operators - América Móvil and Telefónica - and BMI believes that there is a lack of urgency to improve the country's infrastructure. However, Continental Towers can play an important role with its expansion plans, which could in turn pave the way for a new operator by lowering the cost of entry. It is a similar situation in Belize and Costa Rica, the other two countries that have comparatively low mobile penetration.

Meanwhile, Guatemala, El Salvador, Honduras and Panama are relatively more mature since their mobile penetration rates are in excess of 100% but we believe that they will still benefit from Continental Towers' expansion plans. Besides aiding the potential entry of new entrants, there are pockets of regions where it is not commercially viable for mobile operators to deploy infrastructure due to the lack of a critical consumer mass. However, companies such as Continental Towers will be able to fill the gaps. Further, sophisticated services such as mobile data are more likely to gain mass adoption in these markets, and becoming a tenant of Continental Towers would reduce cost and allow savings to be passed on subscribers.


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