Infrastructure makes up a substantial proportion of mobile network operators’ capital investments and a large chunk of their operating costs. One way for operators to reduce these costs is to share infrastructure with other operators, letting an independent tower company, or towerco, manage the tower network while they focus on their core business of data transmission and customer service. The Post’s Cam McGrath spoke recently to Suresh Sidhu, CEO of Edotco Group, a subsidiary of Malaysia-based Axiata that operates 17,000 towers in six Asian countries, about how the towerco business model works.

What infrastructure services does an independent tower company (towerco) provide?

Quite simply, we in the industry call this passive infrastructure. It’s mainly building the mast, the structure and the foundation, while the antennae belong to the operators. Our job is to build a tower, rent a tower, and sometimes provide power and a shelter where we keep the equipment. That’s it.

What is your revenue model?

The main revenue we get is rental from our tenants. Our leaseback model is essentially: I agree to pay you X to buy your towers, I will run them, and in return you will pay me Y a month.

All parties share the benefits of more than one operator on the tower. Typically, in the model, the more tenants per tower, the rates go down for everyone. I think this is the classic model for building long-term lock-in, but also long-term win-win solutions. If you come to our tower and you’re a second tenant you’ll probably get a slightly better price than if you were the first tenant alone. However the first tenant also gets a slightly better price as well. The more towers you take from us the more your price drops over time as well.

What other revenue streams do you have?

In Cambodia, the revenue is nearly all lease revenue. In other countries, we have some managed service revenues. We may, for example, provide operations and maintenance services in excess of the normal tower, but all services are linked around the tower.

We have a very focused business model and I take great pains with the team to remind them to stay tower-centric. We’re a telecom infrastructure company, let’s not get too distracted.

So we’ll build buy and operate towers, we’ll lease them out to tenants, we’ll build services around those towers – for example, we could provide energy or active operations and field services, or even provide fibre connectivity – but we’re not going to get into the wholesale fibre business or selling equipment.

How is the tower rental cost calculated?

We have to make sure that the cost that we offer is cheaper than the cost for operators to do it by themselves. In this case, the secret sauce comes from two things: The more people share the more you can amortise some of the costs for operators, and secondly, the more focused you are the more efficient you get at doing it.

For the operator, it’s about lowest cost of ownership over time. For us, it’s about maximising the number of things we can have per tower.

Is there also a sharing model for the energy systems of the towers?

Right now there is one energy system for each operator per tower, and we don’t think that is very efficient. Maybe that could be the next opportunity, both for us for growth, but also for a bit more efficiency between the operators.

How many towers does Edotco have in Cambodia, and how many of those did you build?

We have 1,870 out of around 9,000 in total, so about 20 percent of installed towers in the market. We acquired these towers from Smart, but we started building our own towers this year. I think by year-end, maybe 100 will have been built by us, and we plan to build another 100 by early next year.

Have you convinced the other major mobile network operators (MNOs) to share your towers?

They take some towers from us, but very few. In Cambodia, Smart is our anchor tenant. We essentially are buying the towers from them and offering those towers out to all parties. To an anchor, normally, it’s a sale and leaseback. You agree on a rate and you try and then make income and profit from selling it to more tenants over time. The anchor has to get comfortable that it’s an open infrastructure model, and that other people, including competitors, will come to the site and use it.

Now what’s happened in Cambodia is there’s been huge interest from all the new entrants. The existing MNOs have been a lot slower, but we’re hoping that over the next 12 months we can establish a better relationship with Metfone and Cellcard.

This interview has been edited for length and clarity