Consolidate and Expand

TBIG’s winning strategy? –

The Tower Bersama Infrastructure Group (TBIG), one of the two largest independent tower leasing, construction, operating, and servicing companies of Indonesia, has made impressive progress over the last few years. The company’s deal with PT Indosat in February 2012 and its earlier listing on the Indonesia Stock Exchange in October 2010 have helped the company to progressively consolidate its position in the Indonesian telecom market. When finalised by the regulatory authorities, the Indosat deal will place the company right behind the major telecommunications companies that dominate the Indonesian markets, in terms of number of towers operated.

However, the company has high customer concentration, which is generally a weakness among tower companies. Thus far, a major limitation in TBIG’s strategy appears to be its excessive dependence on its leasing business. Moreover, it derives about 60 per cent of its revenue from just four operators: PT Telekomunikasi Indonesia, PT Telekomunikasi Selullar, PT XL Axiata Tbk, and PT Indosat Tbk. A decline in demand from any of the four companies will likely have an adverse effect on TBIG’s earnings.

However, TBIG remains fairly confident about the planned expansion of its telecommunications tower segment. The company expects a steady increase in demand for the leasing, collocation, or even sales, of telecommunications sites by operators, given that the total number of telecommunication sites in Indonesia is expected to grow to over 100,000 by 2014, almost double the current number. Although this growth will mean that the competition in the segment will become more intense, TBIG believes that it will continue to thrive due to its strengths:

Business segments

TBIG was established in 2004 as PT United Towerindo. Subsequently, the company acquired a number of other independent tower organisations to enhance the effectiveness of its operations across the various islands of Indonesia; they were eventually consolidated under the TBIG banner. As of September 30, 2012, the company has a portfolio of over 12,953 tenancies across 8,171 telecommunication sites. The Indosat acquisition took TBIG past Protelindo as the leading independent tower operator in terms of number of sites.

Currently, most of TBIG’s operations are based in Java, Bali, Sumatra, and Batam, although the company expects to have a significant presence in Kalimantan and Sulawesi in the near future. Its strategy for acquiring newer sites include: investing in greenfield locations; forging agreements with existing land and rooftop owners; and acquiring operational towers from telecommunication service providers and other tower companies.

Under a long-term contract model, TBIG leases tower sites and shelter-only sites for 10 years and DAS networks for five to eight years. In 2010, the number of leases increased by 149.4 per cent compared to 2009, thanks to TBIG’s acquisition, earlier in the year of Solusindo Kreasi Pratama, another independent tower company.

The company also offers a “build-to-suit” option – the construction of brand new towers or DAS networks on one of its sites in accordance with customer specifications – when certain investment criteria are met. They consist of risk-adjusted return on investment; potential for future collocations; ease of leasing or purchasing land for sites; and gaining community approval. TBIG has estimated that, if needed, it has the capacity to construct telecommunication facilities at 2,000 sites per year.

Finally, TBIG leases its existing tower network to customers as part of its collocation scheme. For customers, leasing from TBIG constitutes significant capital savings, as they do not have to build a new tower. Currently, the company’s tower tenancy ratio is 1.71. While announcing the company’s 2012 third quarter performance to the media, HW Liong, Chief Executive Officer, TBIG, stated, “We continue to see strong demand for space on our towers … and we remain committed to our telco customers to ensure the timely delivery of build-to-suit towers and collocations.”

Service offerings

TBIG undertakes a range of services for its customers from site selection to regular maintenance. The company’s Site Acquisition (SITAC) team conducts research on potential sites based on customer requirements and assumes the responsibility for acquiring the required licences. Its in-house Civil, Mechanical, and Electrical (CME) construction team constructs towers.

Will TBIG’s two-pronged strategy work?

In order to take full advantage of Indonesia’s growing telecommunications segment, the company has adopted a two-pronged business strategy. On the one hand, the company will focus on improving its relationships with customers by providing better services at existing sites; and on the other hand, it will attempt to expand its base of telecommunication sites through an aggressive acquisition policy.

With an eye on increasing its tower tenancy ratio in the future, TBIG will have to generate a significant amount of lease renewals – a trend that rarely occurs in the Indonesian telecommunications industry. This places significant importance on fostering customer relationships – an aspect that analysts believe TBIG excels in.

In order to help finance its aggressive expansion programme, TBIG entered into a $2 billion debt programme in 2010, which allows the company to raise debt through bonds or loans for expansion purposes. In 2012, TBIG sought further funds for this purpose, securing a commitment of $610 million from 11 banks for a senior debt facility of $325 million.

However, a number of factors may adversely affect the company’s ambitious future plans. TBIG must consider these pitfalls and carefully plan out its business strategy in order to sustain its growth for the long term:

• The continuing creditworthiness of telecommunications operators: the company’s revenue is most dependent on their rental payments in the long term;
• TBIG’s effectiveness in managing the high interest costs arising from the significant debts raised by the company for the swift acquisition of assets;
• Higher tax rates;
• An increase in tower sharing by dominant telecom operators, which eliminates the need to lease towers from independent operators; and lastly,
• Policy and regulatory changes that may force telecommunication operators to scale down their tower portfolios – this factor will not impact TBIG immediately as the company’s lease expiry dates are fairly well spread out till 2021.