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The Russian market of antenna farms, its current status, trends and prospects

December 2015

Analytical Report (full version)

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Analytical Report (full version)

The Russian market of antenna farms, its current status, trends and prospects
The Russian market of antenna farms,  its current status, trends and prospects
December 2015

The Russian market of antenna farms, its current status, trends and prospects

December 2015

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J’son & Partners Consulting presents brief results of their market research of antenna farms (AF) in Russia and in the world.

 

 

Key issues of the study

  • Analysis of the major trends, drivers and barriers of the Russian AF market
  • Assessment of the market size and market share of its key players
  • Analysis of the key performance indicators of independent antenna  companies in Russia and in the world

 

 

Practical value of the research

The study:

  • identifies all the key drivers and constraints of the AF market development in Russia;
  • contains an analysis of the main stages of the procedure for obtaining building permits for various types of AFs in Russia;
  • gives an analysis and forecasts for the development of the Russian mobile communication market, including an evaluation and forecasts of capital expenditures of the largest operators;
  • defines market shares of the main market participants and their development strategies;
  • determines the current market capacity and builds a number of probable market forecasts in quantitative and monetary terms
  • gives comparative analytics of the key operating and financial indicators of the largest "antenna" companies in Russia and worldwide including:

o     the number of AFs;

o     the number of tenants per one AF (Tenancy Ratio).

o     the average rental rate;

o     OPEX and CAPEX per one AF;

o     the EBITDA margin.

 

 

Target audience

 

The study is intended for operators of mobile communication and fixed telephony, specialized antenna and construction companies, system integrators, investment funds and research agencies.


 

Summary of the study

 

Despite the difficult macroeconomic situation, the pace of construction of mobile communication networks in Russia remains quite high. In 2014, the total number of base stations of all standards (2G, 3G, 4G) in Russia were close to 330 thousand. Along with that, the rate of growth decreased slightly from 31% in 2013 to 25% in 2014 and remained respectively high in 2015. This happens in particular due to entering new territories (including Moscow and the Moscow region) by a new Federal operator Tele2, as well as the need to comply with the license obligations of the operators of LTE standard. On the other hand, the major operators are focused on gradual reduction of capital expenditures and use of the services of professional antenna companies is one of the most effective decisions in this direction.

 

The emergence of new players on the mobile market and the intention of the operators to reduce their capital expenditures in circumstances of the currently unstable economy can be seen as substantial drivers for the development of the AF rental market with specialized infrastructure companies as renters. The most significant incentive for the development of such market could be the creation of a large antenna company, for example, through the purchase of one or more antenna farms from a mobile operator or through the creation by the operators a joint antenna enterprise.

 

An additional driver of the AF market development is the project on elimination of "digital inequality". According to J'son & Partners Consulting, in the next 10 years, it will require constructing of more than 1,000 low structures as Wi-Fi access points and other low-power base stations.

 

According to J'son & Partners Consulting, in comparison with the AF markets of developed and several developing countries, the AF Russian market has the following features:

  • the low share of antenna companies that rent their facilities to mobile operators for deploying base stations – not more than 6% of the total number of AFs at the end of the 3rd quarter of 2015, versus 48% in the US, 71% in Brazil, 91% in Mexico, and 47% in Africa (forecast for 2015);
  • the low number of tenants per one AF – 1,25 at the end of the 3rd quarter of 2015 on average vs. 2.2–3.0 on the developed markets and 1.8 in India (forecast for 2015);
  • the complexity and long time for obtaining construction permits, the uncertain legal status of antenna farms;
  • the complex type of relations between tenants and renters, as well as the lack of standard business processes, tariffs, etc.;
  • the active interest of the market in deploying base stations on so-called dual use poles – upgraded street light poles;
  • the high proportion of operating costs per one AF (which is especially true for companies at the early stages of the antenna business).

 

The main independent participants of the Russian AF market are «РусскиеБашни»[Russkiye bashni] ("Russian Towers") with over 1500 objects, “Вертикаль” ("Vertical") with around 1000 objects in the Moscow region, "Link Development" (more than 300 objects, mostly in the North-Western macro-region), and several other regional companies. Totally, antenna companies serve about 4 thousand constructions of various types like masts, antenna farms, towers, and poles, including dual purpose poles. The objects can be both their property or rented from other AF owners.

 

According to the main forecast from J'son & Partners Consulting, the number of AFs in Russia will increase from 60 thousand to 126 thousand, or more than twice in the period between 2015 and 2026. The CAGR for the forecast period will be 6%.

 

 

 

 

The industry representatives views

 

  1. What are the main features of the Russian market of AFs?

The main feature is that the major amount of the infrastructure for base stations is still owned by operators. The total number of independent owners of such infrastructure is only about 1%. While the rest world has already separated the ownership of the active (base stations) and passive (towers and masts) infrastructure. This model is more effective, since one facility can be used by several operators.

  1. What models are there on the foreign markets of AFs?

There are several basic models, for example, an independent company buys ready to use towers from operators or operators create their own "tower" business. The first model is used in the US and African countries, in which the share of independent AF owners is approaching or even exceeding 50%. The second variant is being implemented in China and India, where such joint ventures as China Tower Company and Indus Towers own, respectively, more than 1 million and 120 thousand objects. But this does not mean that their market is monopolised. For example, there are still relatively small companies which own 10-20 thousand objects in India. And in the UK four cellular operators have broken into pairs, each of which has established a joint venture, and they share not only the passive but also the active infrastructure. Thus, the model of Radio Access Networks Sharing, which has started being used by MTS and "VympelCom" in Russia, has been implemented in full in the UK.

  1. What are the prospects of the Russian AF market?

If any mobile operator sells their facilities it will be a significant stimulus to the formation of the Russian AF market, which is still in its infancy. Creating a major player would make the market more civilized and define the rules of the game between the owners of AFs and mobile operators, as well as minimize discussions about prices, services and other issues. I think that the Russian AF market will, most likely, go this way. Such variants have already been proposed to the key operators, but they have not not accepted them.

 

 

 

 

Detailed results of the research are presented in the full version of the report:

“The Russian market of antenna farms,its current status, trends and prospects”

 

Contents:

  1. MAIN DRIVERS AND BARRIERS FOR THE RUSSIAN AF MARKET DEVELOPMENT

1.1.CURRENT ECONOMIC SITUATION

1.2.EXPANSION OF THE COVERAGE OF 2G/3G NETWORKS AND CONSTRUCTION OF LTE NETWORKS

1.3.FEDERAL PROJECTS

1.3.1.   Mobile coverage of highways

1.3.2.   Elimination of "digital inequality"

1.4.PROCEDURES FOR OBTAINING BUILDING PERMITS

1.5.RELATIONSHIPS WITH TENANTS AND DEVELOPERS

1.5.1.   Interaction with renters of sites for mobile operators

1.5.2.   Placement of base stations on the roofs of apartment buildings

1.5.3.   Placement of base stations in the urban sites

1.6.OPERATORS’ DESIRE TO MINIMIZE THEIR COSTS

1.7.TRANSFER OF ANTENNA FARMS TO INDEPENDENT "TOWER" COMPANIES

1.8.ENACTMENT OF THE LAW ON THE JOINT OPERATION OF RADIO ACCESS NETWORKS (RAN SHARING)

1.9.TECHNOLOGICAL FACTORS (MINIATURIZATION OF BASE STATIONS, MULTIRAN, ETC.)

  1. ANALYSIS OF THE MOBILE MARKET IN RUSSIA

2.1.CORRELATION BETWEEN THE GROWTH OF GDP, PRICE INDICES AND RATES OF CHANGE OF TOTAL REVENUE IN THE TELECOMMUNICATIONS INDUSTRY

2.2.TRENDS AND FORECASTS OF THE KEY PERFORMANCE INDICATORS OF MOBILE COMMUNICATION IN RUSSIA

2.2.1.   Subscriber base and revenues

2.2.2.   Number of base stations

2.2.3.   ARPU and MOU

2.2.4.   Number of mobile internet users and revenues from mobile data services

2.2.5.   Profitability

2.2.6.   Launch of new mobile networks

  1. CAPITAL INVESTMENTS OF OPERATORS

3.1.TRANSPORT INFRASTRUCTURE DEVELOPMENT

3.1.1.   VympelCom

3.1.2.   МТS

3.1.3.   МеgaFon

3.1.4.   Tele2

3.2.DEVELOPMENT OF 3G AND LTE NETWORKS

3.2.1.   Tele2

3.2.2.   МТS

3.2.3.   МеgaFon

3.2.4.   VympelCom

3.3.NETWORK SHARING

  1. VOLUME AND STRUCTURE OF THE RUSSIAN AF MARKET

4.1.EVOLUTION OF TECHNOLOGIES AND THE MAIN DIRECTION OF MAJOR CONSTRUCTION WORK IN THE INDUSTRY

4.2.DISTRIBUTION OF ANTENNA FARMS BY THE KEY MARKET PLAYERS AND THEIR STRATEGY

4.2.1.   Mobile operators

4.2.1.1.      МТS

4.2.1.2.      МеgaFon

4.2.1.3.      VympelCom

4.2.1.4.      Rostelecom

4.2.1.5.      Tele2

4.2.1.6.      Other operators

4.2.2.   FSUE "Russian television broadcasting network"

4.2.3.   JSC "RZD"

4.2.4.   Energy companies

4.2.5.   “Tower” companies

4.2.5.1.      "Russian towers"

4.2.5.2.      "Link Development"

4.2.5.3.      "Vertical"

4.2.5.4.      "Service-Telecom"

4.2.5.5.      "Sotka Vysotok"

4.2.5.6.      "Tender Invest"

4.2.5.7.      Other companies

4.3.ASSESSMENT OF THE CURRENT MARKET VOLUME AND SHARE OF THE AF MARKET PARTICIPANTS, THE NUMBER OF OBJECTS

  1. COMPARATIVE ANALYSIS OF OPERATING AND FINANCIAL PERFORMANCE OF "TOWER" COMPANIES
  2. FORECAST OF THE RUSSIAN AF MARKET DEVELOPMENT

6.1.ASSESSMENT OF THE IMPACT OF MAJOR MACROECONOMIC FACTORS

6.2.ASSESSMENT OF THE IMPACT OF THE EVOLUTION OF TELECOMMUNICATION TECHNOLOGIES

6.3.ANALYSIS OF THE MOST PROBABLE FORECASTS OF THE MOBILE MARKET DEVELOPMENT

6.4.FORECAST OF THE MARKET FOR ANTENNA FARMS IN QUANTITATIVE AND MONETARY TERMS

  1. BASIC PARAMETERS OF OPERATIONAL AND FINANCIAL ACTIVITIES OF FOREIGN "TOWER" COMPANIES

7.1.NUMBER OF ANTENNA FARMS

7.1.1.   USA

7.1.2.   Еurope

7.1.3.   Аsia

7.1.4.   South America

7.1.5.   Аfrica

7.2.AVERAGE RENTAL RATE

7.2.1.   USA

7.2.2.   Еurope

7.2.3.   Аsia

7.3.TENANCY RATIO

7.3.1.   USA

7.3.2.   Еurope

7.3.3.   Аsia

7.4.EBITDA MARGIN

7.4.1.   USA

7.4.2.   Еurope

7.4.3.   Аsia

7.5.CAPEX FOR ONE ANTENNA FARM

7.6.STRUCTURE OF CAPITAL AND OPERATING COSTS (AVERAGE ON THE MARKET)

7.6.1.   American Tower

7.6.2.   Crown Castle

7.6.3.   SBA Communications

7.6.4.   Indian companies

  1. ASSESSMENT AND FORECAST OF AVERAGE RENTAL RATES AND TENANCY RATIO IN RUSSIA. COMPARISON WITH THE WESTERN ANALOGUES

8.1.AVERAGE RENTAL RATE

8.2.TENANCY RATIO

8.2.1.   Comparison with developed countries

8.2.2.   Comparison with developing countries

  1. COMPARATIVE ANALYSIS OF CAPEX FOR DIFFERENT TYPES OF ANTENNA FARMS (DEPENDING ON THE HEIGHT, GEOGRAPHICAL POSITION) WITH ALLOCATION OF THE COST OF A HIGH-RISE CONSTRUCTION
  2.  CONCLUSIONS

 

Appendix 1. Main stages of registration by mobile operators their property rights for built antenna farms and ownership/lease rights for the land under them

Appendix 2. The level of coverage of main highways by Russia's largest mobile operators, 2Q 2015

Appendix 3. Simplified calculation for installation of equipment and power support on an antenna farm on the example of the SK-26 stand

Appendix 4. Rental rates for sites for installation of base stations in Russia

Appendix 5. 110 largest "tower" companies in the world

Appendix 6. Tariffs at the Moscow United Electric Grid Company for installation of antennas, supports and other equipment, with VAT

Appendix 7. Rental rates for antenna farms at JSC "Satellite telecommunications of Bashkortostan" for mast devices of VHF, UHF and SHF range.

 

 

 

This information note is prepared by J’son & Partners Consulting, We strive to provide factual and prognostic data that fully reflect the situation and are available to us before issuing the material

 

 

 

 

J’son & Partners Consulting presents brief results of their market research of antenna farms (AF) in Russia and in the world.