América Móvil, the largest wireless carrier in Latin America, today announced the spin-off of its telecommunications towers and other passive infrastructure assets to Sitios Latinoamérica, SAB de CV (Sitios Latinoamérica), a newly created Mexican company, which will become publicly-traded on the Mexican Stock Exchange. Specifically, Sitios Latinoamérica will have a portfolio of 36.0k towers in 15 markets in Latin America with a potential EBITDA of $352m (7.0bn Mexican Pesos).

Sitios Latinoamérica will operate tower sites in the following 15 Latin American countries: Argentina, Brazil, Chile, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Panama, Paraguay, Peru, Puerto Rico, and Uruguay. Notably, América Móvil’s tower sites in Mexico, which are held by Telesites SAB, as well as the company’s passive infrastructure in Colombia will not be contributed into Sitios Latinoamérica.

Spin-Off – América Móvil Brings Sitios Latinoamérica Public

Sitios Latinoamérica’s portfolio of 36.0k tower sites represents a ~19% market share of total existing sites in the Latin American markets where the company operates. Overall, Sitios Latinoamérica’s three largest markets include Brazil with 12.5k sites (35% of total), Argentina with 4.4k sites (12% of total), and Peru with 3.7k sites (10% of total).

Sitios Latinoamérica’s Towers By Country

CountrySites% of Total
Brazil12,53935%
Argentina4,43512%
Peru3,68710%
Guatemala3,2648%
Chile2,5457%
Ecuador2,3687%
Honduras1,3874%
Dominican Republic1,3704%
El Salvador1,1533%
Nicaragua7742%
Paraguay7252%
Costa Rica5642%
Uruguay5522%
Panama5472%
Puerto Rico98<1%
Total36,008100%

Importantly, the company’s largest concentration of towers are in Brazil, which hosts the largest wireless communications market in Latin America.

Transaction Structure

América Móvil will form Sitios Latinoamérica by contributing the shares of its subsidiaries that hold telecommunications towers and other passive infrastructure within the aforementioned Latin American countries.

Share Distribution

As part of the spin-off, holders of América Móvil shares will receive the same number of shares in Sitios Latinoamérica for every share they hold in América Móvil. For clarity, América Móvil shareholders will receive shares of Sitios Latinoamérica, whereas América Móvil will not receive any shares.

As a result of this share distribution, Sitios Latinoamérica’s shareholder composition will initially be the same as América Móvil’s. Indeed, this includes Carlos Slim and his family, which will own ~70% of both companies.

Approval Date

On September 29, 2021, América Móvil will hold an extraordinary shareholders’ meeting. At this meeting, América Móvil’s shareholders will vote on the approval of the spin-off of Sitios Latinoamérica.

Spin-Off Net Assets

América Móvil will spin-off net assets of $2.7bn (53.5bn Mexican Pesos) from its balance sheet in order to form Sitios Latinoamérica.

Lease Term

América Móvil does not explicitly disclose the contractual length of its lease obligation with Sitios Latinoamérica. However, the company notes that the average term of the leases that have been entered into by Sitios Latinoamérica ranges between 7 and 10 years.

Transaction Rationale – América Móvil’s Spin-Off of Sitios Latinoamérica

Prior to today’s announcement, América Móvil pursued a strategy to develop its own tower infrastructure as a way to enhance the coverage and capacity of its wireless networks. However, América Móvil is now seeking to generate more shareholder value by forming a new, independent publicly-traded company to manage its tower infrastructure. Indeed, this independent company will market its assets and services directly to third parties, including América Móvil.

Overall, América Móvil’s goal, through the spin-off of its tower infrastructure, is to maximize the infrastructure’s value, by focusing Sitios Latinoamérica’s operations on developing, building, and sharing telecommunications towers for wireless services. Importantly, as an independent company, Sitios Latinoamérica’s passive infrastructure will be available to all wireless carriers in its 15 markets of operation.

Concurrently, post-transaction, América Móvil will focus its operations on providing end users with telecommunications services. Ultimately, this focus will enable América Móvil to increase customer penetration by winning new users and improving service for existing customers.

Capital Expenditures

By decoupling its tower infrastructure, América Móvil will be able to reduce operating expenses and redeploy its capital expenditure budget. For example, América Móvil can concentrate its capital expenditures on the deployment of its active infrastructure. Specifically, this active infrastructure includes antennas and radio link equipment placed on its towers.

Additionally, over time, América Móvil expects that ground rent for its leased tower sites will decrease. This will occur as more tenants are added to Sitios Latinoamérica’s towers. Indeed, these ground rent costs are split between the number of tenants using a particular tower.

Valuation

As an independent company, Sitios Latinoamérica, will allow investors to differentiate and select between two types of businesses. To this end, América Móvil and Sitios Latinoamérica will have separate management teams, operations, and financial objectives.

In turn, the spin-off attempts to secure a more efficient market valuation for both companies. Particularly, the transaction will highlight the implicit value of Sitios Latinoamérica’s passive infrastructure, while enabling an optimal capital structure (i.e., less debt) for América Móvil.

As a point of reference, América Móvil highlights that at year-end 2020, each business specifically commands a very different valuation:

  • Major Telecommunications Companies: trade at 6.4x EBITDA
  • Telecommunications Infrastructure Service Providers: trade between 12.4x to 27.4x EBITDA

Sitios Latinoamérica – Overview

Sitios Latinoamérica structures, installs, maintains, operates, and markets tower infrastructure and support structures. Specifically, this tower infrastructure is used for the installation of wireless communication transmission equipment, hence telecommunications towers.

Tower “Passive” Infrastructure

Overall, Sitios Latinoamérica’s passive infrastructure consists primarily of:

  • Towers and masts – also other structures that provide support for radio communication antennas
  • Civil engineering works, wiring, frames, ducts, and components to delimit and restrict access to the overall site
  • On-site equipment to install and operate radio equipment, also other active infrastructure

Neutral Host

Sitios Latinoamérica will provide infrastructure access and use services to América Móvil as well as any wireless carrier that is a competitor to América Móvil. In turn, Sitios Latinoamérica is a neutral infrastructure “host” for wireless carriers in its 15 markets in Latin America.

Strategy

Initially, the majority of Sitios Latinoamérica’s revenues will derive primarily from América Móvil. However, over time, the company intends to add further third-party wireless carriers to its towers, which will diversify its revenues. Additionally, the company will seek to increase its portfolio of towers through build-to-suit (BTS) agreements.

Most wireless carriers consider it advantageous to share tower infrastructure rather than individually incur the costs of installing and managing it themselves. Because of this notion, Sitios Latinoamérica will often be able to market its assets to two or more customers. Accordingly, the company can increase its total number of customers, profitability, and value of its towers.

Finally, Sitios Latinoamérica will target greater efficiency in its operations, which will translate into higher EBITDA margins.

Sitios Latinoamérica – Business Drivers

Sitios Latinoamérica, as an independent company, will be able to capitalize on the following business drivers for the towers business:

Data Traffic

Data traffic growth for smartphones will force wireless carriers to continue to invest in enhancing their network capacity. In particular, increases in demand for data plans, as well as user migration to 4G and 5G services, will fuel this data traffic growth. As a result, data traffic growth will drive demand for more tower infrastructure.

Long-Term Contracts

Tower companies have stable business models anchored by fixed revenue escalators and protected by long-term contracts. Importantly, the average lease term entered into by Sitios Latinoamérica ranges between 7 and 10 years, thus being long-term.

Operating Leverage

Sitios Latinoamérica will gain operating leverage by its ability to colocate additional tenants on its existing tower infrastructure. Indeed, the company can implement this at minimal incremental cost.

Sitios Latinoamérica – Risk Factors

Sitios Latinoamérica faces the following risks to its operations, which could decrease the demand for its tower infrastructure:

Network Sharing

Sharing of tower infrastructure or roaming agreements among wireless carriers, as an alternative to using Sitios Latinoamérica’s services, is a significant risk for the company. For example, in the United States, T-Mobile US and Sprint’s recent merger has led to the reduction in duplicative tower sites for the combined company’s network.

In Latin America, a similar rationalization of tower sites could occur following wireless carrier mergers. To this end, in Brazil, Vivo (Telefônica Brasil), Claro (América Móvil), and TIM Brasil (Telecom Italia) are all in the process of acquiring the country’s fourth largest wireless carrier Oi SA. Following completion of the Oi SA acquisition, certain of the acquirers or target’s leased tower assets could be decommissioned.

Other Notable Risks

  • Spectrum: restriction or revocation of government radio spectrum licenses to wireless carriers
  • CapEx: ability and/or willingness of wireless carriers to maintain or increase their overall capital expenditures on network infrastructure
  • 5G: delays or changes in the deployment of next generation technologies, such as 5G radio equipment or spectrum auction postponements

Industry Background – Towers

Historically, the telecommunications industry was simultaneously focused on the expansion of customers and networks. Particularly, wireless carriers considered the development of their own tower infrastructure strategically important. The rationale for this view was that wireless carriers were only beginning to deploy wireless networks, which made coverage a significant differentiating factor.

However, recently, wireless carriers in both developed and developing countries have pivoted their strategy towards creating independent tower companies to hold their passive infrastructure. Specifically, growing capital expenditure requirements to meet the increasing volume of data traffic on their networks has forced wireless carriers to re-adjust their strategies. Thus, this phenomenon has resulted in:

  1. Sharing of towers and the sites where they are located
  2. Sales of towers and sites to third-parties so that they may be marketed and operated more efficiently. Additionally, sales often include build-to-suit (BTS) tower commitments

Latin America and the Caribbean

In Latin America and the Caribbean, fixed telephone penetration is relatively low when compared to North America and Europe. Therefore, the deployment of wireless telephone networks and mobile broadband services is even more relevant in the region. Indeed, the roll-out of 4G and 5G technologies will drive the need to introduce new networks and increase coverage.

For example, in Latin America and the Caribbean, companies including Telefónica, Oi, Nextel, and Millicom, among others, have sold 30k+ telecommunications towers over the last few years.

Presently, 10+ companies operate passive tower infrastructure in the Latin American market, which together comprise ~200k towers. Within this total, the key independent tower companies in the region include American Tower, Telesites SAB, SBA Communications, Phoenix Tower International, Grupo TorreSur, Highline do Brasil, Mexico Telecom Partners (MTP), Andean Telecom Partners (ATP), and IHS Towers.

Adam Simmons is the Founder & CEO of Dgtl Infra. He started his career with an S&P 500-listed big box retailer, in an operations management role. Adam's entrepreneurial "itch" led him to start a 5G-driven company, focused on innovative retail solutions using augmented reality and shoppable videos, which was eventually sold to an advertising and consulting group. After, realizing the potential of 5G, Adam shifted his efforts towards investing in the "building blocks" of 5G - known as digital infrastructure, completing a number of strategic investments, buying cellular towers, data centers and fiber networks.

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