Mexico Telecom Partners (MTP), the third-largest tower company in Mexico, which is owned by Colony Capital’s Digital Bridge Holdings, and the Macquarie Mexican Infrastructure Fund (MMIF), has 2.4k active sites and 5.1k total sites, including those with management rights, across Mexico. Indeed, the company and its owners have recently been named in various press reports, noting that they are potentially exploring a $1bn sale.

With this dynamic in-play, we breakdown the history and key customers of Colony and Macquarie’s Mexico Telecom Partners (MTP). Additionally, we highlight the company’s tower operator competition in Mexico.

We also interweave two key themes that are transforming the Mexican towers market. Firstly, Mexico’s wireless carriers are aggressively pursuing network sharing, which is generally considered to be a negative trend for tower companies. Secondly, all wireless carriers, except for the dominant Telcel (América Móvil), have recently been struggling financially.

Background – Mexico Telecom Partners (MTP)

In October 2011, Global Tower Partners (GTP), where Marc Ganzi of Colony Capital was founder and CEO, and Macquarie Mexican Infrastructure Fund (MMIF) acquired a portfolio of 199 towers in Mexico from Telefónica. Subsequently, in September 2013, GTP sold 5.4k towers in the United States and Central America to American Tower for $4.8bn.

However, GTP’s Mexican towers were carved-out of the transaction with American Tower. Indeed, Tom Bartlett, then Chief Financial Officer of American Tower, noted on the company’s M&A conference call that “on the Mexican assets, we did not pick-up those assets”.

Mexico Tower Partners (MTP)

In May 2014, Digital Bridge and Macquarie Mexican Infrastructure Fund (MMIF) launched a 50%/50% joint venture by merging their tower portfolios, naming the company Mexico Tower Partners (MTP). Initially, Mexico Tower Partners (MTP) owned and managed 550+ wireless towers across Mexico.

Mexico Towers Market – Competitors to Mexico Telecom Partners (MTP)

Mexico’s towers market has the lowest tenancy ratio of any sizeable towers market globally, at a ratio of only 1.2x. However, this is not accidental. Indeed, the dynamic of the wireless carriers in Mexico (see below) has led to a situation where Telcel (América Móvil) is the only operator requesting a meaningful number of new tower sites and colocations in the country. Additionally, Telcel’s new build-to-suit (BTS) commitments are typically given to its captive tower company, Telesites SAB.

Overall, Mexico Telecom Partners (MTP) is the third-largest tower company in Mexico behind i) Telesites, which was spun-off from América Móvil in 2015, and ii) American Tower.

Telesites SAB

As of Q1 2021, Telesites owns 18.0k towers in Mexico, with an overall tenancy ratio of only 1.2x. Additionally, the company intends to build between 1.2k to 1.3k towers in Mexico during 2021.

American Tower

As of Q1 2021, American Tower owns 9.8k sites in Mexico, which generate 6.1% of its total property revenue. Additionally, over the past 12 months, the company has grown its site count by ~1% or 93 sites.

In Mexico, American Tower counts Telcel (América Móvil), Movistar (Telefónica), AT&T Mexico, and ALTÁN Redes as its customers.

Tenants – Mexico Telecom Partners (MTP)

Similarly, Colony and Macquarie’s Mexico Telecom Partners (MTP) currently holds all of the major wireless carriers in Mexico as tenants. These tenants include Telcel (América Móvil), Movistar (Telefónica), AT&T Mexico, and ALTÁN Redes.

Telcel (América Móvil) – #1

Mexico Telecom Partners’ largest tenant, Telcel (América Móvil), is also, by far, the largest wireless carrier in the country, with a 60%+ market share. Telcel has focused its recent tower activity with MTP on 4G upgrades, densification, and a limited amount of build-to-suit (BTS) projects. Notably, Telcel only outsources build-to-suit (BTS) sites in locations where their captive tower company, Telesites, does not want to provide those services.

In recent years, the Mexican government, led by president, Andrés Manuel López Obrador, has enabled Telcel to become stronger. Whereas the previous administration, was focused on deregulating Mexico’s communications industry and bringing additional competition to the marketplace. In turn, this dynamic has stifled the ability of Telefónica, AT&T, and ALTÁN Redes to gain market share from Telcel.

Implications for Mexico Telecom Partners (MTP)

Telcel’s captive tower company, Telesites is well-run and a strong competitor to MTP in the region. Therefore, Mexico Telecom Partners is unlikely to secure significant new tenancies from Telcel.

Movistar (Telefónica) and AT&T Mexico – #2 and #3

In November 2019, Telefónica entered into a new 8-year (minimum) wholesale agreement with AT&T in Mexico. In turn, Telefónica is gradually migrating its wireless traffic to AT&T Mexico’s 3G and 4G access network, over three years. As a result of this active network sharing agreement, Telefónica will become a mobile virtual network operator (MVNO) in Mexico.

As it completes its migration, Telefónica will turn its wireless access infrastructure in Mexico off. Consequently, Telefónica will discontinue its use of its Mexican spectrum holdings to operate its network.

This partnership between Telefónica and AT&T, the second- and third-largest wireless carriers in Mexico, showcases the intense competitive dynamics of Mexico’s wireless market. In particular, the dominance of Telcel (América Móvil), with its 60%+ market share, is driving this competition.

Financial Performance – Telefónica and AT&T in Mexico

Overall, intense competition from Telcel has contributed to both Telefónica and AT&T generating operating losses in Mexico for 2020. Specifically, during 2020, Telefónica’s Mexico division incurred operating losses of €606m ($744m). Additionally, in 2020, AT&T’s Mexico segment produced operating losses of $587m and EBITDA of -$74m.

Evidently, Telefónica’s pivot to a “network-light” business model, through the AT&T partnership, is necessary for its Mexico division to survive.

Implications for Mexico Telecom Partners (MTP)

Given the network sharing arrangement between Telefónica and AT&T, Telefónica will inevitably decommission tower sites where it has network overlap with AT&T. Therefore, as Telefónica’s leases in Mexico mature over the next 10 years, there is a distinct possibility that Mexico Telecom Partners (MTP) will lose some Telefónica occupancy on its towers, through churn.

However, as AT&T brings more wireless traffic onto its network as part of the agreement with Telefónica, it will place more stress on the company’s tower infrastructure. In turn, as AT&T addresses this capacity need with more colocations and equipment on third-party towers, MTP could recoup some of its losses. Nevertheless, MTP will face competition for this additional revenue from Telesites and American Tower, amongst others.

ALTÁN Redes (Red Compartida) – #4

ALTÁN Redes’ owners are a consortium, led by Morgan Stanley Infrastructure Partners (MSIP) with 33% ownership. The company holds a 20-year concession for the construction and operation of an operator-neutral, nationwide, 4G/LTE network in Mexico. Specifically, the company operates Mexico’s Red Compartida, which is an open access network, using the 700 MHz frequency.

ALTÁN Redes is at the forefront of a significant shift in Mexico’s network architecture towards a shared network. However, according to recent press reports, this transformation has pressured the company’s finances to the point of needing to raise additional capital. Moreover, the company is reportedly seeking a four-year extension for its coverage obligations in Mexico, also revealing its operating pressures.

Shared networks in Mexico are being driven by many of the same trends disrupting the telecom industry globally. Specifically, these include: i) pressure on wireless carrier average revenue per user (ARPU) metrics, ii) increases in wireless carrier capital expenditures for both 4G/LTE and 5G network infrastructure, and iii) high spectrum costs.

Implications for Mexico Telecom Partners (MTP)

Colony and Macquarie’s Mexico Telecom Partners (MTP) has found success building towers and C-RAN hubs (or baseband hotels) for ALTÁN Redes. C-RAN hubs allow multiple wireless carriers to operate on common digital infrastructure. Indeed, ALTÁN Redes is providing these C-RAN hubs for the colocation of companies including Telefónica, AT&T, and Totalplay (Grupo Salinas).

Overall, MTP estimates that it will have deployed, in aggregate, 60 to 80 C-RAN hubs in Mexico by year-end 2021.

More broadly, ALTÁN Redes’ business model is not entirely positive for tower companies. Indeed, in rural markets, one wireless carrier can distribute multiple spectrum bands and carry all of that capacity. In turn, this leads to more roaming and infrastructure-sharing by the wireless carriers.

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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