TowerXchange interviews IGT CEO and Board Member Mr. Arun Kapur in its latest edition

Yangon, Myanmar — September 29^th, 2015

Having been attracted to by the challenge of Myanmar’s greenfield infrastructure rollout, former deputy CEO has recently been promoted to CEO of Irrawaddy Green Towers (IGT). Lebanese, born and raised in Doha, he has two degrees; a BSc in Civil Engineering and an MSc in Construction Management / Project Management. He has 21 years’ experience in O&G and telecom infrastructure. Previously Ayad was VP – Operations at Petrofac where he worked on mega international O&G and infrastructure projects including engagements in the UAE, Oman, Georgia, USA, Qatar, Russia and Kazakhstan, working with national and multinational large operating companies such as ADCO, PDO, BP, Total, QP, Dana Gas, Sajgas, KOC, KPO, KLPE, GASCO, in the energy sector.

Q: TowerXchange: I’m surprised we don’t encounter more senior management at towercos who have an O&G infrastructure background as skills and experiences seem to be readily transferrable.

IGT CEO: After almost 20 years in O&G infrastructure, Myanmar represented a fantastic opportunity to build telecom infrastructure in a virgin market. There a lot of the same concepts when dealing with O&G and telecom infrastructure: dealing with challenging geographies, understanding the impact of the environment, learning about the people and politics, and managing project implementation economics.

Telecom infrastructure rollouts are similar in nature to O&G – the primary differences are to do with scale and timeframe. A telecom rollout is geographically bigger than most O&G projects, unless you’re doing a cross country pipeline, but the key difference is the timeframe. A telecom rollout has a series of monthly to six week targets – delivery is based on monthly KPIs, whereas mega projects in O&G typically have three to four years, which gives you more time to maneuver and to mitigate against geographical or political issues in order to meet the end date. In a telecom context, we have 30 or less days per tower, less time to maneuver, no time for building contingencies. From site acquisition to tower erection and installation of power systems – sometimes we’re building 150-200 towers per month. Telecom infrastructure is deployed in a shorter time and is logistics and communication intensive. I’ve been on fast track jobs in O&G, where the value of the barrel creates the pressure for the delivery date per the contract, but there is more pressure in telecom; every month is a new project and there are different targets to be achieved in different areas that are geographically distant and diverse in nature.

Q: TowerXchange: What have IGT been contracted to build and what have you built to date across the first three phases of the rollout?

IGT CEO: IGT has been contracted to build 1,800 towers for Telenor and 1,100 for Ooredoo. In addition to that, we have co-location agreements with both international operators plus MPT KDDI. So far we have built 1,500 towers out of total portfolio of 2,900 towers.
Work on the towers from the Ooredoo contract has started and key purchase orders for these have been placed. I’m proud to say that our delivery team continues deliver and to do an excellent job despite of the severe weather, complex terrain and substandard transport infrastructure.

Q: TowerXchange: Were there significant differences in terms of location characteristics and co-location potential between the (almost complete) first and second phases of the rollout compared to the new contracts awarded for phase three?

IGT CEO: In terms of location of the sites, our first 1,500 were very much spread over the 16 States/divisions of Myanmar. We started in Yangon, but our initial contract, which was from the second phase of rollout, was predominately outside main Myanmar central corridor, and we were first there for Telenor in States such as Shan, Kachin, Rakhaing and Chin in the North of the country. So while other towercos have concentrated their build on the central corridor, we have focused on more peripheral and Southern states. We are now seeing more capacity sites that are located in the major cities such as Yangon, Mandalay, and populated towns / commercial towns and border cities with China and Thailand as well as touristic places.
In terms of co-location, we have more potential in major cities and commercial towns. Rural areas however have made a slow start with some exceptions, it is important to say that we have realised more potential in co-location in the past two months, which has exceeded our expectations and we may very well be looking at a figure exceeding our target for our portfolio by end of this year.

Q: TowerXchange: Does the more geographically dispersed nature of IGT’s towers mean more are off-grid and beyond the reach of transport infrastructure? If so, what are the implications for engagement with local communities?

IGT CEO: Around 60% of our sites are off-grid, and many are beyond the reach of transport infrastructure. We believe if we want to flourish we have to think global and act local, for example by hiring O&M teams from local villages. We see this as a win-win because the population have supported us in the rollout – engaging them in tower maintenance and operations is a small way to pay back societies for their support.
We are proud of our active local training programme. Our O&M managers are doing a phenomenal job training local teams on the basics of generator and battery maintenance, troubleshooting, and remote monitoring. We train technicians in Burmese at a dedicated facility in our HQ. We have more than 250 people local on our payroll, supplemented by 50-60 expats.
We are proud of our active local training programme. Our line Managers are doing a great job training local teams on the basics of roll out, generator and battery maintenance, troubleshooting, and remote monitoring. We train technicians in Burmese at a dedicated facility in our HQ. We have more than 250 people local on our payroll, supplemented by 50-60 expats

Q: TowerXchange: Different towercos have different business models. Some are very lean with every non-core function outsourced, others are more resource intensive keeping many functions in-house. Which functions sit ‘on the payroll’ at IGT and what is outsourced?

IGT CEO: Monthly our executive directors meet and try to address these issues. At the moment IGT are a cross: for example we have in-house site acquisition, and an in-house site building team, we hire smaller contractors, buy our own power solutions, and install through service providers. At the same time, we are shifting to an EPC finance model – we are retaining control of the schedule but giving part of the rollout to proven contractors.
Outsourcing might be good for economics, but it comes at the expense of flexibility of rollout and towerco’s ability to cater to operators’ specific needs, such as expediting sites they need on air as soon as possible. Keeping some in-house reserve resource is necessary to deliver great customer service and to build a reputation for operational excellence.
EPC contractors are like a train – once you load the train, and set it on track, it takes time to reach the desired speed, and they can be difficult to change course. So for example when the recent floods devastated the Northern States of Kachin, Rakhaing, Sagaing, parts of Mandalay and Shan, we were able to shift priorities to temporarily favour rolling out in the drier States in the South using in-house contractors.

Q: TowerXchange: How can Myanmar’s towercos drive efficiency as you achieve scale, particularly in terms of smart sourcing and O&M?

IGT CEO: Efficiency and optimisation is an area I personally have been engaged in directly and quite extensively for the past year or so.
There are a number of initiatives that we took on board since August 2014. To name of few; smart sourcing whereby we have reduced our capex by nearly 30% and still there is scope to reduce further. We have shared with our contractors and suppliers a uniform rate card that we have negotiated based on bulk purchases and by planning ahead in procurement. We have done a lot of work with our engineers on optimised infrastructure designs; the use of low cost and quick deployment RDUs has proven extremely useful in our rollout. Outsourcing of O&M and smart fuel buying (directly from the source), effective logistics yet ensuring that we provide the best uptime in the industry – as acknowledged by the customer – these are only few of many initiatives we have taken on up so far. Here I give a lot of credit in doing so to our finance and procurement teams who have worked relentlessly on driving down the cost of the business while we continue to roll out and meet our targets.

Q: TowerXchange: How have you balanced the demands of standardisation and bulk purchasing savings with the need to customise each site to customer requirements and local conditions?

IGT CEO: We have more than six different power vendors on our vendor portfolio plus a further 10-15 tower suppliers who we use regularly. We have managed to standardise specifications. Our power team set standard specifications for power and hybrid system design, enabling us to scale to three to four tenants with minimal changes, adding battery banks and rectifier cabinets plus, in some cases, an extra standby generator.
From a compliance point of view, it is important to have a good portfolio of experienced vendors who know what we want. We need to be able to upgrade power systems to add an additional tenant within 10-15 days at the most. Our in-house power team has done a great job building up fit for purpose specifications, helping us to quickly adapt to accommodate a second or third tenant. Our basic specs are two tenant ready as we realised need to be able to move quick to meet operator expectations: most of our battery banks do not require supplementing for a second or, in some cases, third tenant.

Q: TowerXchange: Given that IGT is the only towerco to secure contracts from both Telenor and Ooredoo, you will be well placed to answer this: now that Ooredoo is commissioning sites with tower+power, are their requirements very similar to Telenor, or are there still significant differences in terms, for example, of wind load and energy requirements of their respective equipment?

IGT CEO: There is a slight difference between the requirements of the three operators we are engaged with at the moment. On the power side, every operator possesses their own power demand depending on their equipments’ specifications. We didn’t have to change tower or power system designs because we have catered for both cases during our initial design and set up phase of the project. Despite the fact that we’re managing a lot of co-locations on a monthly basis, we have encountered no issues in modifying and adding capacity. IGT has a proven power model that caters for both companies requirements, it is “plug and play” and can easily be modified to suit up to four tenants at this point in time.

Q: TowerXchange: Do you think Myanmar’s towercos must all provide tower+power, rather than just ‘steel and grass’, to be competitive going forward? And do you think there is appetite for towercos to subcontract energy to ESCOs?

IGT CEO: Absolutely. This has been our major strength – besides Apollo, we are the only towerco to provide both tower and power as an integrated offering and that is the biggest attraction to customers like Telenor, Ooredoo and MPT. As regards outsourcing of power to ESCO’s that is a distinct possibility and we are examining and assessing that as one of the options.
A lack of mature ESCOs was a problem a year ago, but not now – we see a lot of players in the local market who are qualified with the financial and technical capability to handle substantial volumes. We work with some on a capex model, and when the time is right we may work with them on an opex basis. They are working on understanding their own internal economics to suit Myanmar – they need a lean organisation, the right people, and they need to be in country long enough to analyse costs and offer a better deal on power. More companies now understand the cost of managing and handling power, so we’ll soon see something like an ESCO in this market.

Q: TowerXchange: Please summarize your vision for the future of the towerco business model and of IGT in Myanmar.

IGT CEO: We are living a telecom revolution in Myanmar, a revolution which is having a very positive impact on society. Mobile broadband will help people embrace change and advance.
We see ourselves as one of the major factors of that positive change. We have a CSR programme, and we train a lot of local people, people who previously had no experience of working in a multinational environment are now interacting with foreigners – we have 10-12 different nationalities in IGT; our local staff are learning from us, and we’re learning from them – it’s cultural exchange of ideas. This country is beautiful, the people are friendly, and this rollout offers the potential for many to advance their careers – we’re helping in a big way, responsibly investing in people. This gives us the ability to remain cost efficient – investing in local people pays back on a social, productivity and cost efficiency basis.
The fact is that towerco business is here to stay, not just in this part of the globe but all over, it just can not be disputed. In today’s world of falling tariffs and call rates and limited spectrum ability, especially in ASEAN countries, a shared telecom infrastructure is the only way for an operator to remain cost effective. The explosion in data traffic with increasingly higher penetration of smart phones, innovative consumer apps, enhanced by increased affordability is driving both coverage and capacity needs and therefore an ever-increasing demand for towers. In this context, the towerco business model not only makes the operators asset-light but also people-light and allows them to focus on their core competencies. Further, with introductions of newer radio technologies like LTE (and now even 5G trials are taking place), an existing and upgradable tower infrastructure provides the operators a unique ability to become nimble and yet remain cost effective in new service offerings.
I am proud that IGT are now the #1 towerco in Myanmar: with 1,500 sites and another 1,400 to come, Our vision is to retain our leadership and emerge as the predominant player in this industry, the player which provides the best value and the most efficient network uptime to all our customers. We have invested significantly in technology, people and processes and are focused on developing a local ecosystem to support our vision. We are constantly evaluating both organic and inorganic growth opportunities and continue to explore innovative solutions to cut down our costs, enhance productivity through deployment of innovative tools and technologies and continue to focus on building people skills.
We are strongly committed to the country and are the third largest foreign investors (in the telecom sector) in the country. We have initiated several CSR activities and are very active in local community engagement.

Next phase of Myanmar rollout must be about sharing and efficiency – IGT Chairman Arun Kapur
TowerXchange also spoke with IGT Chairman Arun Kapur, who suggested “sharing towers has begun in Myanmar. We’ve gotten good traction, particularly from Ooredoo and KSGM, and anticipate having co-locations on around 700 of the ~2,000 we’ll have in our portfolio by year end 2015, with a tenancy ratio around 1.3. Achieving those kind of tenancy ratios may be difficult on the phase one towers, where Ooredoo and Telenor built almost in parallel with a high degree of overlap. But because IGT’s allocation was part of phase two, we have less overlap, and have attracted huge interest from Ooredoo in co-locating, particularly on the rooftop sites they need for 3G.”
The other theme of our conversation with Arun was efficiency, particularly relating to the capital outlay per site. “All of Myanmar’s towercos will have to experiment with new structures to bring capex down and to bring loads down. The Asian tower industry started in India, where the first set of towers I built in 2005 delivered a 25% IRR from a single tenant, with lease rates close to US$2,000. By 2012 lease rates were down to US$500 in India, but it took towercos seven years to innovate and create the necessary capex and opex efficiencies – we must make the same improvements much more quickly in Myanmar.”
“Achieving such efficiencies calls for a strong partnership approach between MNOs and towercos,” continued Kapur. “MNOs can’t treat towercos like any other vendor; we’re investing 60%+ of the capex on their behalf! We’re connected via an umbilical chord, so if the MNO squeezes the towerco beyond a certain point they make it more difficult for us to raise capital, which harms them as much as us. We need a realistic, sustainable cost structure in Myanmar. Any towerco will fall by the wayside if they fail to recognise and embrace the drive toward efficiency by optimising staffing costs, site design, O&M and technology deployment, or who fails to leverage RMS to monitor uptime and SLAs. Like it or not, Myanmar will mimic more mature tower markets, and that means costs have got to come down.”
“While an ecosystem of local skills and competencies has been developed, we still can’t buy towers or generators locally – everything is still imported. Local distributors are still building their service capability but in the meantime they need to create a margin. We need smart sourcing and smart buying; vendor categorization and classification – this is nothing new, but it takes time to do it well.”
“This time last year, IGT had 70% expat staff, now we have 70% local staff,” continued Kapur. “We have outsourced selectively and fostered a large local ecosystem of contractors, encouraging our partners to invest in and build local teams. We have invested in a state-of-the-art tower operations centre (TOC) and in site technology which has enabled us to achieve the best uptime in the industry (recognised on several occasions by Telenor).”
IGT Chairman Arun Kapur felt that the innovations in power systems and business models would be the primary sources of efficiency. “Energy business model innovations will be crucial from a fundraising and capital structure point of view. MNOs started by outsourcing towers + power to towercos, and now we’re talking to several powercos who could buy out all our power assets, introducing liquidity and reducing the burden to raise further capital.”
“I’ve seen the capital cost per tower in Myanmar already come down by as much as 40%, over a third of which is still the power system. The power systems alone on the next 2,000 towers could cost US$50mn, so innovations in both power system technologies and business models will be critical,” concluded Kapur.