World's Infrastructure Operator Paves Way for Telecommunication Service Development
In a candid chat with Kommersant, Alexander Sobolev, the big boss of the "New Towers" Group, shares insights on how infrastructure and telecom industries intermingle, and the secrets behind the tower market boom in Russia.
- From "MegaFon" to infrastructure… How did it all happen?
Sobolev, who joined "MegaFon" back in 2009, rose through the ranks to the board of directors. After a decade of service, he was drawn into spinning off the tower business in 2015. This strategic project resulted in the formation of the First Tower Company (PBC), leading to a deal in 2021 where he, along with the "New Towers" Group, took charge of this projected company.
- Russia vs Developed Countries: A Different Ball Game
When it comes to infrastructure and telecom markets, Russia presents a more diverse and dynamic landscape compared to developed nations. According to Sobolev, the Russian market is full of interesting twists and turns, unlike the less action-packed and predictable landscapes in developed countries.
- Market Consolidation: Merging Powerhouses
The Russian tower market has been undergoing consolidation since 2021, leading to significant changes. Previously, several independent small players operated in the market, forming large infrastructure companies by 2021. Meanwhile, telecom operators also spun off their infrastructure portfolios, giving rise to several deals where these portfolios were bought by independent players.
Historically, telecom operators developed independently, often resulting in excess infrastructure and pole duplications. With market consolidation and the emergence of these large tower portfolios, almost all antenna-mast structures (AMS) belong to infrastructure operators and are leased to the "big four" operators.
- Tower Companies: Boosting Efficiency and Quality
Tower companies aim to increase Tenancy Ratio (TR), the number of tenants per tower, by focusing on placing equipment on existing poles rather than building new ones. This approach reduces excess infrastructure and boosts efficiency, benefiting both infrastructure and telecom operators, as well as the industry as a whole.
Despite having a low TR in regions and rural areas, companies like "New Towers" boast impressive TRs in cities, which can reach 2.5-3. The goal is to increase the TR of the entire portfolio by another 0.5 points over the next few years.
- Divided Pie: Market Share
The top tower companies in Russia, including "New Towers," account for approximately one-third of the entire AMS tower infrastructure in the country. The remaining portion is shared among small infrastructure operators, with rooftop placements forming another significant part of the market.
- Rooftops vs Towers: The Clear Choice
Rooftop placements have distinct limitations, involving complex approval processes, unpredictable monthly payments, and the need for separate permit issuance for access, which often leads to position moves and degraded quality of service for subscribers.
In contrast, tower placements offer long-term commercial contracts with transparent terms, the ability to install equipment at any coordinate and height, and the elimination of upfront construction costs for operators.
- New Horizons: Technology Solutions and Expansion
Infrastructure operators are not just about concrete and metal; they're the backbone supporting the development of telecom services in the country. Today, tower companies like "New Towers" are focusing on technological solutions for telecom operators, new business areas, and leasing optical and relay lines to their towers. The ultimate goal is to create a comprehensive product that offers telecom operators a ready-to-use point, complete with tower, base station, antennas, electrical installation, and last-mile connectivity.
- Booming Market: Build, Build, Build!
Last year, "New Towers" set a new record for construction, building around 2,000 new towers nationwide and signing around 3,000 new placement contracts with "big four" operators. Today, the company boasts over 35,000 towers in its portfolio.
The tower market is currently valued at 70-80 billion rubles per year, with operator financial models resembling leasing or development models, where most created profit is used to finance construction and loan repayment.
- High Key Rate: A Challenging Landscape
With a key rate of 21%, the cost of money has significantly increased, putting pressure on the tower market. To maintain their leadership, tower companies, including "New Towers," need to keep the level of construction at more than 35% of all new construction projects.
- The Future: Mergers, Acquisitions, and 5G
"New Towers" is looking to expand through mergers and acquisitions (M&A). Despite the current high key rate, cash-rich tower companies like "New Towers" can help manage the 5G peak by taking the main investments onto their balance sheet.
5G technology will require significant resources, potentially doubling existing infrastructure, and "New Towers" is in a prime position to capitalize on this market demand. Rooftop positions will become less viable, and tower placements will grow in importance.
With the golden 3600 MHz range currently unavailable to mobile operators, significant investment in new infrastructure will be required. However, the implementation process will be gradual, starting with major cities.
- Public Offering: Achieving Transparency
In response to recent bond issuances, which have seen retail investors account for a significant portion of investments, "New Towers" plans to enter the private investor market to improve transparency and prepare for a potential future Initial Public Offering (IPO).
- Sanctions: Locally Grown Products
As a fully localized company, with all revenue generated within Russia, "New Towers" is unaffected by US sanctions against Kismet Capital Group (KCG) structures. The company is open to partnerships with domestic base station producers to capitalize on large orders from telecom operators for Russian base stations.
- Satellite Constellation: A Complementary Solution
"New Towers" is actively exploring partnerships with Low Earth Orbit (LEO) satellite constellation providers like "Buro-1440". For transportation channels in remote territories, satellites could be an effective and complementary solution for mobile communication.
- Regulatory Hurdles: Equal Access for All
The placement of tower and other communication structures is often subject to various local regulations and limitations, leading to delays and reduced construction volumes in large cities. Standardizing permits for the placement of communication structures at the federal level would help synchronize preferences for infrastructure operators with mobile operators and ensure non-discriminatory access to municipal or state property.
- Quality Connectivity: A Russian Miracle
Given Russia's vast geography and one of the lowest ARPUs in the world, achieving 25 Mbps nationwide and up to 50 Mbps in major cities is indeed remarkable, deeming the current state of the Russian telecom industry a "domestic miracle."
Alexander Andreyevich Sobolev
Personal Profile
- Born on June 28, 1987, in the Moscow region.
- Graduated from the Faculty of Computational Mathematics and Cybernetics of Moscow State University in 2009.
- Worked at international consulting firm The Boston Consulting Group from 2009 to 2012, as well as at Russian Strategy Partners Group.
- Joined "Megafon" in 2012, where he oversaw strategic development, including infrastructure and new businesses, expanding and strengthening partnerships with operators, vendors, and industry associations, until 2023.
- Since 2023, CEO of "New Towers" group of companies.
"New Towers" Group of Companies
Company Profile
- "New Towers" Group was established in 2021 following the consolidation of "Megafon"'s First Tower Company (AO PBC), "Vertical", and "Russian Towers" by Kismet Capital Group (KCG) structures of Ivan Tavrin.
- The company's portfolio includes 35,000 towers across Russia. Financial results are not disclosed, but according to CEO Alexander Sobolev, revenue in 2024 was 29 billion rubles. In December 2023, the U.S. imposed sanctions against KCG, and "New Towers" was also included in the sanctions list.
Interview by Alexei Zhabin
- In the ever-evolving landscape of business and technology, Alexander Sobolev, the CEO of "New Towers" Group, is steering the company towards strategic investments in infrastructure and telecom sectors, leveraging their tower portfolio to boost efficiency and quality.
- With the goal of creating a comprehensive product that offers telecom operators a ready-to-use point, "New Towers" is also focusing on technological solutions, new business areas, and leasing optical and relay lines to their towers, transforming from mere concrete and metal providers into the backbone supporting the development of telecom services in the country.
