At Aberdeen, we apply a consistent framework to identify the most compelling infrastructure investments. Today, one standout area that ticks every box is telecoms (telco) towers.

The key questions to ask

When it comes to assessing the investment viability of different infrastructure assets, our framework of analysis is always the same – built on six key questions:

Telecom towers – ticking all the boxes

Infrastructure assets tend to have large initial fixed outlays, but low recurring costs, and crucially, the ability to grow revenue at little incremental cost. An infrastructure category that stands out is telco towers. As well as answering all the above questions affirmatively, this is a sector benefits from strong structural demand growth.

This is apparent in the ubiquity of mobile devices globally and the tremendous growth in data usage. A typical person’s data usage has climbed from five gigabytes (gb) of data per month (p/m) in 2018 to 20gb p/m in 2023, with a forecast rise to 50gb p/m by 2028 – a tenfold rise over the decade[1].

Adding more tenants is the key…

The real investment appeal of telco towers is connected to their return profile as they add new telco tenants to the same tower site (known as ‘colocation’). As you can see from the figure below, investment returns improve significantly when additional telco companies join a tower. This is because the marginal costs for tower operators are minimal (telcos largely use their own equipment), but the positive revenue impact is significant.

…and tenancy rates are growing

The good news for tower companies is that tenancy rates are growing. The primary driver is telcos increasingly choosing to partner with independent tower companies rather than building and owning their own tower infrastructure. 

Indeed, rather than investing capital in their own tower infrastructure, many telcos have been selling their existing towers. Independent tower companies, for their part, have been able to improve their value proposition by servicing multiple telcos.

As shown below, while the trend of telcos transitioning to independent tower providers is most pronounced in North America and Europe, it’s very much a global trend.

Where we are seeing opportunities

We’re seeing good opportunities in Asia and Africa.  As shown above, the transition to independent tower companies has the longest way to go in these two regions.

In Africa, we’re seeing rapid data consumption, driven by population growth, increased mobile phone usage, more affordable data plans, and expanding internet infrastructure. While the number of internet users has doubled in the last five years [2] , there’s still ample room for growth. For example, internet penetration in Nigeria is just 46% compared with the OECD average of 87% [3].

Two companies we favour in this space are Helios Towers and IHS Towers. Helios (share price +28% year-to-date) is a London-listed company that owns and operates over 14,000 telco tower sites in nine countries across Africa and the Middle East [4].   Founded in 2001 in Nigeria, IHS (share price +95% year-to-date) is a New York-listed company that owns and operates over 39,000 tower sites across Africa and Latin America [5].

…….
To find out more about Aberdeen Investments’ infrastructure investing capabilities please visit here.