7 things to consider as a TowerCo

There have been a lot of tower deals in Australia and New Zealand recently and after reflection, I thought I’d share a few observations I’ve made over time that may not be immediately apparent. I’ve set out seven questions below, with my view on a generic answer (your specific situation might be different of course) that I hope will help people understand the industry right now.

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Q: How long a timeframe should we be thinking over?

A: It’s decades, not months.

We talked about this when explaining the things to think about ahead of a tower asset transaction. Towercos and infrastructure businesses have a different timeline to services and product-based businesses. A telco operates on a shorter cycle. Their customer contracts are shorter typically. The investment horizon for a telco for active equipment is shorter than the investment horizon for a towerco. This drives constraints in the business and therefore should drive the behaviour of the towerco. So, when making decisions in a towerco or, indeed, when you are advising them or selling to them, remember that the appropriate timeline to consider is typically decades, not months.

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Q: Should I put in a new digital system as I set up my towerco?

A: Discipline beats digital.

Any time a new technology (digital twin anyone?) comes to market, there is a hype cycle that is deceptive (see Peter Diamandis’ 6 d’s). This is natural. It doesn’t mean that either the technology is useful or the opposite. It is a part of the natural evolution of a new product. So, when you are thinking about towercos, remember that discipline beats digital. What I mean here is that digital is useless without discipline. This is one of the most important points to recognise in operations and customer management. Discipline beats digital. When you put time, investment and opportunity cost into setting up a new digital tool, be it a twin, a workflow management system, an asset management system, a customer relationship management system, you must do it with a foundation of discipline. Discipline comes from culture in your organisation and is supported by processes and people, in the right roles with enough time to do the work. Discipline isn’t something you can implement at the same time as?a new system (in my view). Discipline is created through leadership, example and helped by processes that support accountability. I’d argue that you can run your business better with discipline and a spreadsheet than with the best workflow management software and no discipline. The same goes for digital twins or asset management systems – i.e., discipline precedes success and a lack of discipline precedes failure. Of course, you will need to digitise your information, but it must be done on a foundation of discipline.

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Q: I have customers and team members recommending we get into services. What should I do?

A: Lease-up beats services

Lease-up is another term for recurring lease-based revenue. Think of a new tenant or existing tenant adding equipment and therefore rent to the site. This revenue is better than services-based revenue. Does that sound obvious? Hopefully. But it also has a number of consequences. Incremental profit from services is probably around 10% (let’s say). And incremental profit from additional leasing revenue is more like 60-80% (these numbers can be argued but are directionally accurate). I’m guessing you aren’t that surprised by the difference there. But remember that in a towerco it’s rare for all costs associated with services to be tracked accurately to make sure that the services are profitable in themselves and run as efficiently as possible. What is often not fully understood is the impact on the core business of the services. It can be positive (i.e., removes hassle from the customer, builds trust and maybe increases lease up) or it can be negative (creates hidden cost, causes distraction for executives and customer relationship friction). If you have a choice, any new tenancy of $20k per annum for 20 years (NPV of $200k let’s say roughly) beats a $2m services sale (NPV of $200k). I’m being approximate here with numbers, but the principle is the point. It’s not worth getting distracted on services until you are confident that you have your rental business well run.

Q: Should I automate my customer interaction and fulfilment process?

A: In person beats online.

When selling something that sometimes has competition, is worth $200k NPV and for the most part requires tailoring (due to heights available, structural capacity available, adjustments to equipment installed, compound space, power available, etc.) I think a general principle that applies is that a discussion is more effective than an automated sales process (this also relates to the number of customers that you have - some comments on this below). So, an initial step might be to get information from a customer through a form (online or email) but there is some in person interaction required to refine the solution. Investing in an online system to automate the customer’s applications may be helpful in the long run but the immediate need is to help the customer. And doing this via a conversation is likely to be more effective than trying to do it through, for example, a digital twin, especially if you are in an early stage towerco, because by the fact of your creation, you are changing your customers’ rollout processes (because they now need to interact with you). Doing this with lots of communication beats your customer interacting with a website (usually).

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Q: How fast is fast enough for my colocation process?

A: Reliable beats rapid.

One of the principles of sales is to understand your customers’ buying process. So how do your customers buy? Do they sit at home on the sofa on an iPhone and want a one click experience like Amazon offers? Or do they typically sit at a computer with many windows open and buy through this? Or do they have a process that has many milestones, some including approval and input from others that takes a few months? What works for them? When you understand how they like to buy, then you can consider your sales process. Maybe you should offer a one click purchasing method, but maybe that is pointless in the context of how the customer buys (and wants to buy) when they are finding solutions. One of the most important elements of network rollout for telcos is consistency in forecasts. All else being equal, a consistent four-week turnaround beats 4 days, then 5 weeks, then 2 months, then 10 days. This is because the towerco turnaround time is but one input into the overall network deployment process. Working towards being reliable beats trying to do things in 24 hours and failing.

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Q: When I am making pricing decisions, how do I approach discounting to attract customers?

A: Consistency beats discounts.

Towercos are portfolio-based businesses. That means that whilst there are many pricing models, an underlying element of the relationship between a towerco and its customers is that the towerco offers its portfolio to the customer. Whilst they often purchase on an individual site basis, they do this with the knowledge that there are other sites that they are typically on that have prices that are already contracted. And the towerco also has other customers in the same situation. So, some pricing principles help.

-?????????Don’t offer a price to a customer that you wouldn’t offer to another customer (or would be uncomfortable if the other customer found out about it). People move around in the industry so whilst ideally pricing will not leak, it might. This is separate to any ‘best price’ contractual commitments you may have.

-?????????Remember there is a base cost for capacity in any location. This can be calculated from the bottom up and you should be doing this for your portfolio. Pricing in reference to this is helpful because it helps you and the customer to understand the relative cost of another solution (e.g., the customer builds their own site, or installs at a rooftop site, etc.). Remember to include all costs including ground rent, maintenance, etc.

-?????????Like in any situation, pricing sets expectations. If you give a discount today, what will you do next time? How will you manage that conversation?

-?????????Being consistent in your pricing interactions with a customer and across customers is something that will help you and the customers over time, remembering this is a long-term relationship and business.

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Q: How should I think about relating to my customer base?

A: You don’t have a billion customers.

Apple has roughly a billion customers. So, they need to relate to those customers in a way that works for them, at scale. If you are a towerco, you probably already know all your customers. I recognise there are different roles in the buying process (e.g., a person in a telco that holds the rental budget for your towers, deployment managers in the telco that approve the selection of sites, site acquisition consultants that recommend/select sites for installation, engineers that assess capacity and feed into cost forecasts, etc.). But you don’t have a billion customers. You could probably get all your customers into a room and have a party with them (at least for 80% of your revenue). Maybe you should! But remember that when you are creating your business – this is one of the underpinning principles of what I’ve said above. It affects the customer buying process, the reason why in person beats online and the pricing principles. In practice you probably have a handful of budget owners that are your primary customers. Look after them. Talk to them about their business. And of course, design your business to be helpful to them.

I would love to hear from you, so feel free to send me a message on LinkedIn, or comment below with what you think, especially if you see things differently. Thanks.