The great telco tower sell-off

You’ve probably noticed the great tower sell-off trend that’s underway (see this article by Robert Clark as an example). Actually, I should call it the sell-off / lease-back trend because carriers are selling their towers, but leasing back space on the towers for their antennae, radio units, etc.

Let’s look at this trend through the lens of two of my favourite OSS books (that mostly have little to do with OSS – not directly at least):

  • Rich Dad, Poor Dad by Robert Kiyosaki, and
  • The Idea Factory by Jon Gertner

The telcos are getting some fantastic numbers for the sale (or partial sale) of their towers, as Robert’s article identifies. Those are some seriously big numbers going back into the telcos for reinvestment (assumedly).

Let’s look at this through the lens of Rich Dad first (quotes below sourced from here).

The number one rule [Rich Dad] taught me was: “You must learn the difference between an asset and a liability—and buy assets.”

The simple definition of an asset is something that puts money in your pocket.

The simple definition of a liability is something that takes money out of your pocket.

Towers, whilst requiring maintenance, would still seem to be an asset by this definition. They are often leased out to other telcos as well as aiding the delivery of services by the owning telco, thus putting money into their pockets. However, once they become leased, they become a liability, requiring money to be paid to the asset owner.

Now I’m clearly more of an Engineer than an Accountant, but it seems fairly clear that tower sales -> lease-back is a selling of assets, acquisition of liabilities, thus contradicting Rich Dad’s number one rule. But that’s okay if the sale of one asset (eg towers or data centres) allows for the purchase (or creation) of other more valuable assets.

[Just an aside here, but I also assume the sale / lease-back models factor in attractive future leasing prices for the sellers for some period of time such as 7-10 years. But I also wonder whether the lease-back models might become a little more extortionate after the initial contract period. It’s not like the telco can easily shift all their infrastructure off the now leased towers, so they’re somewhat trapped I would’ve thought…. But I have no actual insights into what these contracts look like, so it’s merely conjecture here].

Now let’s take a look through the lens of “The Idea Factory” next. This brilliant book tells the story about how Bell Labs (what was Bell, then AT&T’s research and development arm, now part of Nokia) played a crucial role in developing many of the primary innovations (transistors, lasers plus optical fibres, satellites, microwave, OSS, Claude Shannon’s Information Theory, Unix, various programming languages, solar cells and much more) we rely on today across telco and almost every other industry. These advances also paved the way for the rise of the Silicon Valley innovation engine of today.

Historically, this primary R&D gave telcos the opportunity to create valuable assets. However, most telcos divested their R&D arms years ago. They’ve also delegated most engineering and innovation to equipment / software vendors and via outsourcing agencies. I’d argue that most telcos don’t have the critical mass of engineering that allow them to create many assets anymore. They mostly only have the option of buying assets now. But we’ll come back to this a little later.

The cash raised from the sale of towers will undoubtedly be re-invested across various initiatives. Perhaps network extensions (eg 5G roll-outs), more towers (eg small-cell sites), or even OSS/BSS uplift (to cope with next-generation networks and services), amongst other things. [BTW. I’m hoping the funds are for re-investment, not shareholder dividends and the like 🙂 ]

Wearing my OSS-coloured glasses (as usual), I’d like to look at the OSS create / buy decision amongst the re-investment. But more specifically, whether OSS investment can be turned into a new and valuable asset.

In most cases, OSS are seen as a cost centre. Therefore a liability. They take money out of a carrier’s pockets. Naturally, I’ll always argue that OSS can be a revenue-generator (as you can see in more depth in this article):

But in this case, what is the asset? Is it the network? The services that the network carries? The OSS/BSS that brings the two together? Is it any one of these things that puts money in the pockets of carriers or all three working cohesively? I’d love to hear a CFO’s perspective here  😉

However, the thought I’d actually like to leave you with out of today’s article is how carriers can actually create OSS that are definitively assets.

I’d like to show three examples:

The first is to create an OSS that enterprise clients are willing to pay money for. That is, an OSSaaS (OSS as a Service), where a carrier sells OSS-style services to enterprise clients to help run the clients’ own private networks.

The second is to create an OSS for your own purposes that you also sell to other carriers, like Rakuten is currently doing. [Note that Rakuten is largely doing this with in-house, rather than outsourced, expertise. It is also buying up companies like InnoEye and Robin.io to bring other vital IP / engineering of their solution in-house.]

The third is the NaaS (Network as a Service) model, where the OSS/BSS is responsible for putting an API wrapper around the OSS and network (and possibly other services) to offer directly to external clients for consumption (and usually for internal consumption as well). 

However, all of these models require some serious engineering. They require an investment of effort to create an asset. Do modern carriers still have the appetite to create assets like these?

Wayne Dyer coined the phrase, “It’s never crowded along the extra mile.” Rakuten is one of the few that is walking the extra mile with their OSS (and network), in an attempt to turn it into a true asset – one that directly puts money in their pocket. They’re investing heavily to make it so. How valuable will this asset become? Time will tell.

I’d love to hear your thoughts on this. For example, are there other OSS asset models you can think of that I’ve overlooked?

Hat tips to James and Bert for seeds of thought that inspired this article. More articles to follow on from a brilliant video of Bert’s in future  😉

 

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