Tower billing complexity - an opportunity in disguise
Growing consumer demand for data and faster connectivity means MNOs scramble to add new modern equipment to towers. Newer technologies and the push for network access to the most remote parts of the world are creating a non-stop demand for telecom infrastructure. However, infrastructure providers need to ensure that this demand is underpinned by a strong and robust commercial framework to sustain growth and profitability.
Tower billing today is complex and multi-faceted. It relies on many moving factors and complicated commercial agreements to generate customer invoices that can still lead to disputes or conflict. One of the common scenarios is the fact that MNOs add equipment to towers but miss out on notifying the infrastructure hosts. Even when MNO equipment is accurately captured, lengthy modifications to legacy contracts are required to secure lost revenue. On the other hand, towercos face the risk of losing tenants if they ask for unlicensed equipment to be removed from their towers.
Disputes are one side of the coin. Internal reconciliation issues compromise financial reporting and compliance. Wasted man-hours soon add up. In this post, we attempt to identify all possible billing complexities towercos face - present and future - across commercial, business, and towercos’ internal areas. These complexities are opportunities for towercos to streamline finance, operations, and organization.
The commercial nature of the towerco business is anything but simple. A plethora of factors are at play. They include pricing compulsions, non-standard billing packages, unending custom discounts, difficult pass-through costs, and multi-currency scenarios.
Tower companies deploy many revenue-generating assets based on a wide range of parameters - equipment, locations, and power requirements. Space on these tower or pole assets is at a premium and subject to a number of pricing complexities due to the following variables:
Tower structure and equipment
- Tower structure: Based on the specific type of tower structure - ground-based towers, rooftop towers, special towers - towercos and MNOs both require flexibility in tower pricing based on the infrastructure deployed.
- Equipment type: Tower companies use many types of equipment with different capacities and specifications in their infrastructure. Moreover, their customers also deploy a wide range of constantly evolving technologies, and depending on the equipment specification, rental pricing varies.
- Equipment height: The higher the equipment on a tower, the higher the revenue generated by it. Towercos need the option to apply variable pricing structures depending on the height at which their customer’s equipment is installed.
Multiple locations and site-sharing
- Multiple locations: There are natural differences between tenancy billing for rural and urban sites. Urban sites are demand hotspots. Rural sites are a necessity, primarily driven by the government's inclusion agenda across geographies. Pricing approaches do not scale either within locations or across. Customers also demand customized sites specifically for in-building and rural areas.
- Site-sharing or colocated sites: In markets with higher rates of site-sharing or collocated sites, tower leasing rates vary based on the number of tenants or customers previously occupying the site. The higher the number of tenants, the more the need to offer utilization discounts. Thus, discounting itself becomes dynamic.
Don’t we all like to pay for what we use, rather than getting billed for common charges across many consumers?
Ditto for towercos’ customers.
Active equipment on a site consumes sustained energy round the clock. Energy consumption also varies according to the radio frequency of the active equipment. MNOs expect to be billed depending on the equipment used, and the corresponding power consumption. However, some towerco contracts include flat rates for energy consumption in some markets. Whether it is a flat rate or a consumption-based cost, towercos need a data-based approach to optimize their revenue.
Standard towerco agreements with their customers include various types of billing models to charge for the installed equipment, such as based on the number of the active assets offered as part of a billing package, on the area offered on the tower to be occupied by the tenant’s active equipment, or on the total weight of the active assets.
Too many billing scenarios?
Typical scenarios that come into play when towercos generate bills are as under:
- Additional equipment and extra space: Standard billing packages define the number and area specifications of the equipment. Billing needs to cater to any additional equipment requirements, if any.
- Aperture size: Some towerco agreements also include billing models that consider the aperture size of the active assets for revenue. If the customer installs equipment that exceeds the maximum aperture on the tower, billing should reflect the additional charges.
- Weight, wind, and ice loads: The weight of the equipment installed on the towers play a role in determining at what price the MNOs are billed. Wind and ice loads, besides being dependent on the location of the tower site, test the structural integrity of the tower, and to ensure that the tower holds, there is only a limited number of active assets that can be installed on it. Towercos need to then bill their MNO customers according to the structural capacity of their towers.
Towerco agreements sometimes use a point-based system for billing their customers. Points are assigned to each individual or combination of equipment and the contract defines pricing levels for a range of points. The billing mechanism adds up the points allocated to each asset belonging to the customer and charges the base amount as long as the sum of points is less than or equal to the threshold value.
Towerco contracts frequently include operating expenses that are typically passed through to customers. These costs need to be data-driven and must be passed through to the right customer.
Pass-through ground lease rental costs
Tower companies typically bear the cost of ground lease (landlord rent) rents themselves, but some regions or markets have ground lease rents beyond the profitable range of the towerco. In such cases, the amount beyond a pre-agreed threshold value for the ground lease rental is passed through to the site tenants.
Pass-through energy costs
Power accounts for one-third of the profit and loss structure of towercos. Any miss here in passing on costs to customers can hurt margins. Apart from electrical grid power, tower companies also use diesel generators, batteries, and a variety of power management equipment to keep the telecom site operational, especially in markets with poor grid connectivity. Towercos thus pass through the energy costs to the site tenants based on their energy consumption.
Pass-through energy cost can turn into a contentious issue between towercos and mobile operators. Increasingly, operators are pushing for fixed power and fuel cost arrangements, rather than the traditional pass-through, to preempt pilferage and disputes. This also works in favor of the tower company because it benefits directly from operational improvements. A new factor on this topic is energy-management companies that take over power supply responsibilities at a predictable cost per kilowatt-hour (kWh).
Who doesn’t love a discount?
Everyone except the towerco commercial team, of course.
The tower industry has standard discounts. These include but are not restricted to the total number of sites or tenancies of the customer, or the total value of the tenancies. Discounts also come into play to attract new customers and retain existing ones. Since the towerco business is predominantly a strategic accounts business, the discount is also an important factor to grow the value of strategic accounts. The billing process must cater to these realities.
MNO's billing requirements range from simple to complex.
- Multiple currencies: Towercos have global businesses. Customers are in multiple countries with different currencies and tax regimes. Managing currency and multiple tax structures in the billing process adds complexity. Systems have to generate invoices in the native currencies of those markets. Multiple currencies could also be in use in different regions within a single market.
- Separate and consolidated bills: In addition to separate bills for infrastructure and pass-through costs across many time-frames - monthly, quarterly, yearly - MNOs also request consolidated bills capturing the above cost heads.
- Multiple invoice templates: Some markets and contracts require the generation of separate invoices for a customer, with different invoices for existing sites, new sites, anchor sites, colocation sites, and so on. A single standard invoicing facility may not be sufficient to address this complexity.
Ever-changing business scenario
In the last few years, MNOs have started spinning off their tower assets from their telecom businesses into new companies. It spawned a new industry altogether within a span of a few years. More mobile operators are adopting this model in search of growth, margins, and capital efficiency. This isn’t surprising since towers contribute to the bulk of the investment costs. Renting towers not only helps operators cut costs but also increases their agility to respond to market demand. Also, the evolving internet, 5G rollouts, improved network technologies, and new business models mean that tower companies need to continuously evolve their approach to billing.
Technological advancements including 5G
The towerco industry is a hotbed for rapid technological innovation, delivering increasing value at ever-reducing costs.
The advent of C-RAN (Cloud-RAN) required towercos to pass on efficiency benefits to their MNO customers, which helped MNOs save costs. Commercialization of C-RAN happened at an astonishing speed. MNOs are now demanding their supplier towercos to upgrade to C-RAN.
When outlining service agreements with telecom operators, tower companies often fail to adequately charge for new technologies, as happened during the 3G and 4G rollouts. This is a missed opportunity because they lose out on the share in incremental revenues. 5G will present the same situation again.
5G is the fifth generation of wireless technology and it promises faster speeds, lower latency, and more reliable connections. However, 5G also comes with some challenges for tower companies. 5G requires new types of antennas and equipment, which will increase costs. 5G also requires higher bandwidth and power than previous generations of wireless technology, which means that tower companies will need to invest in more infrastructure to support 5G networks. This investment will inevitably lead to higher costs, which will be passed on to consumers in the form of higher monthly bills. Additionally, tower companies need reliable real-time visibility into what’s already installed on their structures, to prepare for 5G upgrades.
Impact of new equipment
Retrofitting older towers for new equipment will require load analysis in terms of weight, wind, and ice loads, thus warranting capital reinvestment costs.
How will billing keep up in such situations?
ESG (Environmental, Social, and Governance)
Towercos are making increased efforts to move away from polluting energy sources like diesel generators. While public and regulatory pressure is playing their part, improving economics is also a factor (especially solar power). In 2020, TowerXchange published a story on Helios Towers' bond issuance (for Africa) highlighting it as a success story in ESG Tower Financing. It highlighted more reasons beyond clean and economical fuel - a social license to operate. How ESG initiatives will determine billing changes for operators remains to be seen, but it is important to keep in mind that ESG would drive CAPEX for towercos instead of the current OPEX model related to power and fuel.
Consolidation and capital markets
Big tower companies are driving consolidation in the tower market by acquiring smaller companies. Big PE players are also doing their bit to enable this consolidation and concentration of market share. Amalgamation by acquisition and mergers does complicate the existing billing process. In addition to reconciliation issues, all commercial factors - pricing, currency, pass-through costs - get disturbed.
Internal processes and tools
Many internal factors within a towerco organization also add uncertainty to billing matters.
Building a single view by integrating data flowing in from existing varied systems (ERP, CRM) is one challenge. Compliance (internal and statutory) is another aspect that plays upon billing.
Towercos are working hard to reduce the cost structure of sites. New site designs integrate lower-power active equipment with low-cost structures. Under-utilized existing sites are improved to deliver more.
The pursuit of incremental revenue opportunities by towercos will also have a change management impact on billing. These opportunities could be related to radio network planning for maximizing tenancies, edge computing with active network sharing, and asset utilization beyond MNOs.
Can billing be simplified and further optimized?
5G’s impact on towercos’ commerce is still unfolding, given some markets have already moved to 5G.
In light of the above, towercos would do well to take a simple and flexible (blended) approach to billing. Automating error-prone standard manual billing tasks coupled with a flexible approach to evolving billing realities could keep complexity manageable. Billing automation will drive much-needed working capital efficiency. Moreover, having centralized tools that can capture the inputs and levers of the billing requirements in a single place will provide further avenues to optimize billing and drive profitability. A flexible billing approach will ensure that towercos and their systems are always adaptive to new emerging business realities.