This blog is a brief overview of the issues which relate to telecom operators sharing a passive infrastructure. This term is generally applied to two operators bilaterally sharing such infrastructures as telecom towers with the aim of maximizing the amount of sites which is available to those operators to be able to effectively deploy their telecom equipment. It isn’t perfect however, and one of the main drawbacks which comes from bilateral sharing is the constraints placed on each operator due to both their individual strategies and roll out requirements of their networks as these objectives may well conflict with the requirements of the other operator in terms of both sharing and developing new sites.
Two or more operators can now pursue the solution of passive infrastructure sharing via a new joint venture entity which has the specific purpose of reducing the aforementioned conflicts and thus increasing efficiency. In a typical agreement, 2 operators or more will form these new, joint venture entities with the sole purpose of operating each operators tower assets; (herein after referred to as Tower-Group) Each of the operators sharing the infrastructure transfers their own assets to – who then leases back the tower space to the operators to allow them to install their active telecommunication equipment. Tower-Group is effectively a legal entity which is separate from the shareholder operators and generate revenues from the leasing of tower space to the third party operators. This is a model which is well suited to those operators who have established networks but are seeking to focus more on the wireless aspects of their business. One of the best sample structures of this model involves the demerger transferring of tower related business by each operator away from the rest of their telecommunication business to merge with others into their new Tower-Group operation.
There are significant benefits to businesses from using this passive infrastructure sharing model which include;
1) Each shareholder having the ability to streamline processes and thus focus on the development of the wireless side of their respective businesses
2) It reduces the operating costs due to the maintenance of site owned by Tower-Group coming from pooled resources
3)This model allows users to unlock real estate values of the leases which are held by the operators due to raising new revenues from the lease of tower space to the third party operators.
Whilst this sharing model is, by nature, more complex that a bilateral sharing model and requires operators to focus on the long term solution, its pros far outweigh its cons.
Typical Transaction Documents
The sharing deals through Tower-Group are typically structured with the use of the following agreements;
- Joint Venture/Shareholders Agreement – This agreement is made between the operators who form Tower-Group and include ownership and corporate matters which relate to this. This agreement can also include matters which relate to Tower-Group developing new sites
- Asset Transfer/De-merger Agreement – This agreement hives down tower assets from each of the operators for the transfer to Tower-Group and has to be approved by the High Court
- Sub-lease/Contractual Agreements- These are in place for the lease of the tower space to the shareholder operators and covers the agreement made between the shareholder operators and Tower-Group in relations to the commercial terms for the deployment of the operators’ active equipment at the Tower-Group sites. This agreement can also be executed as a modification of the Master Services Agreement below.
- Master Services Agreement – This agreement stands between Tower-Group and each of the operators which is utilizing the Tower-Group sites and covers the Tower-Group contracts where they agree to provide such deliverables as maintenance and operation for the passive infrastructure, site security, emergency maintenance and back up services in times of power outage. In return for these services, operators pay Tower-Group a fee for the deployment of their active telecommunication equipment at the relevant Tower-Group site.
In addition to those above, there are typically a variety of extra agreements which may be required depending on the specifics of a transaction. Josh and Mak International can also guide you regarding the key legal issues which must be adhered to for any shared infrastructure agreement to go ahead which include;
- Strict compliance with the regulatory regime
- The possibility of PTA approval depending on both the specifics and the nature of each transaction relating to each tower. An example of this is a sharing transaction based on the above model may require additional licensing in order for Tower-Group to operate the towers assets as an independent entity.
- As well as PTA approval passive infrastructure sharing transactions such as the model above could attract several additional regulatory approvals and/or further requirements depending on the transactions nature which can include approval from the State Bank of Pakistan if overseas owned operators are involved, full approval of the Competition Commission of Pakistan and/or certain requirements laid down by the Securities and Exchange Commission of Pakistan.
Due diligence in all aspects of the agreement is essential in the run up to undertaking passive infrastructure sharing transactions in order to ensure that all the regulatory and legal aspects relating to the portfolio of relevant tower assets which are being shared between the operators are met. Measures taken to ensure that due diligence has been taken typically include;
- Ensuring that all underlying land leases relating to the sites are executed correctly and are valid for a sufficient term to make it commercially viable and doesn’t contain any provisions which prohibit the sharing of the site
- Obtaining the consents of any third parties from the likes of landlords, creditors etc
- Ensuring the shared sites aren’t subject to an preferential rights which have been previously granted in favour of other operators and the verification of no objection certificates in terms of validity from municipal and regulatory authorities
Following these guidelines has ensured that many of the current infrastructure sharing agreements run pretty well and prove to be both successful and commercially viable for all concerned.