By Anonymous September 22, 2014 - 9:02pm

How much is Indonesian billionaire Peter Sondakh willing to pay to get back some of the telecom towers he sold nearly a decade ago?

That is the question as the growing tower business, which is booming due to the explosive growth in data with the number of smartphone users soaring, is a lucrative side of the business with telecom companies eager to expand their network coverage.

Indonesia, the most populous country in South-East Asia with 240 million people, has mobile penetration rates of 122% and 278 million mobile users.

As it is, Indonesia is already the fourth largest mobile market in the world.

Globally, tower companies are emerging like never before as telecom companies sell or spin off their tower business.

A report said towers make up the bulk of their capital investments and, in emerging markets, account for most of their operating costs. As a result, mobile operators are opting to share towers - renting them from other telcos or tower companies instead of making ongoing financial investments in infrastructure.

“Tower businesses are promising because they have a large profit margin that can reach above 40%,’’ adds another report.

Perhaps it is the steady cashflow from the tower business that has lured him back into the business.

Sondakh is Indonesia’s eighth richest man with a net worth of US$2.5bil as at March last year according to Forbes. He is founder and owner of the Rajawali Group, an industrial conglomerate, which operates in telecommunication, hotel, cement, consumer goods, retail, department store, and transportation businesses in Indonesia.

His Rajawali group via Nusantara Infrastructure has been wanting to expand the telecoms tower business.

Nusantara entered the tower business not long ago when it bought 39.55% equity stake in Tara Cell Intrabuana via Telekom Infrastructure for 598 billion rupiah.

That acquisition marked Rajawali’s return to the telecommunication tower business after selling its stake in PT Excelcomindo to Telekom Malaysia Bhd.

It was in 2005 that Sondakh sold an initial chunk of his stake or 27.3% in XL when it was at its historical high of 27 US cents a share to TM International Bhd, a unit of Telekom for US$314mil. TM International was hived off and renamed Axiata, and PT Excelcomindo is now known as XL Axiata.

“Had he kept the tower business, he would be in an envious position now,’’ says an expert.

But Sandokh in an interview in 2009 said “never get emotional with business; if you think you’ve maximised your profit, it’s time to get out ... the most difficult thing in life is selling, the easiest thing is buying.”

Later he sold his remaining 16% stake in Excelcomindo to UAE’s Etisalat, pocketing US$438mil.

“After pocketing all that money, he wants to return to the telecoms business. Perhaps it is the promising profits in the tower business that got him excited again,’’ says the industry experts.

But things are not going to as easy as there are already several suitors eyeing such assets.

3,000 towers

Up for grabs are 3,000 towers that XL Axiata has put up for sale since July.

XL Axiata is 66.5% owned by Axiata Bhd, and the sale of the towers is to raise cash to pare down debts.

XL Axiata president director Hasnul Suhaimi earlier said the company would sell a number of its towers to pay US$865mil debt used to acquire PT Axis Telekom Indonesia in March.

XL Axiata, previously the third-largest phone operator in Indonesia, is now ranked second with 68.5 million customers as of the first quarter of this year, after acquiring Axis.

Instead of opting for a floatation of the tower business, XL has called for bids to sell a portion of the towers, which is likely to raise more than US$500mil.

“Owners of telco towers in Indonesia are increasingly selling or spinning off these assets to cut capital spending and maintenance costs.

“Each tower is said to be worth about 1.2 billion rupiah ($103,000) on average,’’ says a report.

This is also the second time XL is calling a tender for the sale of its towers, the first was to sell 7,000 towers in 2009. That exercise was cancelled.

The other suitors keen on the towers are said to be Tower Bersama, PT Solusi Tunas Pratama Tbk, Protelindo, a unit of PT Sarana Menara Nusantara, and Retower, a unit of PT Centratama Telekomunikasi Indonesia, Tunas Pratama, Inti Bangun Sejahtera, and Sondakh’s interest is via Komet Infrastructure Nusantara, a unit of Nusantara Infrastructure.

There are 60,000 towers in Indonesia, of which 60% are said to be owned by telecom companies and the rest by independent companies.

Indonesia is the second largest tower market in Asia after India and both Tower Bersama and Protelindo have over 9,000 towers each in the country.

“Since there are several suitors, the factor that will distinguish one from the other is the pricing and the lease back arrangements. Sondakh would have to put up a high bid if he wants to get the business,’’ says an expert.

Earlier, Ramdani Basri, the president director of Nusantara, was reported to have said that the company has been seeking for a strategic opportunity to expand into the telecommunications tower businesses.

But there is more than meets the eye as some say Sondakh and parties in XL are friendly, and that gives an edge over others.

Still, the process has to be transparent and all parties given a fair chance, says an expert.

The e.co factor
Which way the fight will go will remain to be seen, but to complicate matters, there is talk that Axiata’s newly formed e.co (edotco) may be interested to bid for XL Axiata.

But someone in the know claims that “e.co will not bid. It will not break Indonesian laws and will stay out of the bidding.’’

Indonesia’ law does not allow for foreign ownership of tower companies and that should put to rest speculation that e.co, which was set up in June this year, will make its move.

“Ideally it should bid because the purpose of setting up e.co is to grow the tower business, but the situation is a bit different in Indonesia,’’ says someone in the know.

For now, the tower assets from Celcom Axiata Bhd have been transferred into e.co.

It is unclear if the other companies with towers within the Axiata stable can transfer their assets into e.co. The long term goal is to float that business.

But in the case of XL, would a floatation be better than selling the towers?

And will the sale solve all its debt woes and guarantee reasonable lease back rates, or will it have more issues that it bargained for?

XL officials were not immediately available for comments.

Axiata Group is 38.8% owned by Khazanah Nasional Bhd. It has mobile operations in Indonesia, Singapore, India, Bangladesh and Cambodia. It has over 250 million mobile subscribers in Asia and recorded revenue of RM2.55bil at the end of 2013. XL has over 65 million subscribers.