The 5G rollout in Malaysia attracted substantial interest from investors into the telecommunication scene in Malaysia, especially towards the telecommunication tower sector. Until today, we still see interest in the space from time to time. Some investors are still looking to enter the space, through the consolidation of smaller portfolios of telecommunication towers, or outright acquisition of the companies managing the smaller portfolios of towers.
Tower transactions look deceptively simple. Those looking to get into the game for the first time tend to have the misconception that tower transactions are as simple as any other asset or share acquisitions. The reality is that for a tower transaction to be completed, a list of things needs to first be checked out – the Master Licence Agreements with mobile network operators (MNO), the hundreds of underlying ground leases where the towers are erected, and the regulatory approvals for the erection of the towers. The value of a tower portfolio usually depends on the conditions of these individual components. Where some complications or gaps exist in any of these components, they typically do not stop the deal from closing, but the purchase consideration and even the structure of the transaction may be affected.
In this article, we will be examining the key components of a telecommunication tower transaction, each of which literally will move the needle of purchase consideration in a deal.
Key Component 1: The Master Licence Agreement
Before we consider the first key component, it would be helpful to understand the valuation of a telecommunication tower portfolio. While there are many different ways of valuation, we will be considering what we believe is the most commonly adopted method in our experience – the Tower Cash Flow (TCF) valuation. Without going too much into detail, TCF is a way of calculating the annualised cash flow of a telecommunication tower portfolio. You do that by subtracting the direct operating expenses in managing a tower portfolio from the revenue that the tower portfolio is capable of generating. Once the annualised TCF has been assessed, investors will typically multiply it by a predetermined multiplier to obtain the valuation of the overall portfolio, and that is how the purchase consideration would normally be calculated.
The first key component that we are looking at is the Master Licence Agreements that a tower company enters into with the MNOs. Tower companies operate and manage the telecommunication towers, and generate revenue by licensing the occupancy of the towers to the MNOs. To ensure network coverage, MNOs install their equipment on telecommunication towers and in doing so, they pay the owner of the towers (where the MNOs do not own the towers themselves) monthly licence fees for the occupancy of the towers.
The computation of the licence fees payable is, however, not as straightforward, as the fees tend to fluctuate throughout the lifecycle of a tower. Typically, the agreement with an MNO will provide a formula to compute the licence fees payable, and this depends on how many MNOs are collocating on a particular tower – yes, a telecommunication tower generally can allow 3 to 4 MNOs to install their equipment and collocate together. A common practice in the industry is to allow scaled reduction of the licence fees payable by an MNO whenever there are new collocators on a tower. This makes the task of ascertaining the revenue of a tower portfolio less straightforward and occasionally, there will be instances where an anchor MNO is still paying the original contracted licence fees despite there being other MNOs who are also collocating on the same tower, be it due to lack of awareness or simply oversight, which compounds the difficulty in ascertaining the actual TCF of a tower portfolio assuming that the interested buyer would want the discrepancy to be rectified as a condition precedent or post-completion event.
Key Component 2: The Ground Leases
Underneath every tower sits a piece of land (or a building, in the case of towers erected on a building), and it is safe to say that a tower company more often than not does not own the land. The tower portfolio is held together by hundreds or thousands of individual ground leases with private landowners, state authorities, statutory bodies, and religious organisations. While we refer to the contracts as “ground leases”, they are technically long-term tenancy agreements structured in rolling 3-year terms.
In ascertaining the TCF of a tower portfolio, the rental payable to the landowners under each of the ground leases would have to be accounted for. Unlike the Master Licence Agreements, ground leases usually factor in scaled increment of rental every few years. Depending on whether or not the scaled charges are followed strictly, it may complicate the calculation of the actual TCF by the acquirer.
Each of these leases also has its own assignment and change-in-control regime. For a tower transaction to be closed, the applicable assignment or change-in-control regime, whichever applicable depending on the nature of the tower deal, will have to be complied with. A seller will usually face difficulty in complying with the assignment or change-in-control regime in some of the ground leases within the portfolio, mostly due to the inability to locate or contact the landowner, especially for older tower sites. Thus, it is very important for the Sale and Purchase Agreement (SPA) to have a clear provision addressing failure to comply with the requirements of the ground leases. The provision may include a price adjustment mechanism, the use of an escrow account, or a combination of both.
Key Component 3: Regulatory Approvals
Tower companies in Malaysia operate under the Communications and Multimedia Act 1998 regime, primarily as holders of Network Facilities Provider (NFP) individual licences administered by the MCMC. While it is necessary for the acquirer to comply with the conditions of an NFP licence in order to complete a deal, this is not one of the key components of a tower transaction in our view because compliance with the conditions of NFP licence is usually relatively easier.
The key component 3 that we would like to highlight is the local councils’ approval for each of the towers in the portfolio. The erection of any telecommunication tower is subject to the issuance of building permit by the relevant municipal or local authorities. Essentially, the tower company is supposed to have applied and received a building permit for the erection of each and every tower. Any tower that has been erected illegally may expose the company to financial penalty or even worse, be subject to a demolition notice. The application for a building permit can be time consuming, which is why there are many instances where a tower company may actually erect a tower while the application process is still underway.
When considering acquiring a tower portfolio, the acquirer will have to ascertain the number of towers in a portfolio that are without a proper permit, and the progress of the corresponding permit application if there is one in place. Depending on the licensing condition of a tower portfolio, the SPA will have to provide for suitable risk mitigation measures. More often than not, acquirers may choose to omit certain towers that are subject to high risk of demolition or adopt a price adjustment and/or retention sum mechanism, taking into consideration the risk of having to relocate some of the towers.
Key Component 4: The Physical Condition of the Tower
Key component 4, being the last to be highlighted, is none other than the actual physical condition of each of the towers in a tower portfolio.
Towers have design lives, and a portfolio with average tower age of 15 years or more carries refurbishment or replacement liability. A buyer will usually be conducting surveys and due diligence on the physical structure of the tower before completing a deal. Depending on the outcome of the due diligence, there may be a need for adjustment to the agreed purchase consideration and the SPA will have to include provisions to cater for this mechanism, in case certain towers may require refurbishment and/or technological upgrade.
Closing Thought
An investment in the telco tower industry is certainly no easy feat. In our experience, most of the tower transactions take a team of seasoned technical consultants, surveyors, legal counsels and financial advisors to drag the deals through the finishing line. Even then, completing a deal does not necessarily mean the end of a transaction. For telco tower transactions, many things can still be taking place after completion – retention sum, escrow payout, earnout payment, etc. To ensure investment risk is kept to a minimum, involvement of an experienced transaction team is highly important.
If you have any questions on drafting, reviewing or negotiating SPA involving a telecommunication tower portfolio, please feel free to reach out to the partners in our Technology Practice Group, Lo Khai Yi and Ong Johnson, for a consultation. We have extensive experience in assisting organisations with a wide range of telco-related transactions, including telco tower portfolio acquisition and investment, submarine cable operation, and MVNO investment.
The Technology Practice Group of Halim Hong & Quek continues to be recognised by leading legal directories and industry benchmarks. Recent accolades include FinTech Law Firm of the Year at the ALB Malaysia Law Awards (2024, 2025 and 2026), Law Firm of the Year for Technology, Media and Telecommunications by the In-House Community, FinTech Law Firm of the Year by the Asia Business Law Journal, a Band 2 ranking for FinTech by Chambers and Partners, and a Tier 3 ranking by Legal 500.
About the authors
Lo Khai Yi
Partner
Co-Head of Technology Practice Group
Technology, Media & Telecommunications (“TMT”), Technology
Acquisition and Outsourcing, Telecommunication Licensing and
Acquisition, Cybersecurity
ky.lo@hhq.com.my.
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Ong Johnson
Partner
Head of Technology Practice Group
Fintech, Data Protection,
Technology, Media & Telecommunications (“TMT”),
IP and Competition Law
johnson.ong@hhq.com.my
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