• Scaling new heights

    Third-party tower companies could hold the key to accelerating growth in connectivity and network coverage across Africa.

    Scaling new heights

    Building new mobile towers in Africa doesn’t come cheap. Take Nigeria, for example. The Association of Licensed Telecommunications Operators of Nigeria estimates that the country needs an additional 50 000 to 60 000 towers for optimum mobile network coverage across the nation. With a price tag of between US$200 000 and US$250 000 per tower – excluding the cost of obtaining the necessary permits, as well as land and power supply – it’s easy to see how the expenses add up.

    However, by outsourcing passive infrastructure (such as towers and base transceiver stations) to third parties, firms are capable of saving up to 30% in operational expenses, according to a Financial Mail report. Although it has taken African mobile network operators (MNOs) years to get on board with outsourcing infrastructure or tower sharing, some are beginning to realise its potential.

    In 2016, the Zimbabwean government implemented a legal framework making it mandatory for state telecoms companies to share base station towers and fibre networks across the industry – wherever technically and economically feasible. This plan is being executed mostly by the country’s Post and Telecommunications Regulatory Authority, which will oversee applications for sharing agreements, identify sharable infrastructure and carry out audits.

    Today, operators in Zimbabwe can now share space, towers, power, shelters, security, optic fibre and copper cables, trenches, manholes, ducts and poles. And in doing so, eliminate duplication of telecoms infrastructure, while maximising use of existing and future infrastructure.

    ICT, Postal and Courier Services Minister Supa Mandiwanzira, as quoted in the Sunday Mail, said that this duplication (and sometimes even triplication) is a burden on subscribers. ‘It is my belief that telecoms companies should not be allowed to compete on the number of buildings, towers or optic fibre cables they have, but rather focus that competition on service.

    ‘Therefore, these regulations are an important step forward for the industry in terms of reducing the cost of service to subscribers and making companies more efficient and profitable.’

    A couple of months after the announcement was made, Airtel Nigeria’s MD, Segun Ogunsanya, appealed to the Nigerian government to do the same – formulate regulations that allow spectrum and active infrastructure sharing, while removing double taxation and declare telecoms infrastructure as critical national infrastructure – something Nigeria’s Communications Commission went on to implement in 2017.

    GSMA statistics show that tower sharing has become a key feature of the mobile industry in sub-Saharan Africa in the past few years. Nearly 40% of sub-Saharan Africa’s telecoms towers are now owned by independent tower companies (towercos) – most of which were separated in large-scale transactions over the past seven years. Meanwhile between 2009 and 2014, towercos functioning within the region acquired roughly 47 500 towers from operators. This represented a third of the total regional tower count in several deals valued at more than US$4 billion.

    Nigeria accounted for the bulk of these sales, with mobile operators alone earning close to US$3.5 billion, according to an AFK Insider report. And this is just the beginning, claims Frost & Sullivan.

    The market researcher expects growth throughout the continent to be driven by third-party towercos that lease capacity to MNOs as well as other providers of wireless communication services. It also forecasts that the region’s market for tower services will increase at a CAGR of 8.8% by 2021, reaching US$1.5 billion (up from a little more than US$990 million in 2016).

    While tower sharing places emphasis on the quality of services, network operators such as Vodacom Tanzania, MTN, Bharti Airtel and Etisalat have also started selling some of their towers to tower management companies.

    Three companies currently dominate the tower management industry in Africa and the Middle East: IHS Towers, American Tower Corp (ATC) and Eaton Towers. IHS, which owns nearly 23 000 towers, expanded its business by acquiring Helios Towers Nigeria. ATC has around 10 700 towers across the continent and Eaton has 5 000, according to TowerXchange.

    In 2015, a number of deals took place in Nigeria, with MTN, Airtel and Etisalat transferring their towers to third-party infrastructure companies.

    As reported by the Guardian, Etisalat Nigeria completed the transfer of more than 550 telecoms towers to IHS in July 2015, reaching around US$400 million. It also sold 2 136 of its towers to the company to lease back as part of its expansion plan. In addition, IHS gained 6 000 mobile towers from MTN Nigeria.

    Also in 2015, Airtel sold in excess of 4 800 mobile phone towers in its Nigerian operation to ATC for US$1.05 billion as part of its plan to cut costs and reduce debt.

    At the end of November last year, Business Tech reported on the plans of the continent’s three largest telecoms tower companies to pursue listings in either London or New York, in order to benefit from high industry valuations to fund expansion. IHS Towers is targeting an enterprise value of US$10 billion and plans to list in New York. Helios Towers Africa and Eaton Towers are aiming for around US$2 billion each and will list on the London Stock Exchange. Eaton is also considering a secondary listing on the Johannesburg Stock Exchange.

    About 40% of sub-Saharan Africa’s telecoms towers are now owned by independent companies, reflecting the strong trend towards infrastructure distribution 

    Meanwhile, in South Africa – where its market of some 30 000 towers is still dominated by the telecoms and broadcast organisations that own more than 90% of the towers – mobile network operator Cell C was the only one to sell its towers to ATC in 2010, in an attempt to raise money.

    However, in 2016, Eaton Towers CEO Terry Rhodes announced that the execution of its build-to-suit strategy over the few years prior led to the sale of about 300 South African towers serving 600 tenants to ATC. ‘The sale, which represents about 5% of Eaton Towers’ total business, will allow us to invest further in the countries where our business already exists, as well as to expand into new markets across the continent,’ said Rhodes.

    The slow uptake in South Africa could be a result of MNOs being concerned about losing revenue and strategic control when ownership of infrastructure is transferred to the towercos, says Frost & Sullivan industry analyst, Lehlohonolo Mokenela.

    ‘To mitigate this, towercos should develop strong partnerships with MNOs in sale and leaseback deals , and invest in building a strong reputation and track record in infrastructure management,’ he says.

    Mokenela believes there is also a growing number of tower innovations expected to shape the evolution of the industry in the long term, including infrastructure outsourcing deals, supporting energy systems, base station technologies and infrastructure maintenance solutions.

    According to Stuart Little, director of solutions marketing at Aviat Networks, there are many reasons why mobile phone network operators should look into moving from owning cell towers to leasing them – the most important being the bottom line cost.

    ‘By switching from owning towers to leasing towers, mobile operators can unlock the value they have built up in site infrastructure,’ he says, adding that infrastructure and tower sharing can extend even further to a scenario whereby operators share the actual network, including the base stations and microwave backhaul for aggregating base station communications.

    ‘Operators can also make money off their tower infrastructure by selling it and then leasing back space on the tower for their equipment,’ says Little.

    ‘With the money from the tower sales, operators can reinvest in improving and expanding their networks, including the deployment of 3G and LTE base stations as well as upgrading their backhaul networks to full-IP for higher capacity.’

    By Melissa le Roux
    Images: Vodacom, Alamy