An attractive model

The proliferation of independent tower operators in Africa is a clear indication that service providers on the continent acknowledge the benefits they bring and are willing to enter long-term arrangements with a growing number of them. Rhys Phillip, the recently appointed chief commercial officer of Nigeria-based IHS, details why the opportunity has met with such success in Africa

Phillip believes that after resisting for several years, all of the major mobile operators in Africa have begun sharing towers and openly endorsing the benefits

IHS was established in Nigeria in 2001 as a deployment contractor to build telecom towers for mobile network operators. The company has gone on to deploy around 3,000 sites since, while in 2006 it launched its managed services operations to maintain towers for network operators under contract. Services include repair, fuel, and security for over 2,800 towers across Nigeria, Ghana and Sudan.

IHS’ current focus is on Africa, and there are a number of indicators that suggest growth in the business is a viable prospect given the dynamics at play across the continent. Growth in subscriber numbers continues, with the telecom industry already valued at an estimated US$34 billion and expanding rapidly. Voice penetration is relatively low and mobile subscribers are forecast to increase by a consolidated annual growth rate of 11 per cent per annum to reach 1 billion by 2016.

Operators in Africa are also pushing into rural areas and lower population densities in these areas make tower sharing essential to network operators.

The rise of mobile broadband and the introduction of 3G services in new markets in Africa is another driver of the independent tower company business model, requiring the build out of more towers compared to voice-one services.

“We are finding that regulators are increasingly encouraging, and in some cases requiring, mobile network operators to share towers, thereby benefiting tower companies, which see increased demand for collaboration,” Rhys Phillip said.

In Zimbabwe for example, the government is mulling a change to telecom regulations that would require the country’s three mobile network operators to share their network infrastructure.

The permanent secretary in the ministry of transport and infrastructure development, Munesu Munodawafa recently told local media that the proposed legislation would help reduce costs and ultimately lead to lower tariffs.

He suggested that there is duplication of investment in some areas, which in turn leaves other areas under invested.

"In future, we should have a policy that encourages sharing of networks and we believe that it would be cheaper in the long run for us to have shared services and base stations," Munodawafa said.

The biggest beneficiary of the change would be the struggling state-owned telco, NetOne, which would be able to share the infrastructure of the larger private network operators, Econet and Telecel.

Phillip also believes that after resisting for several years, all of the major mobile operators in Africa have begun sharing towers and openly endorsing the benefits.

“Multiple tier-one network operators such as MTN, Etisalat, Airtel and Glo, which are of high credit quality, allow for a diverse and predictable revenue base. This is a favourable dynamic in Africa as are the multiple WiMAX players and 2G/3G operators that are set to enter the market, which will further drive up demand for towers,” Phillip said.

Approximately 50 per cent of towers in Africa are owned by the five big operator groups: Vodafone, Orange, MTN, Airtel and Etisalat – all of whom are implementing tower-sharing strategies.

In fact it has been reported that Etisalat is concurrently seeking a buyer either to acquire Tanzanian subsidiary Zantel, of which Etisalat owns 65 per cent, or to acquire the 600-700 towers Zantel has in the country. Standard Chartered is reported to have been appointed as Etisalat’s advisor.

IHS rival Helios Towers Africa is considered to be a frontrunner in acquiring Zantel’s towers, if sold separately, as the tower company purchased a 60 per cent stake in a joint venture with Millicom-Tigo in 2010, to which Millicom-Tigo’s 1,020 Tanzanian towers were transferred.

Market conditions in Tanzania appear favourable to the independent tower company business model given that the country has four licensed tier-one network operators: Zantel, Airtel, Tigo and Vodacom.

Javier Gonzalez Piñal, partner at Oliver Wyman management consultancy in Dubai, agrees that the dynamics currently at play in the telecom sector in Africa makes the independent tower company proposition one that is worth serious consideration. He points to the basic parameters of such arrangements between network operators and tower companies, identifying a number of triggers and benefits:

· Operators sell part of their passive assets to a professional tower company. That company optimises processes to reduce total cost of ownership. Operators receive a part of their expected return in the form of a lump sum (typically cash) payment.

· The tower company combines the stable cash flow it receives from the reference tenant (the selling operator) with the upside from additional clients (competing operators) co-locating in the same towers to increase the value of the assets purchased.

· Typically, the deal also includes a financial partner that, in exchange for an initial cash injection, leverages the stable cash flow (operators’ rent) and a higher asset valuation at exit (through the co-location of multiple tenants) to obtain rates of return of 20 – 30 per cent, and sometimes even higher.

At this stage the services offered by Africa’s tower companies are not all that differentiated from one another and Phillip believes IHS has a number of competitive advantages that make it appealing to network operators.

“We are based in Nigeria, and are a truly African company offering solutions to issues that are specific to Africa,” Phillips said. “Our depth of technical and industry knowledge is unrivalled, and of our 1,000+ staff members, over 80 per cent of them are from technical backgrounds.”

Major tower companies operating in Africa

IHS – Nigeria, Sudan, South Sudan, Cote d’Ivoire, Cameroon

American Tower Company (ATC) – Uganda, South Africa, Ghana

Eaton Towers – South Africa, Ghana, Uganda

Helios Towers – Nigeria, Ghana, Tanzania, the Democratic Republic of Congo

Source: Comm.