Since 2012, African mobile operators have been emulating others elsewhere in the world by selling off tower infrastructure to independent management firms, who then lease capacity back to the mobile companies. Report by Tom Jackson.
In September alone, Bharti Airtel sold more than 3,500 towers to Eaton Towers, while MTN Nigeria sold 9,151 to IHS Holding. This was the ninth tower transaction for IHS, with previous acquisitions from Etisalat and MTN in Côte d’Ivoire, Cameroon, Rwanda and Zambia. Others divesting their infrastructure include Vodafone Ghana and Orange Kenya.
Shedding tower infrastructure allows operators to focus on efficiency, and prevents unnecessary duplication while reducing infrastructure costs by up to 20%.
“The process aims at reducing operating costs while operators can focus on telecoms services, customer services and marketing, rather than managing infrastructure,” says Ovum research analyst Thecla Mbongue. “Managing infrastructure like towers is
often difficult and costly in Africa, so there’s a further incentive to outsource this.”
The hope is that through these divestments, quality of service to subscribers – which has been an ongoing issue in countries such as Kenya and Nigeria – can be improved.
“Regulators require better coverage and quality and in some cases have fined or ordered operators to stop selling until quality has improved,” says Terry Rhodes, co-founder of tower management firm Eaton Towers.
He says that African operators are experiencing growing demand from low-income subscribers and the increasing need for data inspired by the rollout of low-cost smart-phones. “With all these pressures, operators have to cut costs, and outsourcing their towers is an attractive solution. They can then focus on improving services to customers and rolling out new technologies.”
Encouragement for shift
Regulators and governments have other reasons to support the idea of tower sharing, says Johan Van Huyssteen, partner in PwC’s telecoms practice in South Africa.
“Regulators have encouraged the shift in tower management and ownership towards third-party tower companies because it makes existing operators more efficient and lowers the barriers to entry for new operators coming into the market,” he says.
“Governments also favour the sharing of infrastructure because it increases mobile connections and taxable industry revenues; it also removes the need for competing towers to be built close to each other.”
The deals are also profitable to the tower firms; most of the contracts are long term and firms able to have more than one tenant per tower.
As a result, investors are making a beeline to the tower companies, with IHS taking in $620m in funding for expansion this year alone.
Eaton Towers’ Rhodes says that due to Africa’s economic growth, rising middle class and increased demand for wireless services, combined with pressures on operators, tower companies and their investors find the continent attractive, especially as levels of tower ownership lag behind Europe and the US.
“The opportunity has been spotted by the financial community, typically private equity firms. Private equity likes the long-term revenue flows from 10-year contracts with the operators, the growth potential from sharing infrastructure and the diversification of geographic risk.”
Though Rhodes said he foresees African countries reaching the 75% independent tower ownership as in Europe – he predicts Nigeria will be the first to hit that level this year – South Africa has so far not followed the trend.
Operators say their market drivers are different to elsewhere on the continent, particularly as they have achieved high levels of network rollout and site sharing already exists to a large extent.
Rhodes counters that operators in the country may well be forced into a further rethink in the future. “Cell C sold their towers but MTN, Vodacom and Telkom have to date kept their towers,” he says.
“There is some sharing and Eaton has developed a market for shared infill towers for these operators largely concentrated in Gauteng. As the competitive pressures increase in South Africa there could well be more outsourcing.”