Tower management firms scramble for stake in Africa

As competition increases, telcos are opting for sale-and-leaseback arrangements for masts in order to raise funds for operations. PHOTO | TEA GRAPHIC 

By SCOLA KAMAU

In Summary

• Analysts say the trend is expected to intensify in future as the usage of mobile phones and Internet rises in Africa14

Tower management companies are scrambling for a stake in Africa as more telecommunication firms opt for sale-and-leaseback, in order to raise funds for operations in an increasingly competitive sector.

Four tower companies — IHS, Eaton Towers, Helios Towers Africa and American Tower
Corporation — are competing at every turn for masts that are being sold by the continent’s leading telcos like Vodacom, Vodafone, Etisalat, Orange, MTN and Airtel. The telcos are divesting from infrastructure to focus on service delivery.

“Five or six years ago, there was a reluctance, but the increased load on the networks as more customers come on board and want more services, particularly data means networks need to do more to cut their costs and focus on services,” said Terry Rhode, Eaton chief executive officer.

“They’ve all agreed, all the major ones, that sharing their towers is the way to go.”

Julius Ngonga, transaction advisory services partner at Ernst Young, said that the trend is expected to intensify in future as the usage of mobile phones and Internet rises in Africa.

“All mobile companies may soon find it necessary to separate infrastructure management from mobile services, giving more room to tower managers,” said Mr Julius Ngonga.

In July, for example, Bharti Airtel announced that it had concluded transactions valued at over $1.3 billion, which would be used to draw down debt. These transactions have been concluded in Nigeria, Uganda, Ghana, Rwanda and Congo Brazzaville with a target of 13 African countries in coming months.

A deal with Eaton for the sale of 1,100 towers in Kenya will be sealed soon, officials said. The company’s net debt as at March 31 had increased to $10.7 million from $10 million last year.

According to Eaton, which is also in tower deals with MTN, Orange, Tigo, Vodacom and Vodafone in seven countries, African mobile network operators are facing increased demand for voice and data services as customers acquire smartphones, while returns are under pressure due to price wars.

“Network build and operating costs are significantly higher in Africa, yet revenues per customer are falling and regulators are seeking additional rural coverage and improvements in the quality of service,” said Terry Rhodes, CEO of Eaton Towers.

Estimates show that sub-Saharan Africa has more than 240,000 towers providing mobile coverage to 70 per cent of the population. The number is expected to grow to over 325,000 towers by 2020.

Africa currently has an estimated 145,000 off-grid sites, a number that is expected to grow to 189,000 by 2020. The number of bad-grid sites is expected to grow from 84,000 in 2014 to over 100,000 sites by the year 2020. In bad grid sites, power is not available continuously and even when available, it is not of good quality.

A report by KPMG  titled Tower Company Landscape Changes in Africa and the Middle East, notes that tower sharing on the continent is growing rapidly.

“Yet Africa still requires at least 50,000 additional towers by 2016, translating into some $7.5 billion of capital expenditure,” according to KPMG.

Another reason telecommunication companies are offloading their towers is the challenge of power outages and inadequate electricity supply which forces them to spend more on buying diesel to run the towers.

But as they take over, tower companies are developing alternatives to electricity usage.

For example, since Q1 2013, IHS has spent $500 million across Africa to deploy advanced generators, batteries and alternative power solutions to reduce diesel consumption. The company plans to have up to 80 per cent of its towers running on hybrid solar solutions.

Although Safaricom, Kenya’s leading telecommunications firm by subscriber numbers, has not leased or sold its masts in the country, the company has turned to solar energy to power some of its cell towers located in remote off-grid areas.
“We have deployed solar or wind energy solutions in 77 sites over the year, and fitted 79 sites with power cubes [efficient hybrid energy systems\ and 127 sites with free cooling units,” said Stephen Chege, Safaricom director of corporate affairs. “We are also using low voltage auto phase selectors and deep cycle batteries.”

Robust growth

According to Chuck Green, Helios chairman, the growth drivers underpinning the telecoms towers industry continue to be robust.

“There is a need for 100,000 points of service (“PoS”) in Africa to satisfy demand for 2G coverage and associated capacity over the next five years. This PoS requirement is underpinned further by the growing demand for 3G and 4G data, which is driving the need for significant additional infrastructure capacity and in-fill across the continent,” he said.

According to Issam Darwish, co-founder of IHS Towers, the future of Africa is the smartphone but operators lack the required investments.

“The continent has not been able to build the kind of infrastructure it requires to satisfy the penetration levels in voice and broadband that it required. In the US, the mobile industry was built on the idea of sharing towers and competitors became partners to lower their costs. This wasn’t the case in Africa,” he said.

Francis Wang’ombe, the director general of the Competition Authority of Kenya said the country’s current regulation ought to have separated infrastructure ownership from other services to enable sharing and make it easier for new entrants.

“We should have an independent provider to run infrastructure so that carriers could share,” he said.

“As it is, we have so many masts and providers digging trenches everywhere to enable fibre connectivity to their customers.”