Rural areas tend be underserved by operators and towercos because of low ARPUs and high opex. The trend has been for towercos and MNOs to prioritise urban areas, however rural connectivity represents a huge opportunity, as a somewhat untapped market, however the challenges differ from country to country. TowerXchange Meetup MENA 2020’s panel on rural connectivity featured Akbar Shaukat, CEO, AWAL Telecom, Hussein Abdulkader, COO, Asia Consultancy Group (ACG) and Akbar Ladak, CEO, Smart East Africa, who addressed some the key developments and challenges in this untapped market.
Market conditions
Market conditions for rural connectivity vary from country to country within the MENA region. In some cases, for example in Pakistan, 70% of population is concentrated in urban areas, which represents less than 30% of the land with 30% of the population spread across 70% of the vast country. Within urban areas, penetration is high and competition is driving down operator margins. In rural areas, where mobile connectivity is relatively low, there is an opportunity for both towercos and MNOs to gain market share in an untapped market.
This was certainly the case for Pakistani towerco AWAL Telecom, who in 2015 launched a build-to-suit concept where minimal or no infrastructure existed. AWAL’s focus has remained on building sites in unserved areas without anchor tenants, but where they predict serious market potential for mobile operators. Today, their infrastructure of 55 sites allows operators to cover 8mn people, which is 4% of the population in Pakistan. The towerco provides a full turnkey solution which gives AWAL Telecom the maturity and edge over the competition. Their focus to date remains on developing and enhancing infrastructure in rural areas, with the towerco having secured commercial contracts with most of the operators in the country.
In Afghanistan, Hussein Abdulkader at ACG explained that conditions there meant that they had to take a multi-faceted approach to connect the unconnected. Surprisingly fibre was a key strategy for the towerco in order to providing capacity for MNOs seeking to launch 4G in the country – as well as fulfil a longer-term objective to provide data centres and FTTH. Providing backbones for the top three mobile operators in the region, where they were not willing to go and could not operate is also a key part of the ACG strategy. They have partnered with a mobile network operator to provide rural coverage and active sharing of equipment in the southern part of the country.
By being enablers of internet connectivity to the entire country and supporting operators to deliver high-quality 3G and 4G, they hope to stimulate subscribers to use data and to make their tenancies more secure. Of a 34mn population in Afghanistan, approximately 7.5mn form an active subscriber base of which 6mn are already Facebook users. Therefore the quicker the adoption of data, the greater the increase in demand and internet usage.
In sub-Saharan Africa, the overall cost of deployment is double for rural areas with ARPUs achieving only 10% of those achieved in the urban areas. This becomes a significant challenge for operators on what can be achieved on their return on investment. For Burundi-based mobile network operator Smart East Africa, the decision to move away from the model of deploying generic 40m tower suitable for hosting two or more tenants to a complete standalone site, without a diesel genset, relying on solar and battery back up to provide rural coverage was key. This drove down site deployment cost as well as reducing opex, making low ARPU areas serviceable.
OpenRAN and active sharing
For rural sites the capex investment is almost double that required in establishing infrastructure in urban areas, but there are still opportunities for “lease up” of sites once they are built were active sharing to become more common. If a towerco deploys a site in rural area that has no competing infrastructure, there is a chance of finding further tenants – once a site is there, why not take advantage on an opex-basis? However the cost of deploying additional base stations may make additional tenancies uneconomical. Sharing base stations, antennas and backhaul through active sharing could be one way to improve “lease up” on rural sites.
Additionally, active sharing will present an opportunity for towercos to host a multi-RAN solution on new and existing infrastructure that can be shared amongst the operators, saving capex and opex for both the towercos and MNOs even in non-rural settings. The need for legislation to approve active sharing and acceptance from the MNO is fundamental for towercos to leverage the full economics of rural connectivity.
In Afghanistan where ARPUS are below US$4 on a good day and significantly lower in rural areas, ACG struck a commercial agreement with a mobile network operator allowing them to bring in their own RAN equipment while allowing core processing to remain with the operator. This set-up meant that they overcame regulatory hurdles to running the radio side of the network and enabling roll-out into very rural sites. AGC are currently running more than 350 rural sites on this model with a 1.5x tenancy ratio. With the majority of their rural sites covered via VSAT, AGC are trying to fill the gaps by achieving connectivity through the existing microwave backbone. Over the last three years under this operation, AGC has seen traffic grow as the market becomes engaged in mobile applications. A growth in Facebook users has helped stimulate other incoming traffic into the region, all of which will builds over a longer period.
The overall challenge of rural is unpredictability. Different regions experience different levels of this, clearly what happens in one country is not typical of another. As Ladak stated in Burundi ARPUs in rural areas are below US$1 and therefore it is extremely difficult to build a business case combining a low ARPU with uncertainty about the arrival of a competitor who could squeeze out any existing margin. A towerco taking the capital risk and “leasing” a share of an active network, like ACG has done would be welcomed.
Smart East Africa are trialling out two OpenRAN solutions, one with Fairwaves and another with NuRAN, both of which proved successful in their pilot stage which is now being expanded across another 50 sites in Burundi. For the operator it’s not only about bringing connectivity but also allowing customers access to mobile financial services – this is a big market opportunity in SSA.
Rural site design innovation
Innovation has pushed down site costs making rural sites an increasingly viable option for towercos and MNOs alike. For AWAL Telecom the ability to allow MNOs to operate seamlessly and without significant challenges was key. Their entire BTS portfolio of sites are interconnectable with the last mile site of the operator, allowing anyone to join their existing rural area portfolio without the challenge of microwave connectivity or line of site or VSAT backhaul. Umbrella sites are built with a bigger footprint with a coverage of ten-twelve kilometres of internet connectivity. The towerco implements various energy solutions including, solar, wind and diesel, however what works is different for each terrain, each site and each usage. For example on a single operator site, a lower capacity battery bank is installed for backup.
Solar solutions have also been installed. Deploying green energy solution has enabled the towerco to provision some of the electricity generated to be accessed by the local community, enabling people to charge their mobile phones. As stated by Shaukat, in terms of future rural innovation AWAL are looking to pursue active sharing once it is approved by the government, as it presents an opportunity to manage and control the power consumption as well managing antennas effectively.
One of the many business models adopted by ACG is to own the active equipment. By owning the active equipment companies are able to control the levels of consumption. Even a highly utilised ACG site with three tenancies does not exceed 3000 watts – traditional single tenant sites are usually at least half this, and sometimes even more. Abdulkader stated that if you control active equipment it is easier to assess ways to manage costs. Another way to reduce costs is looking at transmission and allocating the VSAT capacity to minimise using too much backhaul on any one site. Whilst solar can be implemented in Afghanistan, the winter months make certain site visits difficult to access therefore making solar not the most viable of power options.
MNO Smart East Africa has implemented seven to ten sites that are independent of commercial power and diesel and run on two solar panels and one small wind turbine which powers the site for 24 hours covering four to five square kilometres. The results seen by the operator through these solutions have significantly lowered opex relative to traditional vendor equipment.
Working with regulators
To progress the development of rural connectivity, towercos and MNOs are working hard to engage regulators and municipalities who responsible for awarding the universal service fund, which is often used for the establishment of rural sites.
AWAL Telecom are working closely and advising regulators on a number of areas. Firstly, if a fund becomes available towercos should be the preferred infrastructure provider for a specific area and the regulator should allow the towerco to use this universal fund to build sites. Secondly, microwave connectivity may one day not be enough, therefore they argue that regulators should encourage greater investment in fibre infrastructure. Thirdly, they are lobbying for the approval of active sharing, which is one of the most important and fundamental developments for rural connectivity.
Ladak agreed that lobbying with the regulator is crucial to the success of any operator with ambitions to bring the next billion users online, especially with a big proportion of those being in sub-Saharan Africa. With 35% of the population in Burundi lacking connectivity, helping manage the allocation of the universal service fund is important. The USF fee is equivalent to one percent of gross revenues paid to the government each year and if properly administered could pay for coverage for the entire country in three years. After this time the money could then be used to deploy 4G services, bring in fibre or any technology developments for regions that remain unconnected.
An initiative by the Burundi regulator saw the implementation of a tower tax of around $500 per tower per year. Within eighteen months of the rollout of the tax operators started to engage with one another and discuss ways to share infrastructure and avoid build additional towers. Such a success was the initiative that forced the operators to request that the regulator made infrasharing an obligation and a part of the law. It is expected that the country is soon moving to this new law with infrastructure sharing becoming a mandatory requirement for operators in Burundi.
Working out the economics
The challenge of working out the economics is by far the biggest barrier to rural connectivity. Rural sites have lacked investment not only because total revenues generated can be low and somewhat unpredictable but because it has been difficult to divide the tower revenues so that everyone who invests in a rural site can earn a return on their investment. Moving away from capex-led investments to opex-based is shifting the spectrum for more MNOs to invest where there are decent revenue sharing models in place.
Nonetheless many questions remain when breaking down the economics including, how cheaply can sites be installed, and how cheaply can they be operated? How many subscribers will they serve in the immediate and long term, how much can those subscribers afford to spend, and how will revenues be shared over the life of a site? Innovations in site design, cheaper radio-side technologies, and innovations in infrastructure sharing business models are all positive factors that will enable investment in rural connectivity within the MENA region.
When it comes down to the economics of infrastructure investment in a rural area, one should not forget the power of the local community itself in generating its own economic growth. If towercos and MNOs can engage rural communities by offering employment, creating stakeholders who will protect sites and encouraging them to become adopters of technology that will make it viable. In return there will be many benefits, like lobbying the regulator for increased access to connectivity. The faster issuing of permits will in turn enhance the business case of MENA’s MNOs and towercos making it a win-win scenario for all in this relatively untapped market with huge economic potential for everyone.
