North Africa piques interest from international towercos

North Africa is a sizeable market which boasts a number of leading international and local players and such as Orange, Etisalat, Ooredoo, Maroc Telecomm Telecom Egypt and Vodafone (stc also plans to enter the region). As an untapped market North Africa presents tower companies with huge opportunities where strong and attractive mobile markets exist. TowerXchange gathered leading international towercos IHS Towers, Helios Towers and American Tower as well as MENA energy experts Mitsui to examine the merits of investing in this region. 

From a scale perspective Morocco and Egypt are proving to be seen as the most suitable countries for the first phase of inbound investment.

Tom Greenwood of Helios Towers stated that greenfield opportunities exist across North Africa, which the towerco are keen to prioritise, however doing business in certain jurisdictions will prove more challenging than others in this untapped tower market. From a foreign investment perspective it would seem that Tunisia and Morocco are proving to be the business friendliest followed by Egypt and Algeria, although the latter presents some challenging laws and regulations.

International towerco IHS Towers explained the company has looked into investment in Egypt, Tunisia, and Morocco and whilst they are attractive and investable locations they contain more unknowns than the rest of sub-Saharan Africa.

Keith Boyd of American Tower stated that the towerco is “dipping its toes in the water” and have an interest in crossing the Sahara. American Tower have 681 sites in Niger and 667 sites in Burkina Faso along the Sahara’s south side through their acquisition of Eaton Towers. Whilst many of the large international towercos are vying for a stake in the North African tower market there are some basic criteria that would need to be considered when investing. Such considerations include working with mobile network operators as strong anchor tenants that are able to pay on time, given the initial outlay costs of upgrading sites power and control systems that comes with the territory of new market entry.

What is evidently clear is that each country within the North African market comes with its own regulatory challenges and is at different stages in opening its doors to international investment. Whilst potential revisions to regulatory reform are underway, Egypt is making the right noises and showing positive signs in moving forward with refining its laws. Morocco paints a slightly different challenge in that the MNOs are set up and controlled by the royal family making it harder for any newcomer to break into the market. Getting approvals will involve local partners and forming rock-solid relationships – an added factor when entering these markets.  But the same applied in the GCC, where there is a need to build relationships locally and understand the dynamics of the market and country well, including the regulatory environment, and there are now active towercos in those markets.

Fundamentally, it is the desire of the North African MNOs that will initiate tower activity in the first instance. Whether the demand is for new build or release of capital, it is this want or desire from the MNOs that drives the economic rationale for infrastructure sharing. With grid reliability generally good across the region (certainly relative to SSA) there remains less operational urgency for MNOs to get rid of their towers. To date, international towercos are not seeing much interest in disposes of towers unless there is an underlying need to raise capital to invest in 5G.

With the competitive and economic environment satisfying MNOs currently, could it be that governments drive for digital infrastructure will force some operators across the North African region to increase capacity and coverage, reduce prices – precipitating the pressure on MNO balance sheets?

For example, tens of billions of dollars are needed to drive the infrastructure for 5G in Egypt new capital city from the country’s existing MNOs. The new capital city is an initiative of Egypt’s Ministry of Communications and Information Technology (MCIT) at an estimated cost of EGP40bn (US$2.44bn). The question for operators remains who is going to fund this capital expenditure? Will the technology onset be the push factor that is required for a towerco entrance, in so far as new build is concerned? Egypt has a huge amount of roof top sites (40%), more than any other African market, which brings with it many difficulties from a physical network planning perspective. This has the potential to drive the need for operators to divest away from real estate management and allow towercos the opportunity to deal with operational complexity and assess different financial models for rooftops.

To date, there have been no tower transactions of scale in the market. However, the region has attracted international interest for some time and a number of towercos have invested considerable time and resource getting to know the market, its players, and its potential opportunities.

High requirements for new build and co-locations has attracted the interest from American Tower, IHS Towers, Digital Bridge and Eaton Towers; all being linked to potential opportunities in the market. In a bid to enter the market, licences have been applied for and it is understood that the regulator (NTRA) is due to issue two new licences, with one being awarded to a major international towerco in 2020.

Egypt boasts one of the highest number of SIMs per tower in the world, a growing subscriber base, rollout of 4G ongoing and operators in need of establishing their network, the potential for new build in the market is high. In order to increase 4G capability and capacity, all four of the countries MNOs are planning new site build. In a bid to raise its profile and market share, Orange is looking to add 700 new sites starting with an estimated 200-300 sites in 2020. Whilst Telecom Egypt currently has around 2,000 towers it has recently entered its second phase of network rollout with a deployment of an additional 1,500 sites. The operator is also projecting 1,000 new build sites to be rolled out starting with 200-300 this year. Similarly, Etisalat and Vodafone are expected to be planning to add 300-500 new towers per year.

With the need to invest in 4G and 5G infrastructure and potentially buy additional spectrum to keep up with 4G demand, Egypt’s MNOs are looking at how to best manage their capex – giving towercos build-to-suit contracts instead of investing in new site build themselves represents one such strategy.

For a towerco, this presents an exciting investment proposition; a potential of 1,500-2,000 new BTS sites with ample opportunity for lease up with each of the four MNOs.

An interesting aspect to take into consideration is the availability of local financing. Morocco has much more availability of capital than SSA markets, the same applies for Egypt. This in turn plays a factor in terms of potential pricing of sale and leaseback’s or build-to-suit rollouts for towercos.

Yoshinori Utaka, CEO of Mitsui & Co drew attention to the cost reduction of solar energy in the North African countries. Given that 50% of opex of a towerco is energy supply this presents an incentive for towercos to transition from diesel to hybrid when considering investing.

Recent carve-out announcements from both Orange and Vodafone on their European sites has been met with enthusiasm by the global tower industry. As Greenwood from Helios Towers pointed out, a change of mindset towards tower companies and the value that can be created in infrastructure, is starting to become present at group level within these companies, where historically they have wanted to own all of their real estate.

In an effort to monetise their European towers and group level interest in the use of capital, the question remains will Vodafone and Orange drive change in the North African market. Will we see the European carve-out strategy replicated in other markets in which they operate, namely their African subsidiaries? As Keith Boyd of American Tower said, it’s not just what if happening in-country that will drive change in the use of capital and tower strategy, for Vodafone and Orange it’s their behaviour in other markets and the need to generate cash.

In February 2020, with an interest to expand in the MENA region, mobile network operator Saudi Telecom Company (stc) entered into a memorandum of understanding (MoU) with Vodafone Group to acquire its 55% stake in Vodafone Egypt for US$2.bn. After a process of due diligence, both parties plan on entering into definitive agreements with the deal set to close by the summer of 2020, subject to regulatory approval. Would a stc acquisition of Vodafone Egypt be followed by a sale and leaseback or a carve-out?

As with the credit crunch of 2008, when mobile network operators were forced to refocus their minds in view of financial difficulty and explore ways to refinance the business, similar pressures are forcing changes in attitude today. In 2008 challenging and tough market conditions opened the doors in sub-Saharan Africa to international investment. As stated by Keith Boyd of American Tower “it made the tower industry in SSA.”

A crisis is not the only way to sharpen minds, requirements for 5G investment are densifying networks are also driving MNOs towards towercos, but our panel thought that a crisis would only help to shake the industry into new ways of working. Of course, it is needless to say that capital inflow into a country follows expected returns and risk appetite and this remains to be seen from international towercos. As investment runs in cycles, this is not a static picture after all.

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Egypt

- stc’s acquisition of Vodafone Egypt may further alter a landscape that looks increasingly attractive to build-to-suit.

- In terms of inorganic growth opportunities, where once towercos perhaps had reservations about tackling the rooftop-rich site portfolio in the country (~40% rooftops compared to ~15% in the rest of Africa), now there is appetite for all site typologies.

- Resolution of the subsidy of diesel prices remains the number one challenge to closing ESCO agreements in Egypt, with RFQs coming out of Etisalat Misr and Orange Egypt

Morocco

- Interest from IHS Towers and other international towercos in this country, which is regarded as one of the most business friendly in the North African countries.

- Regulatory hurdles are not the main barrier here, but there is little support from local partners so far to divest their towers. 

- Orange and Vodafone will be the key drivers of change in this market.

- Morocco has significantly more available capital than SSA markets, which will play a key factor in terms of potential pricing of SLBs, or BTS rollouts.

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