The perspective of incumbent market leader operators
Many market leaders had feared that if they shared their towers too soon, they might facilitate the market entry of low tariff competitors who would erode their market share and increase churn in the short term. But if market leaders don’t share towers, those same competitors might secure first mover advantage. If leaders leave it too late, their towers could be devalued as someone else has snapped up the finite number of prospective tenants. Africa’s longest-established operators might have legacy towers, which would benefit from working with a towerco to secure investment in power solutions and tower strengthening to increase tenant capacity.
Market leaders should accelerate progress toward infrastructure sharing, as they will currently find themselves in a strong negotiating position. In some markets, towercos are prepared to pay more than the replacement cost of towers – many transactions in Africa have yielded over $150k per tower. Market leaders can release capital, stabilize opex AND realise an uplift in network performance at a time when QoS is becoming a critical differentiator – especially critical to secure those all-important high value customers.
The perspective of new market entrant operators
New entrant operators should accelerate their network rollout by sharing towers with incumbent market leaders if they can. There’s a backlog to secure permits for new cell sites, if they are permitted at all, so new entrants should deploy as few of their own towers as possible. Leverage independent towercos and existing operators’ network reach and try to tap into volume discounts. Concentrate any new builds in higher value locations – look for gaps in incumbent market leaders’ networks, particularly around data capacity in urban areas.
Consider a coordinated roll-out with another 3rd, 4th or 5th ranked operator. For example, Warid and Orange realized a good sale price when they sold a total of 700 towers to Eaton Towers in Uganda earlier this year because they already had a healthy tenancy ratio having shared many towers from the outset.
What’s in it for market leaders to share with new entrants? Enhance the valuation of towers before selling by sharing with new entrants and driving tenancy ratios. Market leaders can further enhance their value proposition by offering attractive roaming agreements.
The perspective of towercos
Towercos and investors have a delicate timing dilemma too. Acquire towers too soon and they could pay a first mover premium for a market that might lack sufficient credit-worthy tenants. Acquire too late and the there might be insufficient tenants still available to achieve tenancy ratio and profitability targets. Towercos need to be well funded – many have had to pay a premium for a substantial portfolio of African towers in order to be considered credible players. Get it right and valuation multiples in the mid to high teens can be achieved.
Diagnosing market readiness
When it comes to timing a transaction, it’s important to consider the number of licenses in a market, including the regulator’s stance on licensing 3G and future networks, and any restrictions on new builds, as all these factors affect the tenancy ratios that can be achieved. Urban network expansions, with the densification required to cope with increasing data demands and upgrades to next generation networks, are considered to be a more favourable indicator than rural network expansion, where towers tend to have less healthy tenancy ratios.
Another way to tell when the time is right to buy and sell towers is to look for signs that coverage has become a commodity. “In some markets, the importance of coverage as a competitive differentiator has become over inflated,” said Kerem Arsal, Senior Analyst at Pyramid Research. “Quality of Service isn’t great in urban areas, rural connectivity is poor – competitive market saturation means operators have reached a limit where they have to go out into more rural areas, and this necessitates opex reductions.”
There is a big advantage to being first movers – only so many towers will be shared. We’ve shared towers where we’re number one in the market with the right market competitive dynamics” – Khumo Shuenyane, MTN
This view is shared by Africa’s leading operators. “In some markets there is still a degree of competitive advantage through coverage – so we’re in no rush to share infrastructure there,” says Khumo Shuenyane, Group Chief Strategy Mergers and Acquisitions Officer at MTN. Even the towercos agree: “towers are a strategic asset and therefore not sellable in countries where one OpCo dominates,” asserts Chuck Green, CEO of Helios Towers Africa.
However, when the time is right to share towers, you’ve got to move fast. MTN’s Shuenyane continues: “There is a big advantage to being first movers – only so many towers will be shared. We’ve shared towers where we’re number one in the market with the right market competitive dynamics.”
If one operator sells their towers, it tends to prompt the other operators in that market to act. Vodafone Ghana and MTN Ghana’s towers were on the market within a year of Africa’s first infrastructure sharing transaction from Tigo Ghana. It took even less time in Uganda, where American Tower’s deal with MTN was fast followed by Eaton Towers acquiring a similar number of towers from Orange and Warid.
The infrastructure sharing strategies of Africa’s leading operators
All Africa’s leading operators seem to be inclined toward infrastructure sharing:
Millicom have shown their hand in Ghana, DRC and Tanzania – they see infrastructure sharing as a strategic investment
MTN’s appetite for infrastructure sharing continues unabated, with deals closed in Ghana, Uganda, Cameroon and Cote d’Ivoire, and rumours persisting about a potential deal in South Africa
Etisalat had an active RFP for up to 4,500 African towers earlier this year
Vodafone have aggressive targets for infrastructure sharing in certain African markets
However, the greatest influence over African tower sharing in the coming months might come from Airtel, who have registered “Africa Towers” subsidiaries in 16 African countries. Airtel have a commitment to low cost telecommunications and substantial investments and experience from their involvement in tower sharing giants Bharti Infratel and Indus in India.
Independent tower companies’ inclination to pay a premium for assets will diminish as the market leaders close their deals – we’ve reached the tipping point for infrastructure sharing in Africa.
So the market leaders are all keen. But beware – not all tower tenants are created equal.
Sale and leaseback deals are fuelled by 10 to 20 year income streams from leases, so the ability of the tower company to lease up the towers to credit-worthy operators is key.
Infrastructure sharing in African telecoms is literally is a land-grab. Depending on your market, there could be between two and five credit-worthy licensed operators, so there could be as many as ten prospective tenants if you count WiMAX, ISPs and broadcasters. But towercos can only do so much to attract new tenants – the RF characteristics of the site are what they are, and there are only so many tenancies to be secured in any given market. First movers will have a considerable advantage in maximizing their valuation and in securing tenancies.
Don’t let your valuable tower assets get stranded on your balance sheet, their value declining, opex increasing whilst your competitors reduce their own opex by outsourcing to specialist infracos. Share your towers when the time is right, but that time could be now!
