Eaton Towers hits the ground running…

Alan Harper, Co-founder and CEO of Eaton Towers, kindly consented to be interviewed concerning Eaton’s recent acquisition of 300 towers from Orange and 400 towers from Warid in Uganda.

Alan has over 25 years of telecoms experience, including 17 years in Africa. Most recently, he served as Group Strategy and New Business Director for Vodafone Group PLC from 1995 to 2007, responsible for corporate and regulatory strategy, business development, R&D and public policy. He was Managing Director of Vodafone UK from 1999 to 2000.

TowerXchange: Thank you for agreeing to share some insights in this interview, Alan. To put this interview in context, please tell us a little about the current state of the telecoms market in Uganda.

MTN are market leaders, with Airtel second, Warid third, Orange fourth, and UTL fifth. The sixth license was bought by Sure Telecom, recently acquired by Roshan, and they’ve not yet launched.

We bought all the towers from Warid and Orange, the third and fourth licensees, which combined give us national coverage. Prior to this, tower sharing had been relatively minimal between operators, with the exception of Orange and Warid who had rolled out in a fairly co-ordinated way – co-locating on one another’s sites – while there had been quite a bit of sharing with Airtel, who are on a reasonable number of Orange and Warid’s towers.

TowerXchange: Partnering with a towerco enables more long-term network investments, where will you invest first?

We’ll provide better mechanisms for refuelling; remote network monitoring through the NOC to monitor passive infrastructure, improving security on sites. We’ll also undertake some network extensions beyond the initial portfolio, for example in the West of Uganda there are new mining and oil & gas discoveries, so there are some new industrial areas that need coverage. But the major driver is capacity enhancement – most of the new tower growth is urban areas, not just in Uganda but in most markets – with rural to urban migration there’s a growing customer base and of course data usage is increasing. Orange in particular has a data and quality play, with a good 3G network and urban strategy.

TowerXchange: Speaking with the team at Warid, I understand their towers already had good tenancy ratios after a conscious strategy on their part to build a network with prime locations and multi-tenant capacity for future value. For example, I understand some 260 of the 700 towers were already shared between Warid and Orange. How does Eaton add value to a portfolio that already has good tenancy ratios?

We start with a good portfolio, with established sharing agreements, and some benchmarks for pricing in the market. This avoids the challenge of varying expectations on tenancy rents.

It had been a conscious, co-ordinated rollout between Orange and Warid – sharing towers made pragmatic sense at the outset, and it made both more interesting portfolios to us. It wouldn’t happen like that in most other markets – you’d expect more overlap between towers, but it meant we didn’t buy redundant assets. So while we had to pay for it, we’ve taken over those tenancy agreements and secured that ongoing revenue stream – we start on a very high tenancy ratio.

MTN Uganda and American Tower announced their deal a couple of months beforehand, securing a portfolio of around 700-800 towers, but because MTN had done relatively little sharing before the transfer, they start with 700-800 tenancies. We have a very similar nationwide footprint but start with over 1000 tenants – making us the market leading towerco in Uganda. This gives us scale, pre-existing revenue, and an ability to run a bigger business from day one. We want to drive the lease up rates, targeting 0.5-1 tenant per tower. Meanwhile, the rollout of 3G adds to the capacity needs of network.

TowerXchange: Speaking of MTN and American Tower, to what extent do the tower portfolios overlap? How do you differentiate your service from alternate co-location sites?

We may have overlapping footprints, but not often overlapping tower locations. You might have a one square kilometre area within which you need a new base station, if there’s only one tower, there’s only one choice – the tower has simply got to be in the right place. So it’s not that intensely competitive, either you’ve got the location or you haven’t.

If there are two towers within 100 metres, and if both have capacity, then you might choose on the basis of a volume deal with operator, knowledge of better QoS, or you might consider performance against service level agreements on other towers – essentially, which towerco is easier to deal with. So it’s rarely a shootout on tenancy rental costs.

TowerXchange: What are the benefits of infrastructure sharing for Uganda as a country and for Ugandan subscribers?

There are economic benefits for the operator: better network coverage with lower capex and opex investment, which enables better QoS and an opportunity to reduce tariffs. There are environmental benefits; obviously three tenants on one tower is better than three towers. But it’s not just about visual impact, it’s about reducing power consumption, truck rolls – the logistical overhead of one tower is so much less than for three. It’s a genuine win-win. Uganda wins because the government achieves it’s objectives in terms of speed and quality of network rollout, while also creating new license revenues from towercos; operators win because service levels improve, QoS improves, and the balance sheet is improved; while towercos win new business and customers.

TowerXchange: Tell me about the regulatory environment – how supportive have the Uganda Communications Commission been?

The UCC have been helpful and supportive where asset transfers needed clearance – they were comfortable with QoS. Importantly, the UCC had a clear licensing policy, and enabled Eaton Towers Uganda to get up and running quickly.

African governments are starting to understand that towercos are a good thing; they enable network extensions, they present an opportunity for new license fees (or revenue shares), and those license fees are fair.

TowerXchange: How do your strategies in Uganda, where you’ve acquired 100% of the equity in the towers, compare with Ghana where you have an operational lease with Vodafone Ghana?

From a customer point of view there’s really no difference: we sell services, we run towers, we have quality of performance targets. The operator drives the business model. The only reason we do operating leases is because it’s what the operator wants, if for whatever reason they’re not ready to sell their towers. And of course as in Uganda we’re also happy to do tower purchase and leaseback – although these deals can take longer.

The market structures are similar in Ghana and Uganda – a similar number of licensees. Of course we started with more tenants in Uganda, we started with a tenancy ratio near 1 in Ghana. Probably the biggest difference is that the idea of a towerco is more advanced now. CTOs accept towercos more readily, so the biggest difference has been that our speed to market has been faster in Uganda.