TowerXchange starts a long journey to profile proven innovative equipment and managed service providers to Africa’s telecoms infrastructure community, interviewing senior executives at companies with a demonstrable track record of saving energy and maintenance opex, and optimising rollout and retrofit capex.
The selection of the right equipment and managed services partners, and the identification of innovations that yield the best opex saving for the lowest capex, are both critical decisions for tower operators, whether MNOs or independent towercos. So this edition seems like a good time to consider the impact of the entry of independent tower companies on that supply chain, and to ask “how do towercos buy?”
Towercos account for an increasing proportion of Africa’s greenfield and retrofit expenditure
Given the significant proportion of new build-to-suit contracts being secured by towercos, together with the pent-up maintenance and capacity upgrade investments a tower transaction can release, it’s clear that tower companies are critical prospects for Africa’s passive equipment, EPC and managed service providers.
A new class of energy equipment, RMS and managed services providers vendors has emerged who aspire to be strategic partners “on the same side of the negotiating table” as tower companies.
Independent tower companies rightly have a reputation as canny buyers
Each towerco operates a rigorous process for the selection of new suppliers, always with in-house procurement teams, often governed by procurement committees that go all the way up to board level.
Towercos can be very demanding when it comes to delivery time and maintenance of warehouse stock in order to meet the towercos’ own exacting mean time to repair and installation requirements within SLAs with tenants. Once you get beyond the deal-making / real estate management “top layer” of a towerco, the tower operators are obsessive-compulsive about uptime, yet many outsource much of the O&M process, so they can and should be demanding clients.
Selling to towercos is reportedly a case of “slow, slow, quick, quick, QUICK!” One vendor spoke of it taking three years to progress from concept to purchase order with one of Africa’s leading towercos, complicated by requirements for public tendering. He described a procurement process that was stringent and complex, but noted that while towercos are very precise in their due diligence, when a decision is taken towercos move at 100mph – expedience is key, and they involve new vendors in a military-like process to get new equipment installed swiftly.
We’ve seen few instances of towercos agreeing exclusive supplier agreements within a given category. One towerco executive talked of having supplier agreements with three of four generator manufacturers, and a requirement that each keep stock on hold for them as towercos don’t like to keep their clients waiting.
Despite exclusive contracts being rare, towercos can be high value clients in terms of volume. Towercos know this and will negotiate hard on price. But they all assure us that they try not to squeeze margins to the extent that suppliers business is threatened! If O&M service providers are lucky enough to secure a contract with a towerco, don’t be surprised if they tender maintenance contracts annually or bi-annually – this seems to be standard practice.
Where do towercos invest first when they’ve acquired a new portfolio of towers? Upgrading capacity, deep cycle batteries, line conditioning and RMS are popular.
The CEO of one towerco said they focused their initial investments post-acquisition on better mechanisms for refueling, on connecting RMS to the NOC, and on other measures to improve security on sites. The local CEO of a different African towerco said their first priority has been cleaning the energy supply; replacing old copper wires with voltage regulators.
A third CEO suggested that the entry of towercos into a new market was a particular opportunity for power equipment vendors because operators had been running sites for a single power user, while towercos would need to upgrade sites with capacity to load more tenants and that means generators need to be enhanced, resized and upgraded. His first measure was to invest in technologies such as deep cycle batteries that reduced run time and associated fuel costs, while he was also installing RMS.
Eaton Towers tend to do their own power management, and decide, define and design what equipment to install at sites to improve power efficiency and therefore site level profitability. Eaton subcontracts new site installation and maintenance.
Maintenance contracts
The entry of towercos into a market may herald the consolidation of supplier contracts. Where operators’ legacy contracts might see multiple partners engaged in security maintenance and fuel delivery, towercos are often inclined to bundle this into fewer, longer term contracts. But every towerco takes a different approach. Another towerco cited the importance of managing multiple regional suppliers to operate sites economically.
One of the unspoken truths of tower transactions is that MNOs may defer non-essential maintenance when they know they’re going to sell their towers, so the completion of a transaction can release pent up O&M expenditure.
Energy equipment and ESCOs
A sensible question energy equipment vendors and ESCOs should ask towercos is whether the structure of their sale and leaseback or operational lease deal includes a power pass through model. If power costs are passed through to the tenant, then the MNO retains full exposure to power opex. If the towerco takes on the risk of energy consumption, they are much more likely to be inclined to invest in energy opex reduction innovations.
Towercos create value by reducing opex – primarily energy and maintenance opex. On pages 26-31 of this edition, AT Kearney go so far as to contend that maximising site level profitability is almost as critical to the success of towercos as maximising tenancy ratios, so choosing the right vendor is critical.
We hope you find TowerXchange’s exploration of the tower industry supply chain useful. As ever, if you have any comments or want to recommend a company to be featured in a future edition, please feel free to contact me!
All the best,
Kieron Osmotherly
Founder, TowerXchange
