IHS has risen from a proven engineering and managed services business partner in Nigeria to become the largest towerco in Africa, by number of towers owned and managed. IHS were in the headlines again in early April 2013, taking over the management and marketing rights of over 2,000 towers from Orange to add to the 1,758 towers they acquired from MTN in Cameroon and Cote d’Ivoire in 2012. Selected members of the press and analyst community joined three senior members of the IHS management team for a breakfast briefing in Barcelona during Mobile World Congress, where they explained their breakthrough year in 2012 and ambitions to scale to over 25,000 towers owned or managed in MEA within the next five years.
IHS’s twelve-year track record of success and leadership position in Africa
CEO Issam Darwish and CTO William Saad created IHS in Nigeria in 2001, establishing IHS as “commercially the leading independent towerco in Nigeria.”
“We started out as a builder,” said IHS’s Director of Business Development Romain de Villeneuve. “This enabled us to develop operational excellence and build mobile network operators’ confidence in the quality of service we provided, which led to us offering managed services. Becoming a towerco was a natural next step after our huge operational experience in Nigeria.”
IHS targeted a move up the value chain from managed services into tower acquisition and leaseback, described as “great for investors, for network operators and for consumers.” 2012 was a transformational year for IHS, trebling their number of towers owned and managed through the agreement to acquire 1,758 towers from MTN in Cameroon and Cote d’Ivoire. This deal made IHS Africa’s number one towerco by number of towers owned and managed, and gave them a substantial footprint in these two high growth countries through ownership of the market leader’s towers. According to IHS’ Chief Commercial Officer (CCO), Rhys Phillip, “IHS was chosen over competing bidders because of our engineering expertise – over 80 percent of our 1,000 staff are technical engineers.” IHS has built over 3,000 sites and maintains 99.95 percent power uptime. “This transaction has accelerated revenue growth, extended our reach and extended the amount of help we can deliver to MNOs,” added Rhys Phillip.
The transaction also saw the introduction of new investors, with new 25 percent equity holders, Wendel, providing guidance and support at a shareholder level.
The October 2012 deals with MTN were followed in early April 2013 by the announcement that IHS has taken over the management and license to market a further 2,000 sites from Orange in Côte d’Ivoire and Cameroon. In this latest deal the towers will remain the property of the Orange subsidiaries: IHS will manage the towers for Orange for an initial term of 15 years, whilst Orange subsidiaries will benefit from access to available slots on towers that IHS currently owns in both countries.
IHS’s rationale for the acquisition and long-term lease of towers in Cameroon
In acquiring 827 towers from MTN in Cameroon, IHS secured the largest and most exciting tower portfolio in a country with plenty of capacity for growth in mobile penetration. Mobile subscriber numbers grew from 3.1m in 2006 to 10.5m in 2011 at a CAGR of 38 percent, and are projected to increase to 17m by 2016, at a CAGR of 10 percent. Cameroon’s two active operators, MTN and Orange, are looking to expand coverage to rural areas and second tier cities. 3G services are yet to be launched; however regulatory guidelines encourage co-location in Cameroon.
IHS’ anchor tenancy agreement with MTN, the most profitable and creditworthy MNO in Africa, also locks-in fulfillment of future build-to-suit requirements from the number one operator.
IHS has positioned itself as the natural partner for new MNO entrants in Cameroon. IHS noted that Viettel had acquired a 3G license in Cameroon late in 2012, and that the company was well financed with annual sales over US$6bn and profits over US$1bn. IHS also noted the presence of eleven WiMAX/ISP players in Cameroon as potential tenants.
IHS’s rationale for the acquisition and long-term lease of towers in Cote d’Ivoire
In acquiring 931 towers from MTN in Cote d’Ivoire, IHS secured the largest tower portfolio with the highest potential for co-location in another country with plenty of capacity for growth in mobile penetration. Mobile subscriber numbers in Cote d’Ivoire have grown at a CAGR of 26 percent since 2007, and are projected to increase from 18.7m in 2011 to 24.2m by 2016, at a CAGR of 5.3 percent. Cote d’Ivoire’s three major operators are seeking to expand capacity, while a further two tier two operators are expanding to rural areas and second tier cities. 3G services are in their infancy. The Cote d’Ivoire government has hinted at the potential creation of a legal framework making tower sharing mandatory for MNOs. IHS also noted the presence of eight WiMAX/ISP players in Cote d’Ivoire as potential tenants.
IHS’ anchor tenancy agreement is again with creditworthy MTN and, like in Cameroon, locks-in future build-to-suit requirements. Strong build-to-suit demand is expected from all existing MNOs in Cote d’Ivoire.
The lease conditions released for IHS in Cote d’Ivoire were the same as in Cameroon: the lease term was ten years with annual renewals for the following five years.
3G and cell site densification in Cameroon and Cote d’Ivoire
“With the development and rollout of 3G in Cameroon and Cote d’Ivoire comes a need for densification. Where a network planner might have needed three towers to cover in 2G, 3G might require five towers. We are still at the start of investment in 3G in these countries; more investment is needed in build-to-suit and we anticipate 3G requirements driving more tenancies on the towers we’ve acquired. On top of that there is still a need for the improved voice call quality and growth in the number of voice customers – the 50-60 percent penetration in these countries is quite low,” said IHS’s Director of Business Development, Romain de Villeneuve.
Senegal, DRC, Kenya, Mali, Zimbabwe, Mozambique, Morocco, Tunisia, Guinea, Egypt, Madagascar, Rwanda, Ethiopia, and Zambia are countries particularly targeted by IHS
IHS targets 25,000+ co-location towers over the next five years
“We retain an ambition to keep the growth curve steep and maintain IHS’s leadership position in Africa,” said CCO Rhys Phillip, showing a slide that highlighted that Senegal, DRC, Kenya, Mali, Zimbabwe, Mozambique, Morocco, Tunisia, Guinea, Egypt, Madagascar, Rwanda, Ethiopia, and Zambia are countries particularly targeted by IHS.
As for the Middle East, “we have a relationship with Etisalat and a presence in the Middle East, but for moment IHS is an African towerco. The Middle East will always be part of our plans at the right time,” said Phillip.
IHS is targeting over 25,000 co-location towers in the next five years. “We will work on group level relationships with mobile network operators and partner with those operators as they explore new opportunities, evaluating the attractiveness of individual markets from a macro economic point of view as well as the telecommunications and network opportunity,” said Phillip.
“We have built up a reputation for performance and quality of service in our markets and it is one we are very proud of. It’s important that we consolidate what we have in Nigeria, Cote d’Ivoire and Cameroon, North and South Sudan, investing in energy innovations, while leveraging our commercial teams to build IHS’s revenue profile and margins, enabling further investment in R&D,” added Phillip.
What defines IHS’ interest in a region - does IHS have an appetite to acquire any of the big portfolios rumoured to be coming to market?
“We’re often interested if penetration of mobile gives us room to improve,” said the Director of Business Development, Romain de Villeneuve. “It’s important to be the first towerco in a country, to secure first mover advantage. There is greater or lesser demand from all 54 countries in Africa, of which we’ve prioritised 17 or 18. And then there’s the operational challenge: it’s not easy to operate towers in Africa, so risk monitoring is vital.”
“If any big tower opportunities arise from MTN, Airtel, Orange, Etisalat, Vodafone/Vodacom or Millicom take place, IHS will want to play a role,” added the CCO Rhys Phillip.
IHS are not risk averse. Our founders set up a company in Nigeria when few would have wanted to startup in such a complex market. As an organisation, we like challenges: it has to be large, growing market with potential tenancy growth. If there is a large portfolio, we’d go for it,” added Rajiv Jaitly, IHS’ CEO, Nigeria.
Towercos will build the majority of new sites in the markets in which they operate
“We believe few new towers will be built by mobile network operators in the future; they will look to outsource. In markets where there are towercos, I don’t think operators are going be building any more towers,” continued Rhys Phillip. “When operators outsource their towers, much of their network rollout and management expertise is transferred to the towerco. Subcontractors will continue to do much of the actual building, but towercos will take over those relationships and be responsible for the tower, for power, security and maintenance.”
Is there enough incentive to build towers in rural areas with low ARPU?
“This is an age old dilemma, how do we make rural connectivity commercially viable?” said Rhys Phillip. “Governments remain keen to push the rural agenda, and the World Bank and others support that ambition. IHS is keen to play our part in driving that, and we structure our pricing in rural areas so that it makes sense for both the operator and us. The investments we’re making into power solutions, such as uninterrupted solar, makes it easier for us to develop in rural areas.”
Romain de Villeneuve took on the debate: “Where there is a lack of RoI in rural area networks, subsidies may be needed. But if we can build one site for three operators and share the revenue, then the mobile network operator doesn’t have to take the risk. Rural networks will benefit from huge growth thanks to tower sharing. We can be neutral and independent in network rollout, enabling the industry to invest together without acting anti-competitively.”
“It’s not our policy to ‘build it and they will come’. We talk to RF departments, and we know where they want to go,” added CCO Rhys Phillip.
Given that the entry of towercos will transform the passive infrastructure supply chain, how do you buy?
“The towerco will be a filter in front of all suppliers and subcontractors,” said IHS’s Director of Business Development Romain de Villeneuve. “We buy like all towercos: we research partnerships, we seek loyalty, quality, and a competitive price.”
“Operators have their suppliers on a country by country basis,” added CCO Rhys Phillip. “Our due diligence process includes stepping into their shoes, conducting our own due diligence on those suppliers, looking at alternatives and leveraging relationships with trusted existing partners.”
“IHS replaces the mobile network operator in managing subcontractors,” added de Villeneuve. “We have the time to focus on acquiring the best engineering systems, the best innovations combining grid, batteries, genset and renewables. It’s a major change from mobile network operators managing passive infrastructure, which is not their core business. We know the passive infrastructure industry, where fuel, steel and concrete are 75 percent of costs.”
“There has been an acceleration in solar energy innovation. We won’t develop solar ourselves, but will select the right partners with time and focus on energy. Builders of towers will stay builders of towers, and we’ll maintain our 10-year relationships with companies on the ground,” concluded IHS’ Villeneuve.
With every new tenant, our cost of energy decreases by approximately 40 percent, so the infrastructure sharing business model is aligned with energy opex reduction models.
IHS’s view of the ‘energy as a service’ proposition
“Energy is our number one cost,” said Romain de Villeneuve. “With many sites off-grid or on unreliable grid power, and rising fuel prices, we are interested in opportunities to share the risk with energy innovators who are key to effectiveness and profitability. Something like 80 percent of IHS staff are African engineers, and we like to find new solutions, not only through solar panels but deep cycle batteries, the latest gensets, and remote monitoring – we’re interested in innovations across the whole passive infrastructure supply chain. With every new tenant, our cost of energy decreases by approximately 40 percent, so the infrastructure sharing business model is aligned with energy opex reduction models.”
“Power uptime is so critical, and the implications of failures so huge, that giving that responsibility to an unproven ESCO partner would be a step too far,” added CCO Rhys Phillip. “But that’s probably what CTOs were saying about towercos a few years ago! Towercos had to prove themselves in Africa, and they’ve done that over the last three years. I feel the ESCO proposition will take a similar number of years to mature.”
“African telecoms remains around 95 percent prepaid, which means if there’s no power, there’s no revenue. So our head is on the block. We have to provide excellent Quality of Service (QoS) to ensure our operator tenants do not lose revenue. QoS in energy is a priority for IHS, and our mobile network operator partners’ first expectation is that we improve energy QoS and increase network availability,” concluded IHS’ Director of Business Development Romain de Villeneuve.
Extending operator relationships from one country to the next
Ken Okeleke, Senior Analyst at Business Monitor International asked an excellent question:
“MTN also work with IHS’s competitors – how easy is it to establish relationships in one country and extend those relationships to other countries?”
“Trust is a major requirement,” said CCO Rhys Phillip. “Once you’ve attained the trust of a mobile network operator it’s easier to get into another country. Our experience is that the relationship has to be right at country level, but relationships with the head office are also important of course.”
“We’re very proud of what we’ve achieved to date – we won those deals in Cameroon and Cote d’Ivoire on merit. MTN will doubtless continue to make decisions based on what’s best for them in each market, but we’re confident we can maintain and deepen our relationship with MTN,” concluded Rhys Phillip.
