John Earley served as CTO for Millicom Tigo in DRC and for Celtel / Zain in Nigeria, in the latter where an initiative to divest passive infrastructure was being explored prior to the sale of the business to Airtel. John then joined microwave transmission market leaders Ceragon Networks as President of the Africa region, growing the business from $15m to $85m revenue between 2010 and 2012. John continues his interest in infrastructure sharing, and maintains close relationships with several of Africa’s towercos. In this interview, John puts forward a case for the towercos to offer transmission sharing alongside passive infrastructure sharing services.
TowerXchange: Is the transfer of assets from operators to towercos good news for backhaul specialists like Ceragon?
John Earley, President Africa Region, Ceragon Networks:
The transfer of assets from operator-captive to towercos can be both a threat and an opportunity for network equipment providers.
It’s a threat if we had an agreement with the operator who built the towers, but we have to start again with the new third party owners. But it’s also an opportunity; as sites become co-location sites, the new tower operators are required to make investments to upgrade sites for multiple tenants, and in the majority of cases the transmission network was not planned with co-location in mind. Backhaul could require substantial capital investment, otherwise a lot of sites may be rendered unusable for co-location due to the needs of operators for more and larger antennas to support higher bandwidths and more cluster sites.
But in these early stages of passive infrastructure sharing, the transfer of assets has little effect on backhaul. Most the transactions to date remain focused on passive infrastructure; African operators are firmly holding on to their active infrastructure, and base stations and transmission have remained part of the mobile network operators’ strategic inventory.
However, with the increasing desire for mobile network operators to push responsibility for more commodity assets to third parties, managed services agreements and tower transactions could extend to active infrastructure management including transmission in the future.
TowerXchange: Tell us about the shared transmission opportunity as you see it.
John Earley, President Africa Region, Ceragon Networks:
Towercos should extend their business model to include shared transmission services. They have two alternate business models. They could offer shared transmission as an additional revenue stream and service to existing tenants as part of the initial deal – acquiring both towers and transmission assets for leaseback, with a view to upgrading or replacing those assets to support multiple tenants. Or they could build a parallel transmission network and use an attractive pricing model to incentivise co-locating tenants to use their shared transmission. This would provide additional revenue for the towerco while reducing capex and potential opex for the operator.
One of the towercos’ major challenges when acquiring new physical assets is that the data doesn’t always reflect the reality on the ground. Towercos try to mitigate this risk through comprehensive due diligence, but their business case has to be conservative to allow replacement and the structural re-engineering of towers where necessary to support additional tenants. Shared transmission has the added advantage of freeing up capacity to add more equipment to towers, driving up towerco revenues, tenancy ratios and profitability.
Imagine if a towerco had four tenants on a specific tower, all sharing a single transmission network. With heavy microwave antennas representing as much as 80% of wind loading capacity, having one set of microwave dishes rather than four could free significant Exposed Projected Area to sell to additional tenants or for next generation equipment upgrades. The radio base station antennas are relatively small, with minimal additional load and more freedom on where to place them. On the other hand microwave transmission involves large antennas, often requiring a specific location in terms of height and direction.
So you can see how shared microwave transmission creates both new revenues and frees up capacity enabling towercos to drive their core co-location revenues.
TowerXchange: Do you see any of the African towercos moving towards transmission sharing?
John Earley, President Africa Region, Ceragon Networks:
The African towercos are listening, but we don’t see a serious drive to turn transmission sharing into a reality yet. I don’t think the towercos realise the potential of backhaul – I’m not sure they’ve analysed the upside to the extent that they have a business case to present to operators.
It’s not a question of skills. The engineering staff transferred to towercos and their contractors carry broad based skills, including first line maintenance on transmission equipment. Some further upskilling would be required, but it’s really about a change of mentality: towercos have to have a desire to move in this direction.
One of the African towercos hired a consultant to examine transmission sharing, but the project died off as they focused on different things. To my knowledge, none of the African towercos has completed a viability study into transmission sharing. The more towers the towercos acquire, the more neglecting transmission sharing is going to look a bit short-sighted.
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Shared transmission is going to work particularly well in markets such as Cameroon, where consolidation and decommissioning of towers will maximise long term efficiencies TowerXchange: With IHS announcing recently that they have secured a fifteen year lease of Orange’s towers in Cameroon which, in combination with their previous acquisition from MTN, gives IHS all the towers in Cameroon (Viettel notwithstanding), would a market such as that be a good platform for a shared transmission play?
John Earley, President Africa Region, Ceragon Networks:
Shared transmission is going to work particularly well in markets such as Cameroon, where consolidation and decommissioning of towers will maximise long term efficiencies.
In many cases, mobile networks in Africa were rolled out on a copycat basis. The first mover put their tower on one hilltop, their competition put a tower almost adjacent to that; when the first mover took a rooftop, the competition took an adjacent rooftop. When launching, sometimes copying your competition is the fastest way to rollout a network. But we’re reaching a point where some critical hilltops and metropolitan locations don’t have enough real estate available.
For companies in IHS’s position in Cameroon, the best way to reduce opex in the long-term in scenarios with two towers on essentially the same grid reference is to decommission one tower and co-locate on the stronger tower. With ten to fifteen year commitments to two key anchor tenants, you can’t just tear down the tower. If you want to combine the sites, you’ll have to move equipment from one site to other. Unless you share transmission assets, the wind loading requirements may necessitate building a third tower whilst tearing down both original sites, all at significant cost. On the other hand, if you shared transmission, you could fit radio antennas from both operators onto one of the original towers, and you’d have ability to maximise service continuity, with a seamless transfer from one site to the other.
TowerXchange: What is the revenue potential from shared transmission?
John Earley, President Africa Region, Ceragon Networks:
A good benchmark would be the cost for leasing capacity from fibre or fixed line operators. That varies from country to country, and the more you buy, the less you pay of course, but if I had to pick a figure for a 100MB connection, the market price for shared transmission would be around US$5-6,000 per month per site, depending on the distance involved and the cost of spectrum.
TowerXchange: Is the target “client” within the operator the same for shared transmission as for shared towers, thus making shared transmission a simple upsell?
John Earley, President Africa Region, Ceragon Networks:
I think the decision makers for sharing towers and sharing transmission are different people.
Most tower transactions are motivated by the reduction of opex and by stretching capex, and are driven by corporate financial and strategy people in head office.
In order to sell shared transmission, towercos would have to engage the local opco’s technical network people to convince them tht this wouldn’t adversely affect their ability to control and operate their networks.
TowerXchange: Are mobile network operators prepared to share transmission?
John Earley, President Africa Region, Ceragon Networks:
There’s no difference between leasing microwave capacity and leasing fibre capacity, which the mobile network operators are already doing.
The major objections to transmission sharing are coming from operators who are keeping control of assets they consider to be a strategic. Yet only certain elements are strategic, such as the core network for example. Transmission isn’t strategic.
TowerXchange: How would shared transmission service providers ensure availability?
John Earley, President Africa Region, Ceragon Networks:
If you’re going to have multiple operators sharing transmission, then you’re going to require increased resilience. If all five licensed operators in a country were using shared transmission, you might not just need dual route redundancy but tertiary resilience to provide comfort that they’ll all get the same or better availability than their current network provides.
TowerXchange: Tell us about the capacity constraints affecting Africa.
John Earley, President Africa Region, Ceragon Networks:
The major capacity constraint in Africa is the availability of spectrum. Spectrum is a finite resource with limited re-usability in a given geography.
Africa and Latin America have relatively poor regulatory control of spectrum, which leads to problems with interference, for example through the use of low frequency spectrum in metropolitan areas. There is also a problem with the unknowing illegal use of frequencies due to errors in configuration where transmission links are accidentally put in on the wrong frequency.
The lack of pervasive fibre rollout means Africa has a reliance on microwave backhaul, which in turn leads to constraints on the use of microwave. However, Ceragon and our peers have made a lot of progress to make sure the maximum can be squeezed out of available bandwidth, helping improve resilience to interference to overcome the poor operating environment in Africa.
There is no hard limit on microwave – the only limit is how much spectrum you can use and the cost of that spectrum. For example, in South Africa and in Kenya there is a charge per MHz of spectrum used, so when you have four mobile network operators using the same network topology, they incur four times the fees even if in practice they are actually utilizing one and a half times the spectrum due to trunking and combining – not sending data at a constant stream or bit-rate, rather than the full four times. So one can gain advantages in terms of overall bandwidth utilised, but the cost is still substantial.
TowerXchange: Is transmission sharing happening anywhere else in the world?
John Earley, President Africa Region, Ceragon Networks:
Transmission sharing has been going on since the beginning of transmission. For example, in the UK BT had a monopoly on transmission – you had to rent it from them. Only with the advent of mobile networks was there a push to build multiple parallel independent transmission networks as BT’s transmission infrastructure couldn’t support the growth in requirements from GSM transmissions, and a lot of expansion involved building masts in fields and along roads where fixed lines never went. The regulators were forced to allow microwave transmission. It stuck, and they’ve never looked back.
Meanwhile in Africa there was no such alternative because the incumbent fixed line network was not extensive (except in South Africa), so there was no fixed line operator from whom to lease transmission services.
TowerXchange: Thanks John, would you like to sum up the business case for shared transmission as you see it.
John Earley, President Africa Region, Ceragon Networks:
I foresee an increasingly compelling business case for shared transmission. Once it starts, the market will be quick to move in this direction. We’re seeing an exponential increase in the use of backhaul capacity, driven by huge appetite for data which is driving bandwidth utilisation like never before. Operators will simply run out of capacity, and there won’t be enough spectrum for each operator to have their own pipe.
We see this happening already with shared fibre infrastructure. My analogy, which applies equally to towers, fibre or transmission, is that the current situation is like five bus companies each building their own highway between two major cities. Why tear up the landscape to build five highways for different bus companies when it’s more economical to build one shared five lane highway, and manage timetables and traffic?
