Infrastructure sharing is like building a big house in a prime location then appointing a real estate firm to divide it into several apartments. You keep the penthouse for yourself, and then that real estate firm leases out the apartments to multiple tenants, creating far more value than if you just rattled about in that big house on your own.
The sale and leaseback of towers to specialist independent tower companies is not a new phenomenon of course – it’s a widespread practice in Europe, the US and India, but the volume of infrastructure sharing transactions in Africa is increasing.
TowerXchange spoke to Keith Boyd, who in 2002 co-founded and served as CEO of Venture Communications, one of the pioneers of African telecommunications infrastructure. Keith is now Business Development Director at Eaton Towers, with whom Venture Communications merged in 2008. Keith explained “initial resistance to infrastructure sharing has gone over the last three years. Previously operators were all building their own networks, trying to outspend each other, with two or more towers on the same hill. That was the case when coverage was king - the big operators had better access to cash, and could outspend the smaller operators.” With ARPU declining, fierce tariff wars and increasing data demands putting pressure on network capacity and EBITDA margins, a new era of efficiency-focused network strategy has begun, and a wide variety of different tower sharing deals, each shaped to specific market objectives, are being announced regularly.
Initial resistance to infrastructure sharing has gone over the last three years
Africa’s biggest infrastructure sharing transactions to date
Boyd continues: “Eaton Towers have bought towers from Orange and Warid in Uganda, and we’ve got a ten year operating lease with Vodafone Ghana. In Ghana we don’t own the towers, but we invest in and maintain them. In South Africa, we are rolling out our own towers, and have seen very good uptake of co-location slots on these, as operators densify their networks in urban areas”
Comparisons between infrastructure sharing transactions
“Every tower valuation is different due to the differences between jurisdictions – there can be no standard read across of value per tower for example, a KPI which is often quoted,” says Rhys Phillip, Partner and Head of Transaction Advisory Services for Telecoms at Ernst & Young. It’s necessary to consider the rental rate and term of the lease, as well as the capital released, among a number of different factors. “Differences in transactions are driven by the legal, tax and regulatory regime in the jurisdiction, the motivation of the operator in selling, the competitive characteristics of the local market and the funding of the towerco,” concludes Ernst & Young’s Phillip.
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