Helios Towers Nigeria keen to acquire assets in Africa’s largest mobile market

Inder Bajaj is the Chief Executive Officer of Helios Towers Nigeria and a Director of Helios Towers Africa. He has over 24 years of professional experience in telecom services and office automation. Inder’s experience in telecoms includes over 7 years with Reliance Communication and over 5 years with Airtel. Inder was formerly President of Reliance Infratel (RTIL) , a leading telecom infrastructure provider in India with over 50K Towers.

Prior to this, he had served at Bharti Airtel Maharashtra Circle India as the Chief Operating Officer for 6 years and Modi Xerox as the General Manger for over 10 years.

TowerXchange: Please introduce us to the mobile market and tower industry in Nigeria.

Nigeria is the most attractive market in Africa. There are 110m subscribers in Nigeria, representing almost 20% of Africa’s mobile market, and the market is expected to grow to 150 million subscribers by 2016. We have lower penetration compared to South Africa, so there is more room for growth. Nigerian telecoms generate about US $9bn revenue, of which the four tier one operators have a 97% subscriber share and 99% revenue share. Subscriber additions and usage is growing - Nigeria is expected to soon become Africa’s highest revenue market.

Nigeria has a little over 24,000 towers in total, of which 1,300 are owned by Helios Towers Nigeria. New towers are being deployed at a rate of 4-5,000 per year. The 2G & 3G Base stations (including rooftops and other PoPs) are growing at 7-8000 per year, about half with 2G equipment, half 3G. Operators are investing heavily in their voice networks and data networks (3G) and the high levels of investment are in the range of US $3 billion per annum in the industry. From a tower perspective, the largest proportion of that growth in tower numbers is coming from MTN, driven by their coverage expansion strategy, and the need to densify their network to deal with the capacity demands of their large customer base.

Telecom operators are increasingly relying on infrastructure sharing to reduce costs and drive efficiency. Colocation is clearly the preferred option, particularly with a tower infrastructure company available. Operators have also commenced sharing amongst themselves. Nigeria faces significant growth in subscribers and capacity consumed per subscriber. Spectrum being a finite commodity is leading to growth in towers in urban areas as capacity gets filled up, with additional towers also required to extend coverage.

TowerXchange: The Nigerian Communications Commission (NCC) has had to issue penalties for poor Quality of Service (QoS) to several Nigerian operators. How does Helios Towers Nigeria help to improve QoS?

Mobile users - quite rightly - demand coverage and high-quality service levels for both voice and data needs. This creates a huge demand for expertise in setting up and managing the infrastructure investment and efficiency savings, which is where Helios Towers Nigeria comes in.

At Helios Towers Nigeria we offer best-in-class service levels for delivery of new business and uptime of over 99.97%. Our service metrics are consistently the best in the industry. We have long-standing partnerships with operators to deliver their network rollouts and offer superior network maintenance. HTN remains the industry’s benchmark for delivery, uptime and cost management.

TowerXchange: Can you give us an idea of Helios Towers Nigeria’s experience, footprint and tenancy ratios?

HTN was the first and is currently the leading independent telecom towerco in Nigeria with a 6% of the tower share and 10% of the base station (tenancy) share.  We introduced the tower sharing business model to Africa in 2005-2006.  We are the most experienced independent tower company in Africa.  We are the also largest independent tower company in Nigeria by both number of owned towers and number of tenants on those towers.

Helios Towers Nigeria aims to attain scale targeting 10% tower market share by organic growth, and to run it profitably for all our stakeholders. Today we have 1,300 towers in Nigeria; 800 greenfield sites on which we have tenancy ratios of 2.6, which is one of the highest tenancy ratios in the global tower industry. We also added 500 further sites from Multi-Links in 2011.

Our key customers include MTN, Airtel, EMTS and about 15 wireless broadband operators among others. These customers will probably double the number of base stations they need over the next three years and we are working to help them achieve that as cost effectively and efficiently as possible.

TowerXchange: Given your extensive experience in both the Indian and African telecom tower industries, how would you compare the two markets?

The biggest difference is that the capex and opex costs are much higher in Africa. The cost to deploy a greenfield ground base cell site is around US $60k in India, whereas in it can more than cost double in Nigeria - an average of around US $125k per site.

There are three reasons for the differences in capex: scale, design (due to different power conditions) and civil works. The size of the tower industry in India means steelwork and power systems can be bought at a better prices due to scale than in Nigeria. The grid availability and reliability in Nigeria is much lower than India so the design of the cell sites has to be very different and we often have to deploy two diesel generator and different levels of backups and thereby incur higher ground space costs. Finally the cost of civil works is higher in Nigeria - as much as 1.7-2 times the capex required in India.

Opex costs are higher in Africa too. You can divide opex costs into power and non-power. Non-power opex costs are 20-30% higher, but power costs are the major difference due to poor grid availability - we currently run on an average of 4 to 5 hours of grid power per day on 40% of our sites with the balance being run only with Diesel generators.  Other operational challenges include managing the movement of our people and materials (including diesel) to our sites, with the need for improved availability of transportation and security.

TowerXchange: How does co-location reduce costs for operators?

Co-location eliminates the duplication of capital intensive infrastructure (US $125,000 per site) by offering an “asset lite” model.  Not only does this reduce the number of telecoms towers cluttering up the skyline, but it also allows operators to invest their money in other areas, like new technologies.

Our business model also shares the ongoing fixed costs (which include costs for security, engine services, spares and maintenance, as well as regulatory and government levies) amongst all our tenant customers, thereby reducing their costs on an individual basis. Importantly, the operating cost advantage also extends to power, as customers can share generators.  This reduces the use of fuel and emissions.

All-in-all, Helios Towers Nigeria can achieve a 50% saving in capital and maintenance costs compared to the operators putting up a tower site for just for themselves. We are therefore able to pass on these benefits to our customers in our pricing, which in turn they can pass on to everyone as reduced tariffs to their customers.

TowerXchange: How extensive is your use of CDC and renewable hybrid power solutions?

Hybrid power is currently being deployed by both operators and towercos in Nigeria. Helios Towers Nigeria are deploying hybrid to optimise the use of battery and generator power, and we are on target to convert 80% of our low-load sites to CDC hybrids.

We have piloted alternate strategies at high load sites, which includes LPG at fifty sites in the Lagos area. These sites use gas as the primary source with a backup diesel generator. We’re achieving a 33% opex reduction at high load. There are challenges on supply and price but we piloted these to expand as the LPG industry stabilses for distributed sites like those in telecom.

TowerXchange: What was the impact of your acquisition of Multi-Links Nigeria?

The Nigerian mobile industry has grown considerably but has also consolidated, reducing the number of operators in the voice space between 12 in 2008 to 5 in 2013. The largest shake up happened in the CDMA space with a transition in Nigeria to the dominant GSM and 3G technology.

When Telkom SA withdrew from the Nigerian market, its subsidiary Multi-Links (a CDMA operator) was one of HTN’s key customers.  At HTN we decided to immediately re-focus our efforts on the core and stable GSM players like MTN, EMTS, Glo and Airtel.  This is a strategy that we believe is paying dividends already. At the same time, a company owned by our shareholders acquired Multi-Links in order to effect a restructuring of the CDMA market, which is now nearly complete. This restructuring is expected to generate value for our shareholders (through the disposal of Multi-Links’ towers and fibre assets). More importantly, from our perspective, given the orderly consolidation occurring in the CDMA space and also the move to 4G, and the intelligence we can gather through our shareholders’ experience, we see a great opportunities for HTN’s infrastructure business.

TowerXchange: What is the current progress toward LTE being deployed in Nigeria?

Nigeria has a low penetration of broadband, with just over 1m connections today. However it is forecast to grow fast to over 2m within 2-3 years.

The fixed wireless broadband market is currently serviced by operators such as Swift Networks, Spectranet, IpNX and Mobitel, many of whom have commenced substituting WiMAX with LTE using the 2.3 GHz spectrum bands. Then you have a new operator in Smile Communications who have set up in Tanzania and are expected in Nigeria soon.

Additionally Capcom is expected to offer Wireless Broadband with LTE consolidating CDMA operators spectrum, including Multi-Links.

These operators are expected to address the Fixed Wireless Broadband market and it is forecast that the regulator will auction spectrum to address the Mobile Wireless Broadband market through LTE soon.

TowerXchange: Are these companies credit worthy potential tenants on your towers? Is this an opportunity for the Nigerian tower industry?

Each of these companies is going to need 200-300 sites in their first 2-3 years, and none of these companies is likely to set up their own infrastructure, they’ll rely on shared towers. However fixed broadband is urban-centric, focusing on major cities such as Lagos, Abuja, Port Harcourt and Ibadan.

As for the question of their credit worthiness, that’s obviously something we’re validating very carefully, examining their funding and backing. We’re confident about working with most of Nigeria’s tier two operators. So yes these fixed broadband operators represent an opportunity for us, although 95% of our business still comes from Nigeria’s four tier one mobile network operators.

TowerXchange: Speaking of the tier one operators, what do you think are the prospects of a tier one operator selling their towers in Nigeria? Would Helios Towers Nigeria be interested to bid to acquire a substantial portfolio of assets if one were to come to market in Nigeria?

First of all, there is a movement of operators to get into the towers business through the of formation of towercos within their group like Airtel, or participating in sale and leaseback joint ventures like MTN or Millicom. Airtel has formed Africa Towers like they did in India, and is expected to commence this in Nigeria as well. Meanwhile, in Nigeria MTN and Etisalat are expected to follow the sale and leaseback route like they have done in other markets.

Helios Towers Nigeria would absolutely participate as a bidder if the tower assets of one of the tier one operators came to market as sale and leaseback. We have two business plans, one targeting a market share of 10% of Nigeria’s towers, and another targeting 25-30% if tower assets are divested by operators.

TowerXchange: Tell us about the regulatory environment for infrastructure sharing in Nigeria.

The NCC is a very progressive regulator. There are many things the NCC have done to both directly and indirectly support infrastructure sharing. The NCC are proactive about driving QoS, publishing statistics of dropped calls, call completion and coverage, and penalising operators for not up to the mark performance.

The NCC is aware of the compelling economic benefits of infrastructure sharing so there continue to be discussions about mandating tower sharing in Nigeria, and discussions about the simplification of multiple levies at federal, state and local levels.

The regulator considers telecoms an essential service. With state and local government demands for environmental, civil aviation and a vast number of different permits, there is an active role to be played by federal regulations to create a more unified approach to permitting.

The NCC has a universal access fund to address rural telephony (penetration). The acceleration of the deployment of the universal access funds can help accelerate the extension of towerco and operator networks into lower density, lower income rural areas where the business case for coverage could be improved by sharing sites.

We also expect the NCC to come up with an LTE license auction within 12-18 months, including Mobile Broadband. This will represent another opportunity for the towercos.