Participants in the DRC round table at the TowerXchange Meetup were treated to insights from local operators, turnkey infrastructure contractors and the encyclopedic knowledge of Helios Towers DRC Chief Commercial Officer Jeffery Schumacher, who moderated the discussion. Respecting the Chatham House Rule and not disclosing the source of insights, here we share some of the key lessons learned about one of Africa’s most attractive and challenging tower markets.
Introduction to DRC
The Democratic Republic of the Congo is one of the poorest countries in the world - BMI had GDP of US$292 per capita in 2012 in their analysis of the DRC market recently released through TowerXchange. The population of DRC is 75.5mn (Source: CIA Factbook), with different definitions suggesting the urban population is between 35 and 50mn. The GSMA reports GSM penetration in DRC is at 17.5% and subscriber ARPU at US$6.
With only 2,700km of paved road in a 2.3mn sq km country, inland logistics in the DRC are often dependent on plane or boat, and the cost of a delivered litre of diesel at a cell site is doubled by logistics costs, compounded by the challenges of a rainy season that effectively lasts nine months of the year. The last mile is often a lot more than one mile, and may require transportation by canoe and the help of local villagers.
The DRC’s five major mobile network operators (Africell, Airtel, Orange, Tigo and Vodacom) compete keenly for market share in the capital Kinshasa, where ARPU is significantly higher than the rest of the country thanks to the presence of an affluent minority. A sixth operator, Supercell, is active in Eastern cities. The copper belt mines in Katanga make the region attractive for MNOs. Mbuji-Mayi is relatively underserved in terms of coverage. The Kivu province remains war torn, but there is some economic growth and the political climate looks more promising than two years ago.
3G was launched in 2012, stimulating demand for infill sites in the DRC.
Towers and tariffs
There are around 3,500-4,000 base stations in DRC. It’s estimated a further 3,000 base stations would be required in order to increase mobile penetration to a targeted 50-60% within three years.
The sheer size of the DRC necessitates tower sharing, with bi-lateral swaps commonplace, although co-locations on independently owned towers are fulfilled more quickly and are backed by SLAs governing uptime. Helios Towers Africa acquired 729 towers from Tigo in 2010 paying US$45mn, with Millicom retaining 40% equity. Helios Towers DRC’s shared sites are mainly in urban areas, with around half in Kinshasa. Helios has a strong appetite to build more towers in DRC. Vodacom’s network is somewhat more rural, as is Airtel’s, which is generally acknowledged to have the biggest presence and coverage in DRC. It is believed tenancies on Airtel’s towers are now being marketed on a cash agreement basis rather than swaps, a possible precursor to the full launch of Africa Towers in the DRC.
Orange invested US$95m in network upgrades in the first year after it’s acquisition of CCT in October 2011.
Vodacom has proved the potential for substantial growth in DRC, growing it’s subscriber base by 36.6% in 2012.
There has been speculation suggesting MTN may enter the DRC market, but with limited spectrum available, acquisition would seem the most likely route for any would-be new market entrant. Nonetheless, Africell entered the market recently and swiftly secured significant market share, particularly in Kinshasa, thanks in no small part to tenancies on independently owned towers.
Africell made waves by competing aggressively on price. Tariffs in DRC remain around 12-13 US$ cents per minute at time of writing (October 2013), but have come down 20-30% in the last year.
The government and World Bank propose to start connecting fibre along the SNEL power line between Kinshasa and Lubumbashi.
Power
DRC has significant hydropower resources, with two large dams on the Congo River. However, currently only one of the five turbines is operational - fixing the others would treble capacity, although the substations may prove inadequate.
There is typically 20 hours per day of good grid available in Kinshasa. Elsewhere power is at 140v, single phase, and needs line conditioning. There is typically 12-14 hours of grid availability in Lubumbashi and 8-10 hours in Goma. Cell sites in the majority of the rest of the country are off-grid.
Solar is part of several tower operators’ strategies in DRC, but has not yet been widely deployed.
Pros and cons for the tower industry
While it can be tough to identify the real land owner and to track down complete documentation relating to leases in the DRC, foreign companies are permitted to own land, which is preferable for the protection of assets. Permitting may not be swift, but permits are issued automatically if not granted within a certain number of months, again advantageous to towercos.
While forex risk is always an issue, the local currency is pegged to the USD which hedges the risk somewhat.
Implications for tower industry suppliers
Import and clearing through Matadi port is challenging - shipments from South Africa are reported to take 4-6 weeks. As a result, the delivered cost of a US$10,000 battery might be US$18,000 in DRC. This makes the choice of import partner critical. Needless to say, premium static assets and power solutions can be prohibitively expensive by the time they arrive in DRC.
The challenges of import and inland logistics in DRC make it incumbent upon tower operators to maintain a substantial inventory of spare parts and complete towers.
The majority of towers in urban areas of the DRC are 50m, with 70-80m towers used to accommodate microwave dishes on transmission towers.
Established pan-African turnkey infrastructure companies with a presence in the DRC include Camusat, QTE, Leadcom, MER Telecom and Reime Group.
Security considerations
Conflict in the East of DRC has resulted in intermittent militia roadblocks, and other significant interruptions to logistics, but nothing as significant as the siege of Goma in 2012. Ongoing tension between militia groups has resulted in a number of towers being offline. Isolated instances of tower sabotage have been reported.
Fuel theft is a problem in DRC, with local tower operators reporting pilferage initially over 30%, subsequently halved by the installation of RMS.
With a culture of tower sharing in DRC, substantial network extension and densification required, plenty of credit-worthy tenants, and a very long runway for subscriber growth, independent towers have a major role to play
Significant though they are, security problems have not been prohibitive to tower operators achieving profitability targets in DRC.
Conclusions
The independent towerco business model has delivered considerable value to the ICT sector in DRC, and Helios Towers DRC seems to be thriving, if the usual metrics are anything to go by. There are plenty of towers with three or more tenants.
With a culture of tower sharing in DRC, substantial network extension and densification required, plenty of credit-worthy tenants, and a very long runway for subscriber growth, independent towers have a major role to play, whilst remaining mindful of the significant country risk. With Africa Towers potentially bringing the Airtel towers to market in DRC, operators considering selling their towers in DRC would be well advised to do so sooner rather than later to avoid their assets becoming stranded on the balance sheet.
In August 2013, TMT Finance has reported that Orange had commenced a process to sell its towers in the DRC.
Recommended further reading: Country risk factors weigh on investment strategies in DRC, by guest columnist Kenechi Okeleke, BMI.
Feature image courtesy of Camusat
