In BMI’s view, the competition dynamics in Côte d’Ivoire’s telecoms market underscore the growth potential of tower outsourcing services in the country. In addition to the likelihood of strong patronage from telecoms and communication providers, firms operating in the country’s tower infrastructure management ecosystem will benefit from a relatively stable macroeconomic environment, which is positive for their overall risk assessment.
IHS Towers, SWAP Technologies and their suppliers are well placed to take advantage of opportunities in the Côte d’Ivoire tower services market; but IHS’ strong funding gives it greater capacity to absorb existing tower assets and build new ones more quickly.
SWAP commenced operations in Abidjan in 2009, making it the first major independent tower-services firm to enter the market. SWAP launched its first co-location site in August 2010 in line with its primary objectives of constructing build-to-suit (BTS) towers and providing managed services to support mobile operators in the country. Although some mobile operators have subscribed to SWAP’s services since 2010, SWAP owns only a few towers in Côte d’Ivoire, and tower outsourcing services did not fully take off in the country until October 2012 when IHS Towers reached a deal with MTN to acquire up to 931 towers for US$141mn. IHS reached another deal with Orange in April 2013 involving more than 2,000 sites in Côte d’Ivoire and Cameroon.
Competition necessitates tower sharing
Côte d’Ivoire’s population of approximately 21.5mn is served by six mobile operators, although competition in the market is a tripartite battle between the strong international forces of MTN, Orange and Etisalat-backed Moov. The three smaller operators - Comium, LAP Green-owned GreenN and Aircom, operating under the Cafe Mobile brand, have a combined market share of less than 10% and have struggled to match the financial clout and network coverage of their bigger rivals. The six operators had a combined subscriber base of 20.477mn mobile subscriptions at the end of March 2014, according to BMI estimates based on available data from operators and the telecoms regulator, the Autorité de Régulation des Télécommunications/TIC de Côte d’Ivoire (ARTCI). Côte d’Ivoire also has a number of fixed wireless data service providers, including YooMee, which launched commercial 4G services in April 2014.
The large number of service providers and overall market dynamics in Côte d’Ivoire’s telecoms sector creates an ideal situation for tower sharing. The country’s mobile operators are under pressure to improve cost efficiencies amid tax increases and regulatory penalties over poor quality of service (QoS). We believe the move by MTN and Orange to outsource the management of their cell towers is mainly driven by the need to relieve the downward pressure on their operating margins. Moov is set to make a similar move in line with Etisalat’s overall strategy. Although Etisalat sold Moov (and other operations under its Atlantique Telecom subsidiary) to Morocco’s Maroc Telecom in May 2014, the change in ownership structure is not likely to alter the outsourcing strategy. As for the smaller operators, we expect them to welcome co-location opportunities if they are to remain competitive in the market.
IHS and SWAP have not published exact figures for key market indicators such as tenancy ratio and revenue per site. However, we believe they are highly competitive by regional standards given the dynamics of the Ivorian telecoms market. Meanwhile, we are forecasting steady growth in the mobile voice and data markets over the five years to 2018. This will see the country’s mobile subscriptions and penetration rate rise from 19.45mn and 92.4% respectively, at the end of 2013 to 23.82mn and 101.4% in 2018. Mobile data services are also growing rapidly with investment in 3G and 4G networks, a development that will necessitate further network densification. We forecast 3G and 4G subscriptions will account for nearly 24% of total mobile subscriptions by 2018.
Positive economic outlook will rub off on tower industry
Côte d’Ivoire is set to be among the fastest growing economies in Sub-Saharan Africa in 2014 and over the medium term, with BMI forecasting that real GDP growth will range between 8.0 and 9.0% annually between 2014 and 2018. This positive outlook is underpinned by a combination of sustained strong levels of development spending by the Ivorian government, intensifying foreign investment into new industries, stable inflation and rising consumer spending levels. Our forecasts are also premised on the Ivorian government maintaining the reform momentum - especially to the business environment - which will increase confidence in the private sector and act as a catalyst in the expansion of Côte d’Ivoire’s productive capacity.
The telecoms sector will benefit from Côte d’Ivoire’s economic growth, mainly through higher consumer spending and the take-up of advanced communications and other enterprise solutions offered by operators. BMI’s Country Risk team predicts that private consumption will be the single biggest contributor to headline GDP growth over the course of 2014-2018 on the back of broad political stability, low inflation and rising living standards. Consumer spending will also benefit from a public sector salary increase in 2014. It is interesting to note that mobile ARPUs are holding up above US$5, despite the intense price competition in the mobile market. This is encouraging for tower firms considering the correlation between ARPUs and operators’ procurement strategies. Furthermore, reforms in the country’s business environment, with less red tape, as well as the implementation of the government’s ambitious infrastructure spending programme will have a direct and positive impact on tower firms and their suppliers.
Risks will not cause alarm
The Côte d’Ivoire market has its fair share of risks. However, we do not believe these are sufficient to cause alarm for tower investors, at least in the short-to-medium term.
The most salient risks to macro stability are political in nature. Political tensions continue to flare up and, despite the increased dialogue seen in recent months between President Alassane Ouattara’s Rassemblement des Républicains and the Front Populaire Ivoirien, the run-up to and staging of the 2015 elections will be a key test of the country’s political progress. We also expect former president Gbagbo’s trial at The Hague to heighten ethnic tensions in the country.
With regards to the telecoms market, there are a few potential, albeit benign, downside risks for the towers market. The first is consolidation in the telecoms sector, which we believe is inevitable over the medium-to- long term as smaller operators are likely to remain unable to compete effectively with their bigger rivals. Our view is supported by a statement in May 2014 by the Minister of Information and Communications Technology requesting Cafe Mobile, GreenN and Comium to merge. There is no indication yet of whether any of the operators are taking the suggestion seriously, but we expect such calls to grow louder over the coming months.
The second notable risk will have a more direct impact on existing tower operators. We note that the implementation of Etisalat’s tower outsourcing strategy, which seems likely to continue under Maroc Telecom’s leadership, could see the entry of new players into the country’s tower markets if IHS and SWAP are unable to close a deal with the operator. We would not be surprised to learn other tower operators are assessing the possibility of placing a strong bid for Moov’s tower assets and using it as a platform to enter the Ivorian market.
That said, we do not see these risks posing any significant threat to our positive outlook for the towers industry. Despite the heightening political tension in the country, it is unlikely that the security situation will degenerate to 2011-2012 levels. Although it may also be argued that the entry of a new tower operator, possibly in combination with market consolidation, will increase the bargaining power of service providers at the expense of tower operators, we note that some countries in the region have successfully accommodated that level of competition in the towers market. The most notable example is neighbouring Ghana.
