Ghana’s towers market is arguably the most competitive in Africa considering the number of active wireless communication service providers and independent tower management firms.
Ghana has six mobile operators and many more wireless broadband providers, while three of the four biggest independent tower management firms in Africa operate in the country. These are Helios Towers Africa, American Tower Corporation (ATC) and Eaton Towers. Although the last major tower deal was in 2010, the telecoms market dynamics suggest that tower outsourcing will remain a key part of operators’ strategies and the next major deal may not be too far off.
Crowded market whets competition
Ghana’s six mobile network operators - MTN, Vodafone, Tigo, Airtel, Globacom (Glo) and Expresso - serve a population of just 26mn. This is one of the highest operator/population ratios in the region and a major factor in competition dynamics and operators’ growth strategies. Furthermore, the country’s mobile penetration rate of 105.4% at the end of September 2013, according to BMI data, is high by regional standards and portends slower subscriptions growth in the mobile market. This means that operators must find new ways to sustain revenue growth and, very importantly, improve cost efficiencies in order to maintain their competitiveness.
Tower outsourcing has in the last three years become a major cost-cutting strategy, with the country’s three biggest mobile operators by subscribers signing major deals with independent tower firms. Third-ranked mobile operator Tigo signed the first major tower deal in January 2010, involving the sale of 750 towers to Helios. The operator’s bigger rivals, Vodafone and MTN, also signed deals with Eaton and ATC respectively later that year. Some of the other operators and some wireless service providers have rented spaces from independent tower firms, indicating a favourable disposition towards third-party tower site management and raising the prospect of outsourcing their own towers in the future.
Towers market performance - so far so good
It is hard to compare the key performance indicators of the three independent tower firms in Ghana as two of them are privately owned and do not publish those indicators. However, indicators published by ATC for its African operations show strong performance. The company manages approximately 2,000 tower sites, including the 1,876 towers acquired by its joint venture company with MTN, TowerCo Ghana, in a deal valued at US$428.3mn in 2010. In addition to anchor tenant MTN, ATC also has Vodafone, Tigo and Airtel as tenants in Ghana. This contributed to the firm’s impressive tenancy ratio of 1.3 as of September 30 2013, compared with 1.8 in South Africa and 1.5 in Brazil and Mexico.
Despite a lower tenancy rate, the Ghanaian market performed better than Brazil and Mexico in terms of revenue per site. ATC reported a 3% revenue contribution from its Ghana unit to the group rental and management revenue of US$797mn in Q313. BMI calculates this as equivalent to revenue of US $23.9mn or approximately US$3,998 per site per month. Using the same method, we calculate that only South Africa and Uganda generated higher revenue per site for ATC than Ghana across its entire international portfolio. This underscores the importance of the Ghanaian market and, by extension, the African towers market to ATC and other firms with exposure to the region.
Looking ahead
In addition to the competition dynamics mentioned earlier, there are other factors and potential developments expected to sustain long-term growth in Ghana’s towers market. While the growth prospect may not attract a fourth player into the market, we expect it to boost competition among the existing players. The outcome of this could include fundraising to buy more towers, investment in new tower deployments, investment in new power solutions to improve operating cost efficiencies and greater price competition in tenancy rates. Some of these market developments are highlighted below.
After many months of speculation, Airtel has finally confirmed that it is planning to outsource the management of its African towers... BMI expects Airtel to prioritise markets where its main rivals are already gaining a cost advantage from tower outsourcing. These include Ghana, Uganda and Tanzania
Airtel tower outsourcing strategy
After many months of speculation, Airtel has finally confirmed that it is planning to outsource the management of its African towers. Although details of the operator’s plans were still sketchy at the time of writing, especially in relation to priority markets and the outsourcing model it will adopt, it is safe to assume that Ghana will be on top of the list of markets where it plans to implement the strategy. BMI expects Airtel to prioritise markets where its main rivals are already gaining a cost advantage from tower outsourcing. These include Ghana, Uganda and Tanzania. In its FY11 and FY12 financial results, MTN reported considerable capex savings as well as EBITDA margin appreciation owing to its tower outsourcing strategy. We believe Vodafone and Tigo have seen similar results in their key financial indicators, a performance Airtel would be keen to replicate.
Glo and Expresso could consider outsourcing
The two smallest wireless service providers Glo and Expresso would be the only operators managing their portfolio of towers after Airtel’s expected outsourcing move. In January, it was reported that Sudatel was in advanced discussions with local firm Josp
