Navigating the changing landscape of the Ghanaian tower market

Ghana is a very attractive telecoms market, but is it overcrowded? Six MNOs. Four towercos – soon to become three – serving a population of just 26mn. How is competition affecting the tower industry? What was the impact of the devaluation of the Cedi? How has that affected access to diesel and the battle to reduce energy opex? How will the launch of LTE, restricted to date to indigenous new market entrants, reshape the market? These were just some of the questions posed at the Ghana round table at the last TowerXchange Meetup Africa, based on which we present the following insights.

The Ghanaian Cedi was 2014’s worst performing currency in the world up until August, before strengthening 12% in September and stabilising thereafter.

Currency devaluation obviously has a tremendous impact on fixed price contracts, harming margins and capacity for suppliers to Ghana’s tower industry, particularly where equipment and fuel must be imported, and for companies whose performance is measured in US$. Currency devaluation compounds the challenge to minimise opex, making the forecasting of diesel prices difficult in such a volatile environment.

Ghana was an attractive market for the tower industry two years ago, and the market still looks good in the mid term, but in circumstances of short term extreme currency devaluation, there are inevitably situations when tenants can’t pay their lease rates, so towercos may not be able to pay, leaving vendors in a tight cash flow situation.

Securing local debt rather than US$ debt has helped offset currency risk, while Ghanaian towercos had to put more effort into the indexation of contracts. Local currency contracts further mitigate forex risk – as revenues are in local currency, so as many costs as possible must be in local currency. So Ghana’s towercos have bands of “normal cost increases” as well as more substantial cost increases where exposure to forex remains.

Ultimately, African towercos’ best hedge against currency risk is to build a portfolio across multiple countries to dampen the effects of forex volatility, which is exactly what the three towercos in Ghana (American Tower, Eaton Towers and Helios Towers Africa) have done.

Despite concerns that the Ghanaian tower market might be overcrowded, tenancy ratios have remained broadly aligned with towercos’ original business plans. One of the Ghanaian towercos apparently has a tenancy ratio of 2.1 in urban areas compared to 1.5 in rural areas. The combination of relatively low tenancy ratios and high costs of operation makes the economics of rural network extension challenging.

While the moratorium on new towers (now a restriction on builds less than 400m apart) in urban Ghana led to good tenancy ratios, rural parts of the country remain underserved. A phase of network extension is imminent. According to their quarterly distributions, between Q3 2013 and Q3 2014 ATC Ghana added 67 new sites in Ghana, representing 3.5% organic growth. That pace of organic growth is set to pick up; Eaton and Helios Towers Africa forecast organic growth in the 10-15% range across their SSA portfolios in 2015.

In rural areas it makes sense to have only one tower, but towercos’ contracts do not oblige them to build towers, and most won’t build a site if it is likely to attract only one tenant in the medium term.

While only around 6% of the MTN network is hosted on non-ATC Ghana sites, MTN has addressed most of the addressable market: they have no competition in many rural areas, and as such there is limited commercial incentive for other operators, and their towerco partners, to invest in rural network extensions. The reality is that large parts of rural Africa still have only one operator; not the market dynamics that attract towerco investment, which remains concentrated in urban SSA.

In October 2014, when the round table on which this article was based took place, the deal to acquire Airtel’s towers in Ghana had been signed but not yet been formally closed, so the assets hadn’t yet been transferred.

The acquiring towerco had of course mapped Airtel’s assets against the sites they already operated, finding minimal overlap. As in several other countries where Airtel’s Africa Towers had already been marketing the sites, the acquiring towerco will be starting from a tenancy ratio over one. Post-close it’s always necessary to check the safety of towers  – improved meteorological data is now available, and wind patterns have changed in Ghana, so that has to be taken into consideration. It seems very unlikely that the acquiring towerco will need to decommission any towers in the combined portfolio, although they may mothball some. However, with infill requirements, a duplicate tower may be needed for capacity in many locations in a few years.

Eaton Towers has an in-house O&M lead and considers the management of subcontractors to be of critical importance. Ghana’s towercos report good availability of skilled local talent, and a culture of continuous improvement in Ghana, requiring minimal use of expat staff. ATC Ghana has a couple if expats out of a staff of ~120.

This was echoed by the local managed service providers, who commented on the quality of engineering degrees and graduates from Ghana’s universities. The returning diaspora - talented Ghanaians with education or experience overseas - has been another valuable human resource. One of the managed service providers had 90% of their 100 staff from Ghana, another 95% of 200, and for a third 86/90 staff were Ghanaian.

At ATC Ghana, the maintenance of construction and electrical (fuel and security) are outsourced separately – combining construction and electrical didn’t work. ATC Ghana has three electrical and three structural engineering partners.

American Tower has an ongoing exercise seeking to optimise the performance of contractors in both Uganda and Ghana.

Both towercos on the panel reported familiar challenges with RMS. They are not 100% happy with the sophisticated systems on the market as their complexity usually exceeds what local teams can manage. There were also reports of people in the field cutting sensors so they could steal batteries and fuel. One towerco suggested “if you can service the system cheaper than me, we’d consider that!” At least one RMS contract is up for review at the moment.

The financial and asset management systems of American Tower were all already in place. Alongside automation, permitting and managing ground leases is a substantial human operation which requires 21 staff – although the actual permitting is outsourced.

Investment in cell site energy solutions can only be fully unlocked through the alignment of SLAs right through the value chain, from tenant to towerco, O&M and refueling subcontractors and energy equipment vendors (or ESCO). “It’s going to take time for the ESCO model mature, but I’d love to not have to worry about DGs and fuel delivery. My power costs have gone from 25-50% of my real cost base between January 2011 to today,” said one towerco. Another added: “I get proposals and approaches on a monthly basis from startups to companies that manufacture power equipment who are diversifying into an ESCO model. I need to have comfort that you can deliver against our challenging SLAs. And it’s very complex to deliver against these SLAs: 80% of my management time is spend on this!”

One of the challenges of the ESCO proposition is fundamental: “our performance is measured at the EBITDA level – we like spending capex to improve EBITDA!” African towercos benefit hugely from the smart deployment of capex to improve energy efficiency – if they can extend battery life from three years to four, for example, or extend the lifecycle of DGs from 20,000 to 25,000 hours, ROCI across a portfolio of 10,000+ SSA sites can be huge – it will take a compelling business model from a credible ESCO to attract a towerco to set aside the value creation potential of making their own investments in power.

One towerco suggested that as much as a third of their costs were linked to the complexities of linking the utility company’s prepay and post pay meters; trying to unify that data across good and bad controllers in a single system to generate the bill.

Whereas under a power pass through model, the towerco is not incentivised to invest capex in cell site energy, commercial agreements are changing and all the new towerco contracts in SSA (outside South Africa) make energy the responsibility of the towerco.

American Tower will invest US$10-30,000 per site as they move from AC to DC power service provision in Ghana. American Tower’s local subsidiary ATC Ghana invested ~US$30mn in RMS and power solutions in 2014, and will invest a similar amount in 2015. The procurement process is complete for most of the migration.

ATC Ghana have trialled some solar powered solutions, but typically for single tenant sites. The 10-15kW required by multiple tenant sites tends to require a 100sqm+ solar array, and the cost of ground space is often prohibitive. Generally ATC Ghana builds new sites with capacity for three tenants and a 13kW typical load. ATC Ghana remain open to anyone can offer a proven solar solution working operationally for multiple tenants.

There is a parallel migration from indoor to outdoor equipment on the part of tenants. While there remains a substantial legacy of indoor sites in Ghana, the country’s MNOs are gradually installing outdoor equipment with a much improved tolerance range for temperature.

While currency devaluation delayed the process, at least three LTE licenses with spectrum in the 2,400MHz band have been issued. The process was restricted to indigenous new market entrants in Ghana, of which two of three services had soft launched at time of writing. Blu Telecoms and Surfline Communications both launched in 2014. Surfline Communications claimed to have 300 sites in August of that same year, providing coverage in Accra and Tema. Gold Key Properties also received a license, but do not appear to have launched.

Pressure of time to market, combined with the finite capex budgets likely to be found among new entrants not back by a tier one MNO, suggests Ghana’s new LTE service providers may be more likely to lease than build passive infrastructure – indeed several of Ghana’s LTE new entrants are already clients of Ghana’s towercos.

The prevailing opinion seemed to be that the new entrant LTE operators will exit soon after they’ve met the license conditions to be acquired, bringing Ghana’s incumbent operators into the 4G market.

Fibre to the tower (FTTT) and shareable fibre in general may be a significant opportunity for towercos and fibrecos in Ghana. “Connectivity to urban towers is okay in Ghana, rural fibre is non-existent!” Said one participant. Another shared an anecdote that three LTE operators on one of their towers wanted to use fibre but were forced to use microwave backhaul.

ATC Ghana has IBS 20 buildings in Accra, and feel they have the majority of the current addressable market covered. Eaton Towers has some DAS in Uganda and South Africa, but none in Ghana yet. However they feel DAS will inevitably be part of the future as the skyline of Accra skyline evolves.

Leadcom provide a turnkey solution, adding 5-10 buildings per year. This represented a small proportion of their business compared to core construction projects, but growing.

Other stealth or disguised systems, such as signage or palm trees, are often pushed for by permitting restrictions. One participant reported that camouflaged towers typically cost double compared to a classic tower, so they sign off each business case one by one.

We’ll leave Eaton Towers’ words to to conclude this report: “It is easy to register a company in Ghana – I’d encourage people to come!”