Since Airtel announced the divestment of towers in 16 markets, Niger and Burkina Faso have opened up as new markets for towercos and their partners. Given towers in both markets are believed to be part of recent deals, it’s becoming critical for towercos and suppliers alike to determine how best to tap into these growing frontier markets.
While no significant political, economic or geographical challenges are reported in the region, none the less operating in these West African states can prove a challenge. and as three of them are landlocked logistical issues must be front of mind for anyone doing business there. Competition in the area is quite high, with most markets served by three operators, despite a market which does not yet have the scale to support so many incumbents . With up to 70% of populations based rurally, relatively low market penetration and low ARPU, operations in this region need to be as efficient as possible to unlock value for towercos and their partners.
As part of their new structure, Airtel has separated their regions into ‘leader’ and ‘challenger’ markets and is taking different perspectives on each, which helps their partners and suppliers to understand how they operate in each market and making market perspectives much clearer for their partners. One of the main problems when dealing with these ‘frontier markets’ is that the economies and telecoms markets are often very unstable, making it hard to keep a consistent supervision quality.
Burkina Faso and Niger, often grouped together due to a shared language, border, currency and central bank, can offer substantial gains through shared resources and control centres. Reports from the region suggest that despite some administrative roadblocks, generally western companies find the two countries safe and straightforward once they are familiar with local resources and culture. The fact that the currency (CFA Franc) used in both countries is pegged to the Euro is a huge benefit to economic stability and ease of transactions within these countries.
Human resources in the region are undoubtedly a challenge but reports from Niger and Burkina Faso suggest that education levels are higher here than some other West African countries, which helps in the development of local teams. Although these countries are landlocked, it has been possible to send equipment by truck through Ghana and make the most of their operations in this market, however relying on rail travel can result in long delays.
This article is based on a round table which originally discussed Sierra Leone as well as Burkina Faso and Niger. However, we subsequently learned that Airtel will retain their towers in Sierra Leone as they are disinclined to share them with aggressive competitor Africell. During the round table, Sierra Leone was cited as the most difficult in which to operate, with many companies currently scaling back operations. Education levels in the country are poor and recruiting and training staff in Sierra Leone is considered a very hard task. Of course most importantly the current Ebola epidemic sweeping the country has brought many activities to a standstill and has driven a large number of western companies to scale back their activities significantly. The feeling for the market is very much ‘wait and see’.
Deals in these markets are signed but not closed which means that suppliers will find themselves facing a period of transition where Airtel are reluctant to spend and towercos are not yet in possession of the towers. Significant expenditure in these markets won’t take place until the deals are closed in around six months. Suppliers in the region largely state that they plant to work on developing the network and reinforcing capabilities until the market opens up, hopefully in early 2015. Significant expenditure in these markets won’t take place until the deals are closed in around six months
A lack of knowledge in these markets, particularly on the technical side means there are a lot of mistakes made in design, architecture and maintenance practices; towercos getting involved in these countries will be a chance to bring in more qualified teams and to bring up the local skillsets at the same time.
In terms of costs and performance, India is being cited as a good benchmark for batteries in West Africa. Once the deals are closed towercos will need to make batteries a priority in order to meet their SLAs and bring the towers up to standard.
Of course, as towercos look to invest in more efficient power solutions there should be considerable opex savings to be made. New fast recharge batteries can perform up to 4 cycles a day and provide 4 hours battery power for every one hour of diesel, which in theory should reduce diesel consumption by up to 80%. RMS and more intelligent technologies can increase maintenance intervals as well as using fuel more efficiently. Solar solutions can cut opex dramatically. However despite these exciting new technologies and solutions coming to market, energy opex continues to rise.
What is the source of the energy opex problem in West Africa?
Estimates place around 25% of the blame on the ‘wrong technology’ i.e. technology which doesn’t deliver the efficiencies promised due to the location or circumstances in which it’s used. Another 30% of the problem falls on poor installation and the remainder of the issue can be attributed to the ‘Diesel Mafia’ – theft and vandalism in the supply chain and on site.
Although in some countries, such as Nigeria, steps have been taken to increase power generation capacity and improve the grid, reliance on diesel opens up operations in most markets to the diesel mafia. Petty theft is an issue but the real losses are caused by highly organised crime and systematic theft from both the supply chain and tower sites.
As the new West African tower markets are small markets with relatively low mobile revenues, it is considered unlikely that more than one of the large towercos will compete for market share in any one market, although the geographic scale of Niger makes it slightly more predisposed to competition. In rural areas however, there is an opportunity for middle market entrants or for small local companies to take some market share and deliver in areas which may be deemed not profitable enough for the bigger players.
In these markets towercos are reluctant to claim a ‘monopoly’ as they feel they constantly compete to remain attractive to operators who could rebuild parts of their own network if they were unhappy with rates or service. In frontier regions there’s also a higher risk of an indigenous towerco entering the market and leveraging local skills and knowledge to grab market share – many experts believe there is more activity around this than generally recognised.
Given the fact that under 40% of the population of these new West African markets live in urban areas, there are fewer quick wins to be had and increasing regulatory pressure on developing the network into rural areas. However, towerco appetite for moving into rural markets is greatly enhanced by recent technological developments in the market. The price of construction doesn’t differ significantly from other landlocked countries on the continent and innovative developments like micro BTS, satellite technology, smaller solar sets and more effective battery banks mean different technologies can be combined to create a low capex, low opex solution which in most cases will make a site commercially viable.
Innovative developments can be combined to create a low capex, low opex solution which will make a site commercially viable
Another consideration for toweros and suppliers moving into this region is health and safety. Irrespective of local practice it’s critical from an ethical, environmental and financial point of view to achieve high standards. In fact in some countries it is a prerequisite in order to gain access to IFC debt facilities. The biggest H&S risk identified by regional experts at the recent Africa Meetup was security guards interfering with power systems, to which the most straightforward solution is simply to harden the sites and do away with the need for security guards on site at all.
Our sources tell us that in terms of network growth in these markets there is a plan to build new towers but the view is fairly conservative for the short term. The acquiring towerco will commit to take over any new build projects already in Airtel’s pipeline and to honour contracts with suppliers currently in place but have no immediate plans for expansion.
Coup in Burkina Faso
In the weeks since this article was drafted, Burkina Faso’s former President Compaore was ousted, after seeking to change the constitution to allow the president another five years in power. After the mass uprising, the military temporarily took charge, a move condemned by the international community, and which would have compromised the investibility of the country and its infrastructure. However, in November 2014 a civilian-led transitional government was established, public order has been restored and elections are due later in 2015. Hopefully the worst is behind Burkina Faso in terms of country risk.
