Growth, competition and co-operation: the tower market in Mozambique

Now Vietnam’s largest mobile network operator, Viettel’s rapid and aggressive entry into the Mozambican Telecommunications industry has shaken up what had become a rather predictable and steady market.

This coupled with the excitement regarding renewed economic development in the country driven by untapped gas resources and increasing market penetration, has shown that there is undoubtedly opportunity for strong growth in the market.

Gary Staunton, CEO of Likusasa Group, talks to TowerXchange about these developments, how the market has changed and the effect it has had on the operators’ appetite for tower sharing.

TowerXchange: Tell us about Likusasa’s experience in Mozambique.

Likusasa has been in Mozambique for around three years. We have mainly been doing work for Vodacom but have recently started expanding to other areas. Most of our work to date has been upcountry, in the central and northern regions, and has involved fibre optics and site builds.  We have contracts for this until the end of 2015. At the moment we have about 40-50 staff in Mozambique but as of April when many of these projects will get underway, there will be more than 700 people on the ground.

TowerXchange: What can you tell us about the tower networks in the country and the size of the market at present?

Vodacom has rolled out just under 800 new sites in the past two to three years, which has more than doubled its network size.  Even with this expansion though, it is only just coming close to MCel in terms of sites. There are around 3,000 fixed towers in the country plus 1,500-1,800 guyed mast towers mostly belonging to Movitel (Viettel).

TowerXchange: Are there many rooftop sites?

Out of the few hundred towers we have had to build for Vodacom there have only been 10-15 rooftops, so they represent a small percentage of the new rural sites operators are investing in. But Maputo is a rooftop market and of course, the big cities will all need some rooftops.

TowerXchange: How has the market dynamics changed with Viettel entering the market so aggressively?

We weren’t trading in Mozambique when it was a duopoly, but since we’ve been there, Viettel has definitely impacted the telecoms landscape. MCel were the dominant player until around four years ago and Viettel’s Movitel did a good job of covering the country with a high quality network service in a short space of time.

It has used a unique rollout model, and while they have safety, maintenance and quality challenges, the general quality of telecom service it has provided over the last three years has been very good – for instance we could use 3G service in many areas where you couldn’t even make a voice call previously.

MCel was the largest player but from an infrastructure capital investment point of view has not been very active in recent times.

Vodacom has committed to significant roll out investment and has now positioned itself as a strong contender for market leadership. All three operators are rolling out fibre optic backhaul to link up as many sites as possible, which improves quality of service enormously and reduces the load demand of the towers.

Movitel has had a positive catalysing effect on the market but whether their execution model is sustainable, is another matter. Likusasa has found Viettel hard to work with – we’re not aligned to their price levels or working cultures and so, we have not successfully concluded any business to date.

TowerXchange: How has Mozambique’s rural roll-out developed over the last three years?

Our general experience when arriving in new rural areas is that they were either unserved or served by Movitel and/or MCel. Vodacom was catching-up in terms of coverage. But now, Vodacom offer a good quality of service so when it switches on in new areas it is able to pick up clients quickly.

TowerXchange: Is there an opportunity for infrastructure sharing for a new tower company entering Mozambique?

There is a gap for an independent tower company in the market, although it has been attempted before. I have heard that some of the major African towercos have shown interest, but there isn’t much of a culture of infra-sharing in Mozambique. Operators have struggled to find common ground with each other, although some are more proactive than others, motivated by the obvious benefits. We have, however noticed that shared sites have become a part of the current rollout project scope.

In 2013/2014, a company called TowerCo Mozambique tried to establish a shared site model but it couldn’t facilitate agreement between the two main operators and unfortunately time just ran out. The company may have been successful if it had had more time, but its attempt to link major operators in a tower sharing arrangement, did perhaps set up the market for a major tower company to establish itself eventually.

While in operation, we did some work with TowerCo Mozambique on capital structures and dimensioning sites to meet the expectations of multiple tenants, but the project simply stopped. I’m not sure the potential for sharing is over though – some operators have increased their network size, operators have challenges with O&M. So yes, I see an opportunity for, at the very least, a strong managed services provider, if not a tower company, to maximise the asset potential in this market.

TowerXchange: How would you characterise the maturity of the 3G roll out in Mozambique?

First of all Viettel have an advantage having rolled out around 1,600-1,800 3G sites around the country. Its arrival definitely accelerated the 3G rollout around the country with the result that you can expect 3G coverage in most areas from all operators and expectations from subscribers is high. Mozambique is one of the best countries in Africa in terms of quality of service I have experienced, but there are still problems with network intermittency.

TowerXchange:  How reliable is electricity grid access for towers in Mozambique?

Mozambique will grow over the next decade and will become an energy powerhouse in Africa, but for now we are still installing diesel generators on the rural sites. EDM (Electricidade de Moçambique – the national provider) has a reasonably good transmission network by African standards. South Africa’s Eskom has been working in Mozambique, for example on the Cahora Bassa Hydroelectric Power Station, and there are reciprocal off-take/supply agreements in place.

Mozambique also participates in the SAPP – the Southern African Power Pool, however as is the case in many African countries, the distribution and grid connections need a lot of work. The country is also developing a large gas resource which is expected to drive growth for the next 10-20 years and because of this Mozambique is one of the most potentially vital economies in southern Africa.

Some of the rural sites we built have the need for backup diesel generators; other sites that have power available contend with power intermittency problems. In terms of Vodacom’s site design, we were set very tough budget constraints without compromise to its specifications. With some innovative design, manufacturing and site configuration adaption, we were able to meet this budget expectation. The design has been quite successful.

TowerXchange: Do you provide the procurement services for Vodacom or is it done through VPC (Vodafone Procurement Company)?

We have not worked with VPC, although they may have some involvement with the local operating company. Our scope includes the design, manufacture and installation of the towers, fences and other civils materials. Up until last year we also provided power systems but Vodacom has now taken this scope over on a direct contract, possibly through VPC.

TowerXchange:  Do the existing structures in the market look shareable? Or will significant upgrade work be needed to support multiple tenants?

The fixed structures definitely look shareable – many of the old towers were built with a higher capacity. With fibre optic backhaul in place, microwave dishes are no longer required, meaning that even with 2G and 3G equipment on the towers there’s still room for another operator with minimal structural improvement.

However the challenge to stimulate infrastructure sharing may not be structural, it’s more about business and co-operating with competition.  Mozambique is different to other countries in the region and they may still consider passive infrastructure a source of differentiation and competitive advantage, much more than in East Africa, for example.

TowerXchange: Can you shed any light on the rumour that Viettel are planning to sell its tower portfolio?

There’s a general rumour on the ground which would be hard to validate. Movitel is owned Viettel and a holding company run by FRELIMO (Frente de Libertação de Moçambique – the main political party in the country). Rumour has it that the idea behind Movitel was as to create the infrastructure and network and then sell it – so the motivation to sell might come more from FRELIMO than from Viettel. But it’s all hearsay.

TowerXchange: Is there much pressure from regulatory bodies to share infrastructure?

Regulations in Mozambique focus on quality of service first and foremost. As far as regulations on sharing go, I think the ministry/regulator would probably respond positively to proposals on sharing with a view to improving the service to rural communities.

TowerXchange: Analysts often score country risk quite high in Mozambique compared to other African countries – what has been Likusasa’s experience on the ground?

Eighty per cent of our work is in the middle half of the country, where there have been a few flare ups with social and civil unrest. There’s a strong opposition to the ruling party in this region and often the way to solve things is to fight rather than through negotiation. Unrest has caused some areas to be shut off for periods of time and we’ve had to abandon sites temporarily and go back when things have calmed down a bit but most of the flare ups are localised. ISOS risk does say there are certain areas you shouldn’t travel to, but one shouldn’t generalise for the whole of Mozambique.

The biggest risk to our operations remains vehicle accidents as roads in the country and general poor driver competence/vehicle state of repair are not well regulated. Also massive floods every year around February and March can cause problems. Civil unrest is not the biggest issue – the government is doing what it can to stabilise the situation but it’s a big country with a history of civil war and it’s a young democracy. In the mining areas in Tete there is very little unrest, their biggest problem is infrastructure, which presents its own challenges.

Vodacom has implemented a ground-breaking approach to HSE management, the like we have only experienced in the international resources sector (Mining, Oil & Gas, etc). It is a very challenging concept but their support and commitment has been good for the sector as a whole.

TowerXchange: How would you sum up your outlook for the future of the Mozambique economy and telecom tower market?

The Mozambique economy could double if not triple GDP when they develop their gas power resources, if well managed, so the whole economy is changing to one with a vibrant economic outlook. It’s an exciting market to be in, which is one of the reasons why we’re there now.

Mozambique is a very large, fibre connected economy, with three solid operators, two of which are investing substantially in their network, and lots of ISPs. At the moment Mozambique remains an operator-captive tower market, but there is definitely potential for a tower company to catalyse further efficiencies as the Mozambique telecom network expands and densifies.

TowerXchange believes TowerCo Mozambique felt they had identified a niche in the African market, a country which has a limited base of potential tenants but which could very much benefit from an ‘honest broker’ to facilitate infrastructure sharing.

The arrival of Viettel in the market had galvanised the two incumbents (Vodacom and Mcel) to upgrade their networks. Suddenly, they were not in competition with each other so much as with a new market entrant who was picking up market share at a rapid pace.

Given these circumstances, the market seemed primed for a towerco who could facilitate further network rollout for the biggest two operators. Our sources tell us that TowerCo Mozambique had reached a point of identifying 50 potential sites following high-level conversations with senior management in both Vodacom and Mcel.

However, achieving agreement and actually getting contracts signed was beyond their reach. After two years, TowerCo Mozambique pulled out of the market and the founders went on to different projects. TowerXchange believes that the primary sticking point which prevented an agreement being reached occurred around tenancy rates, with the operators preferring bilateral tower sharing despite the associated capex requirements.