How Atlas Towers intends to build a significant presence in South Africa

With the ‘land grab’ over and the big towercos competing for the last substantial sale and leaseback tower deals to come to market, middle market towercos and new entrants into the African market need to think quickly and creatively to carve a niche which will deliver the targeted return on capital invested. For the first time, Nathan Foster shared his vision with us for the South African market and discussed how he thinks the future of towers on the continent will look.

TowerXchange: Can you tell us about your history, how Atlas Towers was created and where you are today?

I’ve been in towers since 1996, before there was a recognized tower industry.  I started my first company in 2006 and we built our first towers in the US in 2007, creating six different, distinct towercos which were clustered together geographically. For me, this structure continues to provide financing and exit flexibility, and removes the need for large private equity funding. There are a lot of towercos in the market but very few are majority funded by their management team. I believe this independence provides some operational advantages, mainly moving quickly on big strategic decisions.. As a result we remain competitive in the US despite the fact there are a lot more towercos there than there were five years ago.

We started researching the African market in 2013 and quickly determined that South Africa was the right place to start. It seemed to have a strong regulatory environment  and rule of law. We built our first tower here in December of 2014.  As of June 2015 we have a dozen towers in the air and 25 more planned for construction. But, we have a long way to go.

TowerXchange: What’s your vision for the South African market?

We plan to build about 75 towers per year in South Africa and supplement our portfolio with smart, strategic acquisitions.  Our market share may remain limited, thanks to powerful incumbent competition, but we really are looking at South Africa to be a long-term market with sustainable relationships. We are working hard to establish our reputation as company that always delivers top-shelf tower infrastructure.

TowerXchange: Tell us what you’ve found to be the major differences between your operations in the US versus South Africa?

There are many stark differences. An obvious one is that regulatory and zoning processes are generally faster in South Africa, but less transparent. Meaning actual time frames are more obtuse.  As an example the reasons for complaint can include vague concerns about health affects, which has long been removed as a legal argument in the US. Another big difference is South Africa’s rich history that has created patchwork of unique communities that have dissimilar cultures and language. This lack of continuity has been a struggle for me. Fortunately, we quickly found fantastic senior staff to help guide us through the maze in our early months. I guess that’s a reminder of another challenge, entering a new market and having to absorb new labour law, tax structures, forex, banks rules,  etc.  Its been an adventure trying to mesh my knowledge of US tower business with the rules and realties of operating and organic tower business in South Africa.

TowerXchange: Do you see a difference between how US and South African operators respond to independent towercos?

South African operators aren’t as open to the concept as they are in the US. In the US four or five towercos speak to a carrier each week. In South Africa you have to educate them as to why working with an independent towerco is a good thing. To be honest, these fundamentals are more suited to my skill set than the fast paced sales and business development that we do in the US, so I guess I consider the newness of this market to be a good thing for us.

TowerXchange: What do you think will drive the growth of independent towercos in South Africa – a tower sale, LTE roll-out or something else?

There will be a large tower sale soon and that will change the ecosystem in a direction which will raise all MNO’s operating opex and leave a lot of lever room for small tower companies to make decent margin. However, this will not happen over night as a big sale lease back usually comes with a several year BTS contract that will probably limit new entrants’ opportunities. Eventually, as it has happened in the US, when the dust settles and the country accelerates into a mature tower market, niche towercos can benefit from higher average tenant rents than we see today.

LTE will continue to grow urban core networks and drive small cell development a little. Ironically, in South Africa the biggest winning, highest revenue towers are still in rural villages. Both these opposing environments will push for demand of new infrastructure.

I not sure what impact the Telkom tower deal will have on the market, or if it will even move forward. I don’t believe enough of the assets are high value and that makes optimizing sale price for the seller a challenge.

TowerXchange: What’s next for Atlas Tower?

I think there are some interesting spots in the Southern African Development Community region. We don’t intend to go as far north as some of the other towercos. Also, we’re keener on markets in which we are not necessarily in a first mover position. We like it when there has been a successful sale lease back deal in a market.  The entire continent provides a fascinating business environment, one where there is absolutely no contagiousness. Africa has a long way to go from an infrastructure perspective and there’s a lot of build opportunities. We like having conversations and exploring other markets, but the focus is 100% on South Africa at moment.

TowerXchange: What are your thoughts on how the ‘Big Four’ towercos will plan to structure their businesses and exit in Africa?

I don’t know. I need to probably stay more focussed on the ‘Bottom Ten’ in Africa, although I really don’t know who the other nine are. If I was going to guess, an IPO seems like a tough comparison in a Johannesburg or London exchange, when the large publically traded towercos have so much fast purchasing power. I guess the great news about this business is its ability to quickly adjust to a short and long term position. An exit can be pushed without much impact on the IRR if you’re still adding quality assets or driving a lot of same tower lease up.

TowerXchange: As towercos in Africa consolidate and move from a more acquisitive mindset to a focus on effective operations, there’s a lot of discussion of changing management needs. How do you think Atlas Towers needs to respond to market changes?

It’s funny you say that because a couple of years ago years ago at the TowerXchange Meetup in Johannesburg a carrier made a comment about how you’ve got people acquiring towers who have a certain skill set that makes them better asset managers.  However, usually acquiring an MNO’s portfolio means acquiring a lot of the same staff that didn’t do a wonderful job building the asset to begin with.

Where do you find people to bring up the quality of the portfolio you just purchased? I don’t know that’s a big challenge its got to be a sizable headache. Fortunately, Atlas doesn’t have to solve that riddle. We have time to get it right and focus on our high quality, long lasting assets which we are building now. Doing small acquisitions allow us to seamlessly feather in upgrades and fixes into the to-do list of our experienced staff. In South Africa we are structured to efficiently operate our portfolio and maximize every element of our business. This includes opex controls, maintenance and monitoring programs, easily upgradable assets, etc, plus we have the benefit of employing an impressive South African staff that I believe is far above the rest in understanding what makes our tenants tick.