How the Egyptian tower market works

Kai Uebach knows the Egyptian telecom market well, both through his current position as a Board member of HOI-MEA and through his former role as CEO and Vice Chairman of Telecel Globe, Orascom’s holding company for their SSA assets, where Kai was one of the first CEOs to explore divestiture of tower assets. Kai spent the first 20 years of his career rising through the ranks at Siemens, before becoming Chairman of MDC, the leading MNO in Belarus, then Chairman of Bakcell in Azerbaijan. Since his tenure with Telecel, Kai has been an angel investor, consultant and Board Director to multiple telecom and tower operators, including Asean Towers in Vietnam. But when TowerXchange met with Kai, the topic of conversation was Egypt…

TowerXchange: Please re-introduce HOI-MEA for readers not familiar with the company.

There are two arms of the HOI-MEA business.

Firstly, HOI-MEA offers a complete telecom site build service from design to commissioning, installing and maintaining sites, and we have seven factories with capacity to manufacture towers, shelters, accessories and decorative features (camouflage).

Secondly, three years ago we attained a license as a tower operations company, so we own and operate some assets, and work on an arms length process with our service company. As far as I know, HOI-MEA is the only one of the four local firms licensed to operate towers who have built and retained our own portfolio.

We currently have around 40 towers, built for Vodafone and Etisalat, most of which are located in the Kafr Al-Sheikh and Damietta regions, both in the densely populated Nile Delta. Our tenancy ratio is already approaching 1.5. HOI-MEA are targeting the addition of a further 60 sites in 2015, scaling to 500 by the end of 2017.

I believe HOI-MEA is the only profitable telecom infrastructure company in Egypt today. Even through the financial and political crisis, HOI-MEA has maintained healthy financial flows – which I feel is outstanding performance in that context. As the Egyptian economy improves, HOI-MEA has an increasing appetite to invest in tower infrastructure operations – both site installation and site ownership.

HOI-MEA was established in 2001, and is headquartered in Egypt with branches in the Kingdom of Saudi Arabia, UAE, Sudan, Qatar and Morocco. We have around 600 employees.

TowerXchange: What has been the attitude of Egypt’s MNOs to infrastructure sharing? I recall we spoke to Tony Dolton, then CTO of Vodafone Egypt a couple of years ago, and he intimated that there had previously been efforts to create a carve-out joint venture towerco.

While all MNOs are always anxious about sharing their towers and losing their ability to differentiate through their network, each of the MNOs in Egypt have a little over 5,000 towers, there are 19,000-20,000 towers in Egypt, and coverage is almost complete. QoS, uptime and VAS are the primary differentiators today, tower distribution is no longer a differentiator.

The Egyptian MNOs have been relatively open to the idea of sharing. However, the three operators had different ideas of what form tower sharing should take. While MobiNil wanted to monetise their towers, Vodafone and Etisalat were more interested to retain control of their own towerco, so to achieve consensus was very difficult.

There has been some bi-lateral infrastructure sharing in Egypt, but the prevailing tenancy ratio is much nearer one than 1.5.

TowerXchange: How would you characterise the maturity of the Egyptian mobile network?

We have 99% population coverage in Egypt, so growth in the Egyptian tower market will be driven by capacity not coverage. There are no 4G licenses so no 4G rollout yet, while 3G is in the final stages of roll out. Anecdotally, I would describe the 3G data QoS experience in Egypt as comparable to that found in Europe. Wireless local loop operators coming up have stimulated further discussion about additional capacity needs.

Commissioning a tower is not easy in Egypt, yet with population growth North of 5%, there are 3-5mn new users each year from population growth alone, which again drives the need for additional capacity.

TowerXchange: Tell us about the typical structural capacity of Egypt’s ground based towers.

All the towers HOI-MEA have built have capacity for three to four tenants, depending on microwave dishes and their payload.

Older towers often still have capacity for two or three tenants – relatively heavy towers have generally been installed in Egypt so most towers require minor modification for additional tenants. As such our focus is on installation and commissioning work, less so on tower strengthening.

TowerXchange: And how does the typical capacity of Egypt’s rooftop sites compare?

Not all the buildings on which rooftop structures are mounted have the architectural capacity able to carry a heavy load, and rooftop site construction can be challenging. In response, HOI-MEA has developed a rooftop solution which can be mounted and have the site operational in two hours.

The density of sites is already extremely high in Cairo. Cairo’s sites are more than 90% rooftops, and many are difficult to share as they are designed – much of the opportunity to add second tenants exists on the sites outside of Cairo and Alexandria.

TowerXchange: What do you feel will be the impact of Eaton Towers’ acquisition of 2,000 towers from MobiNil?

I think it’s a smart move for Eaton. It puts them in a good position when it comes to other Arabic markets. I believe it will put pressure on Egypt’s other operators to see if they can find an economically viable partnership with a towerco.

Eaton’s entry into Egypt is very complimentary with HOI-MEA’s portfolio. Our towers are generally in difficult to build areas where the Eaton-MobiNil portfolio has minimal coverage.

We looked at the opportunity to acquire MobiNil’s sites, but felt it was too big for HOI-MEA at the time.

TowerXchange: Whilst hopefully the worst of the recent unrest is in the past for Egypt, what impact has the political turbulence had on the telecom industry’s ability to invest in the network? What impact has it had on site permitting, for example?

In terms of permitting, there isn’t so much a lack of process as there is uncertainty of who has to make decisions.

I couldn’t comment on the impact on foreign investment because we have sought no foreign investment in HOI-MEA other than the current owners.

The main impact of the unrest and associated economic downturn has been the effect on the spending power of individuals. However, people still need to communicate so despite the downturn, the economics for Egypt’s MNOs remained robust, and with population increases there are simply more people to communicate.

TowerXchange: Tell us about cell site energy in Egypt.

Diesel is still partially subsidised – it’s not a free market price, but diesel prices have risen significantly in Egypt, and the expectation is that prices will continue to rise as the subsidies reduce.

There have been problems with diesel shortages, but the Egyptian grid is quite good, even though the cost of electricity has risen substantially over the past three years. Around 90% of sites are on-grid, typically with standard battery backup except for hub sites which often have a backup DG too. The other 10% of sites are mainly powered by dual DGs – I’m not aware of widespread use of hybrid energy.

HOI-MEA provides our tenants a full service with power included – we own the energy assets, and all sites our sites have capacity for at least three tenants, so power systems are designed accordingly. We use hybrid and solar where appropriate, and leverage the full range of opex optimisation tools.

TowerXchange: What have been some of the security challenges you’ve faced building and managing towers in Egypt, and what steps have you taken to mitigate theft?

Security risk is concentrated in the Sinai Peninsula, but it can be managed – you can still run and maintain sites there.

Fuel and battery theft is an issue in Egypt, but it’s not as big a problem as in SSA.

We have RMS on most towers.

TowerXchange: Please summarise how you see the future of the Egyptian tower industry, and could a ‘proof of concept’ both of tower build to suit activity like HOI-MEA’s, and sale and leasebacks like MobiNil’s with Eaton Towers in Egypt, accelerate the extension of the independent towerco business model into MENA?

Egypt often paves the way for trends in the Arab Nation – that the first MENA tower deal happened in Egypt is not a surprise. Stakeholders in other MENA countries will closely monitor whether the independent towerco business model will succeed in Egypt. And I think it will be a success, depending of course how stakeholders act, how they understand the culture and business rules.

In terms of activity of the tower operations arm of HOI-MEA, we are focusing on Egypt and Saudi Arabia. We feel we can play both roles as service provider and infrastructure provider – separating our tower business from service business. Outside Egypt and Saudi Arabia, we would prefer to partner with other towercos – they would be the starting point for bigger tower deals.