Why and how Airtel sold their African towers

Christian De Faria joined Airtel in September 2013 as CEO of their African Operations, having previously been Group CCO for MTN. Christian’s first exposure to tower outsourcing came while serving as VP of West and Central Africa for MTN, where he was part of the decision making unit which established the valuation and operational issues around selling towers, eventually resulting in the divestiture of MTN’s Ghanaian towers into a joint venture with American Tower. Prior to joining MTN, Christian served as CEO of Telekom Malaysia and held senior financial positions with Deutsche Telecom and Grundig.

TowerXchange: What motivated Airtel to initially establish your own towerco, Africa Towers, but then ultimately why was the decision taken divest most of Airtel’s African towers to independent towercos?

The idea of hiving off our passive infrastructure into a separate entity created by Airtel and run by passive infrastructure experts was in line with our corporate strategy, emulating what we had done in India with the successful creation of Bharti Infratel. Our initial concept and priority was to create a separate company focused on sharing infrastructure, reducing operating costs, and with a view toward future diversification of the shareholding of Africa Towers, or monetisation.

We found that some African operators were not always keen to lease towers from a company with one competitive operator as the sole shareholder. As the monetisation of the assets was always one of the options we considered, we were motivated to monetise our tower assets sooner rather than later, as other African MNOs have done.

Monetising passive infrastructure also provided an opportunity for Airtel to strengthen our capital structure. We were frequently being approached by companies interested in acquiring our towers. There was huge appetite from Africa’s towercos, which were already well established in Africa at that time.

TowerXchange: Having joined Airtel from MTN, who retained equity in many of the towers they have sold, whereas Airtel has sold the assets outright, how would you describe the relative merits of each strategy?

The model we’ve chosen in African, to divest 100% of the equity in our towers, is driven by corporate strategy. We conducted an evaluation of the merits of each approach, indeed both strategies have their own merits. The end effect is the same; the divestiture of towers. One major reason for going for complete divesture was to free up management attention for our core GSM business.

TowerXchange: What has been Airtel’s experience running the tower sale process in-house rather than through a third party banker?

The process was run by the M&A team in Bharti Airtel’s corporate office in India, which has huge experience in this kind of business.

There were particularities of the African market, so for example we had to make sure any transaction fit the legal and regulatory framework in up to 17 countries.

TowerXchange: What can you tell us about the structure of the transaction? To what extent was the way the portfolio was broken down your decision as opposed to being driven by the shape of the bids you received?

The distribution of assets among Africa’s four leading towercos, and the determination of which partner we worked with in which market, was primarily determined by the bidding process. Some bidders already had a presence in country and were seeking to maximise their presence, others were interested simply by the size of the market. We ran a clear bidding process which met the interests of each partner: a memorandum was circulated, each towerco came back saying “I’m interested in this, this and this and willing to pay this” and that ultimately defined the allocation / distribution of towers and structure of the deal.

We know the partners we’ve chosen; these are towercos already present in Africa, we know their technical and financial capability, and the decision to award towers was also based on technical and financial merit.

TowerXchange: It has taken over a year for the announced tower deals to close – are you able to tell us about some of the roadblocks which you have encountered over that time.

Tower transactions are complicated transactions, especially in Africa where we had to push for the adoption of specific regulation and licensing regimes for tower companies in some countries. There was lots of work to be done to explain to some regulators that we were divesting part of our assets to a third party, and that divesting passive infrastructure transfers some of the responsibilities set out in our license – for example we would have no responsibility for QoS. The regulatory framework is different in every country and the regulator had to understand the direction we, and the continent, is going with the transfer of towers to independent towercos.

We also had to undertake a long process to review the documentation on a site by site basis.

TowerXchange: Airtel recently announced that your deals with Helios Towers Africa in Tanzania, Chad and the DRC have been cancelled as deadlines have lapsed – what is your short term plan for the management of your towers in these countries and the other countries in which Airtel will retain it’s African towers (Sierra Leone and, perhaps, Gabon and Madagascar)?

In the instances where the transactions have been cancelled, the towers remain where they were and those parties continue to manage the towers. In some cases the towers remain on our books, in other cases where the assets had been transferred to an Africa Towers subsidiary, they remain there while we evaluate our options.

TowerXchange: Working with multiple towerco counterparties across multiple regions will relieve a huge amount of operational pressure but will give you a number of relationships to manage – how will Airtel manage towerco relationships post-sale?

We were running our own towerco before these towers were sold, so we had the staff, structure and governance processes necessary. Even towers on our books we were being managed together with maintenance partners – so we have experience with this on a daily basis.

We already know how to manage towerco relationships and we already know the partners who are acquiring our towers; they already have a proven track record of running other operators’ sites. We’re motivated to ensure good relationships with our towerco partners – several staff have been transferred to them so there is huge continuity in the maintenance of passive infrastructure.

TowerXchange: How will Airtel’s subscribers benefit from the divestiture of your African towers?

The subscriber will always benefit from higher service levels. Whether towercos have to serve one, two or three tenants, they have high Service Level Agreements (SLAs) – we also expect the use of a professional company will enable our ongoing endeavors to deliver a high quality, high reliability network.

TowerXchange: Please sum up your vision for infrastructure sharing in Africa.

In committing to infrastructure sharing, Airtel has taken the same step as other operators have before us and still other operators will in future. Because we have strong SLAs which ensure our towerco partners provide the highest levels of quality, the MNO can concentrate on serving the market, serving customers and delivering on our value proposition.

The African telecoms industry has matured significantly in the last ten years. Ten years ago, Africa’s MNOs would not have allowed their competitors a ‘free ride’ on their infrastructure, but today I’m pleased to see a highly developed attitude toward sharing passive infrastructure in Africa, and there is still a lot of room to continue sharing in a more active way: fibre sharing and eventually one day why not active infrastructure sharing?