Tanzania, DRC, Egypt, Ghana, Nigeria, Uganda, Rwanda and Zambia plus energy roundtable reports

TowerXchange Meetups are renowned for our small group roundtable breakouts. Attended by towercos, MNOs, investors, leading managed services subcontractors and suppliers, each roundtable assembles a cross section of the local tower ecosystem in each market, including many of the most influential telecom infrastructure decision makers. As those roundtables are held under the ‘Chatham House Rule’, protecting the confidentiality of contributors, we can share here some of the main lessons learned.

As Helios Towers Africa’s most important market in terms of size and investment, TowerXchange Meetup Africa’s Tanzania focus roundtable was hosted by HTA Executive Chairman, Chuck Green. Historically having had a focus on integration of acquisitions and organic growth, with huge build to suit demand from both Tigo and Vodacom, 2015 saw a change in strategy for HTA with a shift towards operational excellence. With a new Group CEO (Kash Pandya) at the helm, bringing creative and innovative thinking to the business, HTA presented their plans to adopt a hands on approach, from the maintenance contractors on the ground, all the way up to the board room.

With this operational focus put to the forefront, discussions honed in on the main challenges to achieving SLAs in the Tanzanian market, with power troubles being identified as the number one challenge. Participants agreed that there needed to be a better way to optimise power provision, with power accounting for half of tower opex in the country and power failure being at the root of over half the cases of SLAs not being met. Participants discussed the importance of getting back to basics on power and with HTA’s new CEO hailing from Aggreko, the company has firmly demonstrated its intention to tackle the issue.

Diesel theft was unanimously cited as a significant challenge, with organised crime rather than pure opportunists underlying much of the activity. Increasingly creative strategies from criminals - from watering down diesel with paraffin to tampering with gauges - requires companies to adapt and respond to meet these challenges. The biggest source of theft most parties agreed was administrative, requiring a much closer focus on being able to track what is actually being delivered rather than what is being stolen post delivery. Battery theft is also an increasing problem.

When it comes to tackling crime, some interesting strategies were presented by participants with extensive experience of living and working in the market. Community engagement was seen as a critical way to help alleviate problems, providing power to the local community, delivering lighting and offering a charging point as mobile phone usage instils a sense of ownership in the community. One participant discussed making the community the owner of the diesel genset so that they look after it well. Engaging with the chief within a given village was seen as key strategy as the community respect him - a security guard appointed by the chief is likely to be more honourable than one that has been selected through other means.

With regards to other challenges in the market, participants cited tough labour laws as something that people entering the market easily under-estimate. Within Tanzania, there is very much a culture of employees taking employers to court - and the employees generally win. A tough hand that may help reap results in other African countries does not work well in the Tanzanian market. In order to be successful there you need professional man managers in your team, and those of Tanzanian descent will understand the culture better than others. There was a comment from a couple of participants that one of the risks people encounter in Tanzania is a false sense of security, whilst it is generally seen as a non threatening society, that does not necessarily translate into it being easy to do business there.

Discussions naturally led to the importance of recruiting and retaining reliable staff. The personality and values of the person that you employ is often more valuable than their qualifications. It is also important to maintain a continuous training programme. As employees or contractors progress and become more senior in their roles, they may often forget some of the essentials they learnt along the way and so re-training is important.

Beyond the social challenges tower operators face, it was commented that maintenance costs for a tower in Tanzania were extremely high - typically US$7,000 per year, ten times the costs in the US. A large part of this can be attributed to generators, with participants discussing how to minimise downtime and prolong the usable lifetime of the assets. The causes of generator failure can be diverse, and there is a real need to dig down into the root causes - simple things such as a lack of water or coolant. Putting in place timelines for preventative maintenance and sticking to them is key.

Taking a step away from the day to day management of towers, the biggest topic on the table was the entrance of new MNO, Viettel into the market. In the 6-12 months leading up to the Meetup, dramatic changes had been seen in the Tanzanian market as a result of their entrance and participants were keen to see how this would evolve as we moved into 2016.

It was confirmed that Viettel have big expansion plans with 1,500 orders to process. Some participants commented that as a company, Viettel have an unorthodox way of rolling out their sites and as a result have done a lot of work on their own. Some participants raised concerns surrounding health and safety and poor training. As to whether this represented a concern to other tower owners in the market, it was commented that if Viettel were to try and put a tower near an existing site it would be blocked by the regulator.

Our Egypt roundtable, hosted by Eaton Towers, kicked off with an enthusiastic explanation of why the country represents such an exciting market at present. There is a big population, fast growing data usage, a presence of tier one MNOs (Vodacom, Etisalat and MobiNil) and a fourth operator coming to the market as well as a focus on 4G rollout and rapid urbanisation - as a country it ticks a lot of boxes for towercos. When it came to setting the stage for discussions, it was highlighted that there are currently 20,000 towers in the market of which all but 40 (which were built by HOI MEA) have been built by MNOs.

With both Eaton Towers and HOI MEA at the table, plenty of practical experience was offered with regards to operating in the country and whilst participants generally agreed that there is scope for more tower companies to enter the market, it was highlighted that there were big challenges in doing so.

In spite of the concerns of some participants who were not yet familar with Egypt, those already active the market mentioned that when it comes to security there are no major issues. Contrary to discussions being held on other African markets, theft and vandalism do not constitute major problem areas. The only area where towercos and their suppliers experienced heightened security concerns was Sinai. Where concerns do sit however, relate to the political instability of the country which can make operating there tough. Participants questioned international investors at the table as to their outlook for the Egyptian market and the sentiment was that Egypt was too big and too important a country to go the way of countries such as Syria and Yemen and so they had more confidence in the market. Youth unemployment needs to be addressed as a priority to improve the economy, and those around the table agreed that the recently discovered offshore gas reserves could also have a marked positive impact.

In order to be successful several participants agreed that it was of paramount importance to have Egyptian management and knowledge, whilst international experience carries a lot of merit, often where the real agreements happen are in a much less structured setting, and mainly in Arabic. Military permissions, and therefore military contacts or ex-military staff, were reportedly required to facilitate the acquisition of many sites in Egypt.

One of the biggest challenges cited in the Egyptian market was obtaining finance. With currency control, dollars are extremely hard to come by and sometimes must be purchased on the black market - when operating in Egypt you want to be buying in Egyptian Pounds. There were comments that many issues in finance stem from the local banks, they often make a lot of false promises, first inferring they have a lot of money and then further down the line saying they can’t get dollars.

Following discussions on finance, a large part of the remaining discussions focussed on the other big challenge that towercos face in Egypt - power. Grid interconnection processes are extremely slow, with it taking far too long to get the license to secure power from the authorities and as a result, many sites in Egypt are off-grid. The mentality of the authorities seems to be that the electricity grid is for the use of citizens and not to be prioritised for businesses.

Most sites in the country are reliant on diesel generators, with one towerco at the table mentioning that due to the high load on the majority of their sites, some needed as many as three generators. This led to questions as to whether towercos in the market have tried renewable sources of power generation, primarily solar PV. A key factor which has potentially the stymied the switch to alternative sources of power is the low cost of diesel in the Egyptian market. The price is a lot lower than elsewhere in Africa, currently around a fifth of that in other markets. There are plans however to normalise the cost of diesel with a programme being introduce to reduce the government subsidies on the fuel.

With regards to solar, towercos at the table had some experience. Some sites they had recently acquired had solar on them and they had also trialled solar-hybrid solutions in the delta region. Speaking about these trials, which have been running for three years, the towerco reported good feedback with savings of power opex savings of 76% being reported. There are however lots of issues which still need to be tackled in order to optimise performance, such as monitoring or dealing with the high dust levels in the region. It was noted that the Egyptian government were very supportive when it came to granting land to develop solar projects.

When it came to power, participants enquired as to the potential impact of ENI’s discovery of off-shore gas reserves. With production expected to commence within five years, the discovery has the potential to change the geo-political situation in Egypt and beyond, and may lead to the creation of substantial new infrastructure, including telecom towers.

Other mega-projects which could stimulate demand for new towers in Egypt include the enlargement of the Suez Canal and the building of a new capital East of Cairo.

Before rounding up discussions, questions led to the rooftop market and what opportunities were presented there. Thinking amongst participants was that managing and marketing rooftops would be a difficult business model in Egypt, the biggest problems being finding the permit and securing an electricity connection - finding the responsible parties that you need to deal with can be extremely challenging and often more effort than its worth. It is notable that Eaton’s acquisition of 2,000 towers from MobiNil did not include assets in the rooftop-dominated Cairo market.

In terms of a build to suit market, HOI-MEA is the only company that entered the market with this business model. It is a difficult market, with the process to start approaching customers being long and obtaining two tenants for new sites being challenging due to MNO’s differing strategic interests in different cities. When it comes to tower acquisitions in the market, it was referenced that towercos have had the opportunity to pick specific regions that they were keen to acquire, delivering some flexibility on that front.

A subsequent round table focused on building towers in Egypt, and was hosted by HOI MEA (‘’House of Inventions’’), which has offices in KSA, UAE, Morocco, Sudan, Qatar and Egypt. At the time of the 3rd TowerXchange Meetup Africa (October 2015), HOI MEA had 40 sites in Egypt and they were planning to drive toward 300+ in the next three years, mostly through organic growth. Insights from HOI MEA’s round table have been integrated into the above notes.

As the only towerco in the market, Helios Towers Africa played host to our DRC focus roundtable. Whilst referenced as the toughest market in which they operate, and with the company’s SLA values being slightly lower than in other regions due to the inherent complexities, the company has outperformed their acquisition economics in the DRC from day one. The key to this, they felt was putting in strong processes from the off. In spite of the challenges of working there, they view the country as a huge market with the potential for significant growth. Being the only towerco present in the DRC and owning just under 25% of the country’s ~4,250 towers, Helios Towers Africa were hopeful that the Airtel DRC tower deal would come back to the table with their portfolio of assets having the strongest national coverage. Asked as to whether they thought another towerco would enter the market, HTA thought it unlikely as it is a very challenging market where local relationships are more important than ever (Editor: TowerXchange subsequently learned that negotiations to acquire Airtel’s DRC towers have resumed, with Helios Towers Africa and Eaton Towers interested).

When discussing the political situation in the DRC participants with experience of living and working in the country felt it was pretty stable. The upcoming elections in December 2016 would likely have some impact on the market however, with generally everything in the country shutting down around election time.

Rural coverage dominated a large part of discussions with participants commenting that operators were generally reluctant to go into rural areas, although there was a push from regulators to force the issue. The challenge for a towerco in servicing the rural market is that the likelihood is that you would only have one tenant on your tower. With the towerco business model being built on adding a second tenant, discussions centred on how companies were looking at technical solutions and business models that could make rural coverage a viable strategy for a towerco. It was suggested that a low power option, that can provide up time for a few hours a day, would make the single tenant business model work. Whilst coverage would be limited, giving six hours of connectivity where there used to be none is a significant step forward. Currently operators are mostly building their own rural sites due to the lack of a towerco solution. Revenue sharing business models where an operator and rural towerco work together in a rural area have been proposed – although to date the most progress is Infratel’s project to build some 800 rural sites for Vodacom in DRC, albeit under a conventional supplier model.

In order to drive the market further one participant called upon DRC regulators to look at the example set by India in stimulating the rollout of rural networks. In India, if operators were not covering villages and rural areas they were required to pay a default fee. Most operators were happy to pay this penalty as it was a more cost effective solution that rolling out a rural network. These penalty fees created a fund and when operators were asked to bid for the least amount of subsidy they would require to take on the rollout to key rural locations this fund was to be made available. Interestingly however, in the auction companies bid with negative subsidies, the mindset in the market had shifted and since then rural coverage has expanded significantly in India.

When it came to operational challenges in the country, logistics and power were cited as the two biggest issues. The DRC is a huge country with very limited transport infrastructure, which makes the movement of materials and services extremely difficult. Power accounts for half of operating costs at sites and also failure accounts for half of site down time. Fuel theft is a big problem. Furthermore outside of Kinshasa, fuel costs can be 2.5 times that in the capital (thus necessitating different pricing structures for these regions). With such significant power challenges, one participant questioned whether towercos should seek an ESCO model in order to remove some of the risk. Whilst this wasn’t ruled out as an option, others commented that the penalty for SLA failure would need to be passed along to the ESCO and in such an instance the ESCO would need to have a big enough balance sheet to take be exposed to such risks (which many don’t).

Another solution posed was the use of alternative energy in order to reduce diesel usage. HTA commented that they have had a positive experience in Tanzania working with solar and would be open to the opportunity, whilst HTN Towers have a major solar programme currently going on in Nigeria. The conditions in the DRC are such that there is little dirt or dust on roads which would interfere with the performance of a PV system and so the country could be an ideal candidate for solar rollout. With the government facing such power issues it was suggested that Helios Towers Africa (or a third party) could look to built a central site, in the magnitude of 20MW, whereby excess power was fed into the grid. With it being proposed that Helios Towers Africa were arguably the DRC’s biggest power consumer they should have some sway with the government in promoting such initiatives.

This was one of the most popular roundtables at the TowerXchange Meetup Africa 2015. It was moderated by Samuel Tanon of Millicom, whose remit includes both tower strategy and opex improvements.

Samuel introduced himself and Millicom. He emphasised the fact that Millicom has outsourced their towers in most countries, thus transferring responsibility for power to their towerco partner – in many cases Helios Towers Africa, whose then COO Kevin Koch also participated in the roundtable. Samuel hinted that Millicom might be interested in outsourcing to an ESCO in Chad, where they retain ownership of their towers.

Mobiles operators are ready to pay a premium to maintain 99.99% uptime at certain sites. On the other hand, at smaller sites (e.g. below 500W), they can sometimes accept uptime lower uptime of 99.95%.

The average capacity for existing sites was reportedly 1.5-2KW. For new sites, the capacity is typically much lower.

The importance of ‘’community power’’ in rural areas was emphasised, where more and more sites consume less than 500W, and where perhaps one or two operators might share the same BTS.

On the question as to whether energy consumption at cell sites was generally increasing or decreasing, response was not very clear. On one hand, consumption was decreasing as technology evolved, but this was offset by the increase in traffic meaning more capacity was needed and thus more consumption. Millicom gave the example of Ghana where they have replaced their old sites (6-8KW) with new sites with less than 2KW.

Most equipment was running in DC rather than AC. In future batteries would be preferred which run in higher temperatures therefore with less requirement for cooling.

Towercos continue to report encountering challenges with energy storage and battery logistics, although report significant ‘quick wins’ could be achieved by investing in deep-cycle batteries. Battery theft was almost as big a concern as fuel theft, although solar panel theft was less of a concern. Measures taken to prevent battery theft included trying to make them look less like batteries, and burying them under concrete, an approach widely used in the US. Administrative theft remains the number one source of leakage, with guards sometimes making use of DGs for their own needs.

A few market snapshots gleaned from the roundtable. Grid power in Chad was reportedly at 180V rather than 220V with a significant proportion of towers off grid. Reducing genset noise is reportedly a priority. Millicom intended to upgrade their power equipment before outsourcing to an ESCO. Meanwhile, in Tanzania Millicom were undertaking a project to connect 200-250 off-grid villages.

In Rwanda and Senegal electricity grid power was reportedly improving, although prices had increased, with more and more solar panels seen on roofs. Nonetheless, solar power was not considered competitively priced compared to grid in those markets. While grid conditions were improving in many SSA countries, the situation had worsened in Ghana, compounded by currency devaluation and fuel shortages.

In conclusion, the roundtable agreed that towercos and aspiring ESCOs would have to adapt energy solutions to meet the unique requirements of each site.

Enda Hardiman of Hardiman Telecommunications moderated the session. Enda had been working for the Zambian Advisory Council and had done some consultancy projects in Rwanda and Zambia, in particular with Millicom.

The Rwandan and Zambian tower markets are both dominated by IHS, which owns around 2,700 towers across the two countries, including 1,100 acquired from Airtel in late 2015 plus 1,269 acquired from MTN in 2014 and topped up with BTS. There are around 2,000 towers in Zambia, giving IHS 85% market share, and 1,300 in Rwanda, of which IHS has around 77%. IHS remain bullish about achieving a tenancy ratio of two in Rwanda and Zambia with five years, driven by data growth and technology upgrades. Naturally IHS’s tenancy ratio dropped with the integration of the Airtel towers, which had historically not been widely shared with competitive MNOs beyond a few bi-lateral swaps. However, MTN’s enthusiasm to co-locate on Airtel towers, particularly in Zambia, should see tenancy ratios recover quickly.

According to GSMA intelligence, in Q4 2015 there were 8.8mn connections in Rwanda among a population of 11.7mn, representing 75% SIM penetration, with 35% mobile broadband. The same source suggests that in Zambia there were 11.9mn connections among a population of 16.5mn, representing 72% SIM penetration, with 16% mobile broadband.

Rwanda is a great place to do business. With GDP growth over 8%, it’s a well managed country with a stable government. The Rwandan regulator mandates tower sharing, helping the development of towercos in the country.

MTN are market leaders in Rwanda, with Tigo and Airtel completing a roster of credit-worthy tower tenants, whereas Airtel are the market leaders in Zambia, followed by MTN and capital-constrained Zamtel. There are rumors of a prospective fourth MNO or MVNO entrant. ARPUs are low in Zambia; in the US$2-3 range.

Towerco lease rates in both markets are inclusive of power. Grid power is more extensive and reliable than other SSA markets in Zambia and Rwanda, where battery banks are often the sole backup power needed. Power availability is improving but remains a challenge, and diesel theft remains a big issue.

Dion Djerling introduced the activities of Connect Africa in Zambia: a series of Wi-Fi hotspots installed in rural areas across Zambia. Base stations costs less than $10,000 and are partly funded by advertising.  Connect Africa has over 200 sites deployed successfully with three operators. Connect Africa’s experiences illustrate how smaller cells present both threat for MNOs and opportunity for towercos.

Another popular roundtable, with the conversation ably structured by Laurent Roineau, Group CTO of managed service provider Camusat. Laurent previously served as CEO of TowerCo of Madagascar.

The discussion started with an identification of towercos’ energy needs in Africa, including energy generation, energy storage and the measurement of key performance indicators through RMS.

For rural areas, low cost sites with integrated power solutions, or minigrid solutions were propsed. While Africa’s ‘Big Four’ towercos remain focused on sites with a more obvious path to a second tenant, a class of turnkey rural towerco is slowly emerging, represented at the Meetup by Africa Mobile Networks (AMN), Connect Africa and Infratel. MNOs also continue to be key stakeholders in rural connectivity, for example Tigo plans 100 low cost rural sites this year, 160 next year.

Business models and pricing was another hot topic, with regulation restricting options in some countries. While there was no clear consensus around the preferred model to deliver energy as a service, fixed monthly fees of charging per kWh, the prevailing preference among towercos at the TowerXchange Meetup Africa was still to drive energy efficiency through their own capital investments, capturing the value on their own balance sheets.

Deep cycle batteries continue to offer a ‘quick win’. The vast majority of battery banks at African cell sites still use lead-acid rather than lithium-ion or fuel cells. Battery recycling is seen as cost-neutral – the residual value of the equipment covering the cost of recycling, with the added complication that lithium-ion batteries would have to be exported to be recycled. Battery theft remains a critical concern, particularly in markets like Uganda where organised criminals extract the lead from batteries to resell on the black market. The business case for fuel cells is still felt to make more sense for datacenters than at individual cell sites.

Diesel gensets still represent a significant majority of distributed and backup generation solutions in SSA, with solar still perceived as being relatively risky and costly. Wind turbines remain a rare sight at SSA cell sites.

Abdalla Saeed, CEO of Expresso Senegal moderated the roundtable, joined by Expresso’s Group CEO Tarig Rahamtalla. The discussion focused on creating a market for Expresso’s towers in Senegal, and perhaps beyond.

Senegal is an attractive investment with low country risk: a stable political environment, steady 4.5% GDP growth and 2% inflation.

Expresso has around 2.5mn of the 14.7mn subscribers in Senegal, a country of just over 15mn people. While SIM penetration is approaching 100%, multi-SIMing means unique subscriber penetration is nearer 60%. 3G penetration reached a double figure percentage in 2015.

Orange-branded Sonatel are market leaders with around 55% of subscribers. Sonatel have been reluctant to sell their 1,800 towers (government and union opposition to any prospective sale has not helped), although Sonatel have been considering a managed services agreement.

For challenger MNOs to prosper, they need to quickly and cost effectively achieve coverage, but to date there has been little bi-lateral infrastructure sharing in Senegal, with #2 and #3 MNOs Tigo and Expresso keen to get onto Sonatel’s towers, but the market leaders reluctant to share. While partnering with a challenger MNO often doesn’t garner appetite of Africa’s large towercos, Senegal could be an interesting opportunity for a second tier towerco. For example, Expresso plans to expand from their current network of 450 to 700-800 towers. A potential partnership could also involve Millicom-Tigo, which retains their 1,000+ towers in Senegal.

Senegal could be one of the next countries in SSA to move toward a shared infrastructure business model – there are plenty of stakeholders lobbying government about the inefficiency of having three parallel mobile networks in a market where the total cost for a new macro tower is around US$200,000.

Terry Rhodes, Acting CEO of Eaton Towers, hosted the Uganda roundtable, supported by insightful contributions from Thomas Sonesson, CEO of ATC Uganda, as well as the leaders of several of the country’s most important managed service providers and equipment suppliers.

Uganda has a young, fast growing, geographically dispersed population of just under 40mn, meaning there is need for broader coverage than in more urbanised emerging markets. Uganda had 28.7mn mobile connections at Q4 2015, 16% of which are mobile broadband customers, according to GSMA Intelligence.

Uganda’s local currency is under pressure (37% devaluation in one year) and the reserve position isn’t as strong as investors would like. With material costs often linked to the US dollar, and much of the revenue generated in local currency, towercos are exposed to currency risk.

The Ugandan MNO market has substantially restructured since the entrance of the towercos in 2011: Airtel acquired Warid, Orange sold out to Africell, and newer operators Smart and Smile started to establish themselves. While there are seven operators in Uganda, the market structure is essentially two leaders, a contender and some smaller niche players. Newest entrants Africell prefer a capex-light model, and are natural co-locators, so expect tenancy ratios to rise more swiftly in 2016. The regulator, the UCC, are not keen on further consolidation, but speculation continues surrounding the future of UTL (as ever, the politics around a struggling incumbent are complex!)

MTN are mobile market leaders in Uganda – they formed a 1,000 tower, 49:51% joint venture towerco with American Tower in 2011. ATC Uganda currently owns 1,388 towers. Eaton Towers entered Uganda soon after, combining 400 Orange towers with 300 Warid towers, to which they are in the process of adding Airtel’s towers, giving Eaton a count of around 1,600 Ugandan towers. TowerXchange estimate that there are just under 3,500 towers and a little over 4,000 tenancies in total in Uganda, suggesting an average tenancy ratio approaching 1.2.

There are a decent number of non-traditional MNO tenants on Uganda’s towers. There are national security tenants, weather information systems and various ISPs. Google recently started taking tenancies, as well as new entrant 4G operators. Tower Cash Flow (TCF) is a more important metric than tenancy ratios, and there is lots of revenue generating equipment on towers which isn’t reflected in tenancy ratios, such as new microwave dishes, a second RAD centre et cetera.

In terms of new tower build, MNO consolidation initially slowed the build out, but a growth period is foreseen in the coming years. Towercos report Uganda has perhaps another 3,500 towers to build, particularly in Northern parts of the country. An annual growth rate in terms of total tower count of around 10% is anticipated. There has been less decommissioning than the towercos expected, due to underlying market growth, particularly rising data demand.

Nobody is stopping Uganda’s MNOs from building their own towers, but most of the new build is being done through the towercos. However there is always competition – the MNOs have been in this business for 20 years, they know what they’re doing, so there is always a make or buy decision. So there is always a benchmark cost.

Build costs are reportedly “higher than average for SSA, similar to Ghana, but not as high as Nigeria.” As a landlocked country with no domestic steel industry, getting towers and accessories into Uganda can be time consuming and expensive. The import of equipment is subject to a 5% duty just to cross the border.

Maintenance costs are reportedly as much as double those in Ghana. Limited maintenance capabilities and capacity in Uganda forced one towerco to bring O&M for half their network in-house (”we don’t regret insourcing maintenance – it enabled us to really get to know the costs and the pain points, so now have a tender out for a five year maintenance contract, we’re in a stronger position to negotiate a new deal!”) However, the towercos report that, apart from steel, there is now an established ecosystem of local suppliers in Uganda.

There are significant logistical challenges to operating a tower network in Uganda, including operational management and delivery of fuel. While many SSA towercos struggle to combat fuel and battery theft, the difference in Uganda is that the administrative theft is compounded by the impact of organised crime, with armed robberies having a material effect on opex. This makes Uganda’s towercos keen on site hardening techniques. One towerco reported having put a prosecutor and ex-policemen on their payroll to ensure the perpetrators of theft are jailed. Nonetheless, security troubles have not been enough to dissuade American Tower and Eaton from continuing to invest in Ugandan towers “we’ve put a lot of money into buying Airtel’s towers – we believe in this country,” said Eaton’s Terry Rhodes.

The opportunity to serve rural communities has not been fully met by any stakeholders us yet, but MNOs are generally looking for expanded coverage, somewhat driven by Mobile Financial Services.

Telecoms and particularly telecoms infrastructure is relatively lightly regulated in Uganda – for example there is no regulation specifically for infrastructure or transmission companies. However, the regulator certainly seems aware of the need for coverage and capacity: Uganda has around 50% more subscribers per tower than Kenya. Permitting new sites in Uganda is reportedly easier than other SSA markets, although identifying the genuine landlord is always a challenge. A lot of the acquired towers lacked some of the necessary environmental permits – fortunately the retrospective application process has been relatively painless.

What proportion of Uganda’s towers are on unreliable grids or off-grid? ATC Uganda say around 400 of their 1,388 sites are off grid, with around half the new build off grid. Eaton said “more of our towers are off grid than on”. Unreliable grid sites need backup DGs and battery banks, although “a few mobile DGs are sufficient to cover Kampala”. However, daily interruptions of one to three hours are common even in Kampala, so one towerco’s vision is to replace diesel with fast chargeable energy storage that can recharge 50% of the battery’s capacity in half an hour.

There has been a fair amount of hybridisation of power solutions in the Ugandan, with extra incentive since ATC Uganda moved from the power pass through business model to providing full power as a service (PaaS). Uganda’s towercos will invest in connecting towers to the grid, although they often have to pay for the transmission network extension.

What are the Ugandan towercos’ appetites to partner with ESCOs? Investors in American Tower view it as a stable, annuity play, so it might be appealing to offload risk and secure cashflow. On the other hand Eaton report having hybridised 300 sites from the original 700 they acquired in 2012 – “we’re keen to retain the benefits of that investment on our balance sheet, but once we know what we’re dealing with, we might consider partnering with an ESCO.” However, the near term view was that towercos were reluctant to partner with unproven, technology-centric ESCOs that haven’t given sufficient thought to the operational aspects of the business. “I’m seeing too much vaporware,” said one towerco. “We’ve put a lot of focus on energy efficiency ourselves,” said the other towerco, “we’re good at this.” At a smaller level than a full ESCO proposition, Uganda provides a special license for community power projects which could foster the development of new distributed generation plays – towercos would be interested in having a site or sites as anchor tenants in such an ecosystem.

Chuck Green, Executive Chairman of Helios Towers Africa (HTA), hosted the Ghana roundtable, with valuable contributions from Eaton’s Terry Rhodes. HTA completed the first sale and leaseback in Africa when they acquired 750 towers from Millicom-Tigo in Ghana for US$54mn back in 2010. Shortly afterward MTN came to a marketing services agreement with American Tower, creating joint venture ATC Ghana which currently has 2,098 towers in the country. Both Eaton and HTA were involved in the Vodafone Ghana process, which oscillated between a sale and leaseback opportunity, then a managed services deal, then back to a sale and leaseback before ultimately closing as a ‘manage with license to lease’ deal with Eaton. The Vodafone towers were a legacy of the old Ghana Telecom network, and needed substantial improvement capex to be readied for co-location. So within 12 months there were three towercos in Ghana.

While Airtel’s Africa Towers was registered in Ghana a couple of years ago, they were never really active, and the Airtel towers are in the process of being transferred to Eaton, bringing their Ghanaian tower count to around 1,400. To illustrate the economies of scale in emerging market towers, Eaton Towers Ghana reportedly needed add only three extra fulltime employees to their existing team of just under 40 to manage a network almost doubling in size. TowerXchange estimate there are around 6,000 towers in total in Ghana.

According to GSMA Intelligence, in Q4 2015 Ghana had a 27.7mn population with 121% SIM penetration, not reflective of the real level of penetration as multi-SIMing is common, and there is little stickiness. Ghana hosts a crowded MNO market with Airtel, Glo, MTN, Tigo and Vodafone all present, as well as a host of smaller operators.

There has been an injection of new blood into the MNO landscape with the licensing of 4G pioneers. Licensing rules restricted spectrum to local companies – and these are full LTE plays, not just fixed wireless. The rollouts of these new entrants have been reported as “more like ISPs” with “single poles not towers, and few with DG backups.” Towercos are inclined to view tenancies from such companies as short term incremental revenue because they know they won’t be around forever.

The history of the Ghanaian tower market had been one of stable operations, virtually unblemished SLA performance, and leaseup almost exactly as per acquisition business cases, until the Ghanaian Cedi started it’s dramatic and extended slide. While grid availability at the time of the tower acquisitions averaged around 14 hours per day, it had improved to 22 hours, then rapidly slid back to 14 hours from January 2015. The result? Nationwide fuel shortages and power outages, compounded by a fuel transport strike. Deregulation of the fuel price in 2015 led to bulk suppliers holding stock as the price went up 25% in a matter of days. In parallel, electricity prices have been soaring. Maintenance contractors are paid in Cedi, but those same contractors have to buy many consumables in US$, which risks forcing them to buy cheap, lower quality parts and spares, in turn putting more pressure on uptime and SLA performance.

Ghana’s towercos learned hard lessons about the need to have dynamic processes able to get ahead of fuel shortages. At the time of the Meetup Ghana’s towercos had achieved nine consecutive weeks of positive SLA performance.

Despite the currency crash, one towerco reported still trading EBITDA positive albeit at a significantly lower margin due entirely to forex exposure. “Indexation and escalation clauses are vitally important when prices move around so much,” suggested one towerco. Ghana’s currency devaluation prompted at least one towerco to amend contractual terms that had previously provided for a once annual adjustment of power prices, bundled into lease costs – they’ve shortened the time between adjustments now. Securing at least a portion of revenues in US$ may have been another means of minimising forex exposure, but the Ghanaian government banned US$ contracts, and Ghanaian banks are not allowed to lend US$.

Another challenge in Ghana has been strict permitting and environmental policies, with tight definitions of where you can build (“you have to demonstrate you can’t co-locate on an existing tower in order to be permitted to build a new tower”). This has affected BTS volumes. However, this has the positive effect of driving up tenancy ratios because everyone has to share. One towerco reported a tenancy ratio approaching two nationwide, another said their tenancy ratio was significantly above two in urban areas, and around 1.5 in rural Ghana. Ultimately new tower build volumes in Ghana have not been what towercos were led to expect by MNOs: “I feel there are unlikely to be more than 100 new builds next year across the whole of Ghana,” said one towerco. However, the towercos have generally been very contented with the Ghanaian regulator’s promotion of infrastructure sharing and their efforts to minimise the proliferation of towers.

How has the level of competition affected towerco performance in the only African market where three of Africa’s ‘Big Four’ towercos are active? “Permitting challenges and a lack of BTS has driven up lease up rates,” said one towerco. “We’re generating less dollar EBITDA solely because of currency exposure, and opex has been rising because of declining grid quality. But the factors affecting performance aren’t related competition. However, would I go in as a third towerco in another market now? No. If there’s two strong towercos in a country, then you look elsewhere.”

Towercos are trying to figure out the right model to serve rural Ghana. They may need Universal Service Fund subsidies where revenues are less secure, but they also have to have a business model that works in the long term. Shared revenue and shared risk models don’t overcome the simple fact that with the capital cost of sites at the moment there has to be the prospect of a second tenant in the near to medium term. Ultimately many felt that the rural market was better suited to specialist revenue share infrastructure operators built around low cost technical solutions (short, lightweight structures with solar+batteries power solutions, no DGs so near zero maintenance costs, and low power base stations with low power backhaul). Such solutions might make economic sense with just one tenant.

Hybridisation of cell site energy solutions is in the relatively early stages in Ghana. A common concern is the complexity of solutions from a maintenance point of view and the associated struggles to find the right skillset among O&M contractors.

Eaton initially managed security and maintenance in-house, but having built confidence in the local supplier ecosystem later decided to outsource.

Contractor performance management and performance improvement is a priority for towercos in Ghana and beyond. “The big stick approach hasn’t worked,” said one towerco executive. “We have to help our guys in the field understand the consequences of what we’re doing and of what they’re not doing. If a site goes down and there’s a medical emergency, emergency services won’t work. We’ve got to mold a culture to be more responsible.”

The reality is that field engineers and security guards are not always paid enough to counter the temptations of fuel theft. Instead of unqualified security guards being paid a low wage, one towerco advocated hiring junior electricians – maybe combining security with maintenance. Give your staff a career path, reduce theft and improve MTTR (Mean Time To Response) in the process!

Ghanaian towercos have active security on around 80% of sites, the other 20% with roving patrols, but they’re all looking at site hardening solutions to reduce opex. Theft of batteries is a big problem, with the re-use cases of 12V lead acid batteries too readily apparent. Contractors ieng shared some experience of reinforcing cell site security with concrete bunkers. Other site modernisation approaches include building facilities for guards outside the fence to minimise risk of staff theft, while partnerships with communities provide incentives for the protection of sites. A community cell charging unit bolted onto the outside of a site’s perimeter fence – with the key to the box given to the closest house – means your nearest neighbor is going to look after the site because he’s providing an important community resource. Many sites are beyond the electricity grid, so towercos (or MNOs) can supply a refrigerator. Sickle cell and other vaccines can be kept cool in such facilities. This sends a message to the community: we’re protecting your families, if you steal from this, it’s your babies you’re going to harm.

How is procurement managed between towercos and their subcontractors? Towercos buy the large batteries (3-4,000 per year, according to one towerco!), rectifiers et cetera – the expensive stuff – but the contractors buy the consumables. One towerco was considering setting up supplier agreements with a price book, and driving their partners to use that at cost.

Lawrence Onyema of SWAP Telecoms and Technology moderated the Nigeria roundtable, joined by senior representation from American Tower and several of IHS’s local contractors, including IPT PowerTech and MP Infrastructure.

Nigeria has a population of 170mn, around 60% of whom are youths. Coverage is maturing but incomplete: discussion suggested that MTN’s coverage was over 90%, Glo close to 90%, Airtel in the 80s. While more towers are needed for coverage, QoS issues also illustrate the need for capacity and infill sites: explosive data growth meant some participants felt Nigeria may need as many as 40,000 more towers beyond the current ~32,000. Voice revenue and ARPU is dropping in Nigeria, but data traffic is growing: there are around 38mn smart phones in Nigeria.

There are other tenants on Nigeria’s towers beyond Nigeria’s GSM operators. CDMA operators Visafone and Multilinks had 2,042,015 subscribers, plus 66,319 fixed-wireless subscribers. Fixed LTE operators SWIFT have over 100,000 subscribers. NATCOM acquired the NITEL license with intend to rollout LTE.

The structure of the Nigerian tower market may change now that 79% of the country’s towers are owned and operated by towercos, with three sizable towercos who could drive consolidation. While there was some speculation around the table as to whether ATC Nigeria would embark on a rollup strategy in an effort to close the market share gap on IHS, TTowerXchange feel American Tower may acquire one or two of Nigeria’s four decent sized middle market towercos (SWAP, BCTek, Communication Towers Nigeria and Hotspot), but American Tower has always had the discipline to walk away from deals that don’t meet their investment thesis and valuation. There is simply not enough independently owned stock in Nigeria for ATC Nigeria to catch IHS.

HTN Towers are somewhat in limbo: they now have two large scale competitors, and four hungry smaller players, to compete with for BTS. HTN’s efforts to restructure their balance sheet have been ongoing for over a year, with their IPO cancelled citing interest from a prospective strategic investor. HTN Towers have reached an agreement with SWAP Telecoms and Technology, enabling HTN to manage and market the combined portfolio and pay commission back to SWAP. This may be a precursor to a merger.

As much as 70% of opex in Nigeria is diesel, with DGs running 24/7 on many sites. SWAP’s 702 sites consume a million litres of diesel per month on their own (that’s an average of 1,424.5L per site). IHS burned 1,900L of diesel per site per month when they acquired towers, have brought that down to 1,200L with a technology pathway to 700L.

SWAP reportedly have around 250 of their 702 sites on-grid, but grid power is only usable at as few as 20 of those sites. One towerco stated “in Nigeria there is no such thing as a reliable grid site – and we define on grid as twenty plus hours per day of usable grid power”.

“Most sites have a grid connection but it is often not working, or the voltage may be high, low or one phase may be off,” said another towerco. “You can try to connect off grid sites to the grid, but many local authorities are too indebted to invest, and even where they can, their priorities will be residential and industrial electrification first,” he concluded. Nigeria’s generation capacity is gradually improving with plans to grow from 4,500MW at the time of the Meetup (October 2015), to 5,000MW by the end of 2015, rising to 10,000MW by the end of 2016. While generation capacity is improving, transmission problems remain.

Diesel theft in Nigeria is systemic, well planned and choreographed, and accounts for ~30% leakage from the ecosystem. Theft isn’t restricted to fuel, with batteries and even whole diesel gensets targeted.

A growing proportion of Nigeria’s cell site energy solutions have been hybridised, with solar hybrid solutions to be deployed at many new sites. The opportunity was felt to be greatest in Northern Nigeria, where weather conditions were most suited to solar.

One vendor reported problems importing hybrid energy solutions into Nigeria, with different customs duties for PV and batteries requiring the dismantling of systems. The process of hybridisation is not just about getting equipment into the country and installed: a cultural change is required throughout the supply chain. Maintenance companies prefer sites to run on DG because they make more money that way! Roundtable participants were unanimous in their call for stable PPAs (Power Purchase Agreements) from the government, enabling the sale of excess capacity back to the grid, a critical incentive to renewable projects.

American Tower confirmed that power costs would not be a pass through for ATC Nigeria, which means Nigeria’s four largest towercos all provide power as a service (PaaS).

TowerXchange asked Nigeria’s towercos to explain the timelines for their investment in energy efficiency programmes. “For the first six months after an acquisition we will typically use the existing inventory of energy equipment, and the existing managed service providers,” said one towerco. “After 6-12 months we have enough performance data to start reviewing suppliers.” One of IHS’s contractors reported that they were already managing the first 96 sites from an acquisition closed less than a year ago, with a further 180 sites to follow. While the time lag is generally manageable, managed service providers will often have to put deposits down on equipment before their new managed sites start generating revenue, creating a financing gap.

“We send out an RFP, do the usual proof of concept testing on any new innovations,” another towerco said. “We prefer an opex model where the provider owns the equipment and guarantees savings,” he concluded.

Building new sites is expensive and complex in Nigeria, with layers of bureaucracy and taxation to be navigated, and environment impact regulations dictating that new sites cannot be built closer than 10m to any existing buildings – this constitutes a major obstacle to rollout. “I have ten new site builds locked by local government and environmental legislation,” said one participant.

Landlords in Nigeria are getting smarter and greedier – one towerco cited an example of a site in a second tier city where the rent had been 3mn NGN per year, who now wants 8mn NGN. Lease rates in Abuja, Lagos and Port Harcourt are particularly high. Opinions differed about the comparative costs of rural leases “you can get sites as cheap as US$150pcm in some locations”, said one participant. “Rural landlords are getting smarter and demanding more,” said another.

Most of the land under towers in Nigeria is leased not owned. Land is typically passed on within families, and leases don’t typically exceed 15 years with five year extensions. The majority of landlords in Nigeria own the land under a single tower, there isn’t much aggregation. There hasn’t been the same seen activity from ground lease aggregators like we’ve seen in the US. Financing, scaling and packaging ground leases would be tough in Nigeria. While there may be an opportunity for towercos to acquire the land under Nigeria’s towers, the general feeling is that there are better ways to spend capital. De-risking long term leases is a greater priority.

In contrast to towers, Nigeria’s fibre is largely retained and rolled out by the country’s MNOs. One participant estimated that MTN had around 6,000km of fibre, with Glo, Airtel and Etisalat having around 4,000km each. The MNOs have created a media gateway to media gateway backbone; the next challenge is to connect points of aggregation to terminal sites, amid huge demand for backhaul capacity. So there is an opportunity for third party infracos, including towercos, to run FTTT or to aggregation points. However, most towercos remain conservative about diversifying into fibre given the cost and lack of clarity about who will make those investments, and given the difficulty maintaining control of timelines given the difficulties securing rights of way. “Fibre adds a lot of execution risk, we’d prefer to stick to our core business,” said one towerco. IHS may be an exception: they are one of two infracos licensed by the government to rollout fibre, perhaps hinting at the beginning of a drive to share fibre.

Challenges in Nigerian fibre include a lack of redundancy, for example fibre can be unintentionally cut or uprooted during road construction – an alternative backhaul solution is needed. Rights of way remain another major inhibitor – “you have to pass through the eye of a needle to get rights of way in Lagos”.

For tower counts and further analysis of the Nigerian tower market, see “The new Nigerian tower market” and “What we learned about HTN Towers prior to their cancelled IPO”.