On 21 March, Bharti Airtel announced they had reached a deal with American Tower Corporation to sell their 1,350 Tanzanian towers. The deal, which is expected to close in H1 FY16, had a purchase price of US$179mn, representing an average cost per tower of US$132.6k. Under the terms of the agreement, Airtel will be the anchor tenant on the towers with an initial ten-year lease, with the deal potentially to be expanded to include an additional 100 sites that are currently under development. The move is the latest in Airtel’s strategy to divest their assets across the continent and helps to bolster American Tower’s African portfolio, adding a fifth country to their footprint. TowerXchange take a detailed look at the transaction, what it means for both companies and how it affects the dynamics in the African tower industry.
Airtel’s appetite to divest towers in Africa
To date, Airtel has closed tower transactions in eight countries; Nigeria (with American Tower), Rwanda and Zambia (with IHS), Congo Brazzaville (with Helios Towers Africa); Ghana, Uganda, Burkina Faso and Kenya (with Eaton Towers, although Airtel’s opco in Burkina Faso has subsequently been sold to Orange). When closed, Airtel’s transactions with American Tower in Tanzania and Helios Towers in the DRC, will take this up to ten (see table one). In a media statement in October 2015, Airtel confirmed that a total of 8,300 towers (representing 60% of their total tower base) had been sold across the eight countries, raising US$1.7bn for the company – the Tanzanian transaction will take this to 73% of their tower portfolio and US$1.88bn with the DRC towers raising further capital for the operator.
In the same 2015 statement the MNO noted that “tower sales and leaseback shall continue to remain a strategic priority for Airtel in all its operating countries across Africa and accordingly the balance of towers will be disposed over a period of time”.
Airtel still retains towers in Malawi and Chad where transactions had been previously cancelled. Whether the towers will come back to market remains to be seen but we can expect a healthy appetite from Africa’s big towercos if they do. Eaton are expected to close the acquisition of ~500 Airtel towers in Niger shortly.
Whilst Airtel’s initial tower strategy had been to carve out their passive infrastructure into an operator owned towerco, Africa Towers (in line with the strategy they had followed in India with the successful creation of Bharti Infratel), the company changed direction in 2014 and commenced a process to divest their African tower assets. In an interview with TowerXchange in 2015, Christian De Faria, CEO of Airtel’s African Operations explained the change in tack “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”
Table one: Airtel tower sales in Africa
The African independent towerco landscape and American Tower’s footprint
Tower ownership in Africa is dominated by the big four towercos; IHS, American Tower, Eaton Towers and Helios Towers Africa (see figure two). The world’s largest independent commercial towerco with a tower count of over 140,000 (pending closure of the Viom Networks acquisition in India), American Tower have a portfolio of 10,227 towers in Africa spread across Nigeria, Ghana, the DRC and Uganda. The Tanzanian transaction, when closed, will take this count up to 11,577 (which will increase to 11,877 following the acquisition of Eaton Towers’ South African portfolio) and whilst only making a small indentation on IHS’ market lead, it adds a fifth country to the organisations’s tower portfolio.
Figure one: Airtel African tower sale - what has closed, and who is buying what?
Why are the Tanzanian towers a good acquisition for American Tower?
American Tower has typically favoured markets with relatively stable political and macro-economic environments, and as one of the largest economies in Sub-Saharan Africa with a population of 54.3mn and a GDP growth of 6-7% YOY in 2009-2015, the country fits the bill.
The transaction, with an initial ten-year lease agreement with Airtel as anchor tenant provides long term stability to cash flows and with three credit worth tier one MNOs supplemented by an aggressive new market entrant and several niche operators (see figure three) a wireless penetration forecasted to grow from 70% in 2015 to 90% by 2019, and 3G and 4G penetration expected to grow at a nearly 50% CAGR in the same period – the co-location potential on the sites is high.
The average tenancy ratio on Airtel’s towers is 1.35 and American Tower forecast the portfolio to generate year one property revenue of US$50mn with an expected gross margin of US$21mn. American Tower forecast growth in line with their benchmarks laid out for the African market.
Figure two: Estimated number of towers owned or managed by towercos in MEA
How does the transaction change the Tanzanian tower market?
Tanzania’s number one and number two operators, Vodacom and Millicom, have both divested their tower portfolios, with Helios Towers Africa scooping both portfolios (see table two). TowerXchange estimate that the Helios Towers Tanzania (HTT) tenancy ratio now exceeds 1.5, and would be higher had it now been for their high volume of new builds, giving HTT 39% of Tanzania’s towers. The divestiture by number three operator, Airtel, to American Tower brings a second independent towerco to the Tanzanian market and places a further 15% of Tanzania’s estimated 8,800 towers into towerco hands.
With strong growth forecast in the Tanzanian mobile market, along with continued rollout of 3G and 4G, and with the aggressive entrance of Viettel prompting renewed investment in networks by incumbents, a number of build to suit contracts are up for grabs in the county. The entrance of American Tower into Tanzania introduces competition for Helios Towers Tanzania (who had also previously agreed to acquire the Airtel portfolio before the transaction was cancelled) but with such substantial growth forecast, the country should easily accommodate two towercos.
Figure three: Tanzanian mobile network operator subscriber market share
Tanzania remains an ideal market for the independent towerco model. With three strong incumbent operators and an aggressive new market entrant, none of which has dominant market share, Tanzania still has relatively low penetration, so there is a lot of growth potential. The regional nature of Tanzania’s mobile networks, with each operator dominant in a different part of the country, creates a perfect environment for infrastructure sharing as each operator seeks a broader footprint across the country. Recently acquired by Millicom, Zantel is strong in Zanzibar; Millicom’s own brand Tigo is dominant in coastal areas, Vodacom in the Arusha area, and Airtel is strong in the Lake zone. Tanzania is also host to several other licensed MNOs, ISPs and WiMAX operators further raising the glass ceiling on prospective tenancy ratios.
With regards to future tower transactions by MNOs, it is estimated that 4,000 are held by operators in the country. New market entrant Viettel have built 3,000 towers in an aggressive network rollout (and are believed to also be co-locating on an additional 1,000 Helios Towers’ sites) and a further 300 tower are estimated to sit in the hands of Tanzania’s smaller operators. Following the acquisition of Zantel by Millicom, Millicom have acquired the company’s ~700 towers (having previously sold all their own to Helios Towers Africa) and a decision has yet been reached as to whether the company will also look to sell these towers. Whilst the former Zantel towers are likely to represent an attractive acquisition target, whether a Viettel towers sale would pique the interest of towercos American Tower of Helios Towers Africa remains to be seen, with rumor in the market suggesting that the structural capacity of many of these sites may not be sufficient for co-location.
Table two: Tower transactions in Tanzania
Figure four: Ownership of Tanzania’s c.8,800 towers
Representatives from Airtel and American Tower will be joining the Africqn and Middle Eastern tower industry at the upcoming TowerXchange Africa & Middle East on 19-20 October 2016 at the Sandton Convention Centre, Johannesburg.
