Hotspot Network Limited established itself as one of Nigeria’s larger middle-market towercos, developing a portfolio of 160 sites in urban areas through build to suit agreements with Airtel and Etisalat. The company has just announced the sale of their tower portfolio to leading Nigerian towerco IHS. We speak to Hotspot Network Limited COO, Charles Iyoha to discuss the challenges towercos face in the Nigerian market, the motivations behind their recent tower sale, and what the future has in store for Hotspot.
TowerXchange: Please introduce Hotspot Network Limited.
Charles Iyoha, COO, Hotspot Network Limited:
Hotspot Network Limited was established in 2008 as an engineering services company focused on services which included telecom managed services, wireless solutions, satellite solutions, microwave solutions, engineering support service and co-location services.
In 2013, we turned our full focus to co-location services and signed an agreement with Etisalat and Airtel in Nigeria to provide specialised co-location and infrastructure sharing services to them. At this time, we didn’t have any towers of our own in place, rather we signed an agreement with billboard companies to use their giant monopole billboards for telecom purposes and then shared the profits from the operator lease payments.
Later in the same year, we decided it would be wiser to also build our own structures to help our competitiveness and growth. As such, we started building disguised towers and water stanchions and acquiring redundant billboards from billboard owners. By the end of Q1 2016 we had developed an infrastructure base of over 160 sites.
We have never been involved in providing power as a service to the tenants on our sites, rather we leased the ground and tower space and the operators brought their own power equipment.
Our sites are primarily located in urban areas where it is typically been challenging for operators and towercos to get a license to build new infrastructure. We developed a handful of sites in other scattered locations.
TowerXchange: How did the dramatic growth of IHS and entrance American Tower into the Nigerian market in 2014 affect dynamics and the growth opportunities for middle-market towercos such as Hotspot?
Charles Iyoha, COO, Hotspot Network Limited:
Whilst we had rapid growth between late 2013 and 2015, growing our infrastructure base from zero to 160+ sites, the entrance of American Tower and IHS had a significant impact on our business. The sale of Airtel, MTN and Etisalat towers to the two players in 2014 and 2015 created two significant competitors in the Nigerian tower industry. With the operators having sold their assets to the two towercos, their appetite to use our infrastructure was greatly reduced. We found that operators wanted to use the sites owned by American Tower and IHS and as such, the role for middle market towercos was brought into question. Whilst I am a big advocate of competition and the merits that it brings to an industry, the size of the two companies made it very difficult for us to compete.
After careful analysis, we realised we had to be smart about the entrance of American Tower and IHS into the Nigerian market. We decided the smart thing to do was to align with one of the big players and so we reached out to them both. Having worked with IHS in the past and with them having an appetite to roll-up smaller tower portfolios, we eventually decided to go with them.
We realised we had to be smart about the entrance of American Tower and IHS into the Nigerian market. We decided the smart thing to do was to align with one of the big players and so we reached out to them both. Having worked with IHS in the past and with them having an appetite to roll-up smaller tower portfolios, we eventually decided to go with them
TowerXchange: What can you tell us about the details of the transaction with IHS and the integration of Hotspot towers into their portfolio?
Charles Iyoha, COO, Hotspot Network Limited:
Under the new arrangement with IHS, they will acquire all our infrastructure and all existing lease agreements on third party sites (e.g. billboard sites) and we will now work together with them to grow their “middle market”, helping them with specialised tower rollout.
We finalised the agreement with IHS about two months ago and received approval from the Nigerian Communications Commission three weeks ago. We are now in the process of changing over all the landlord agreements (which always takes a long time in the Nigerian market), as well as getting consent from the operators. The Etisalat consents are pretty much complete and we expect to have the Airtel consents finalised within the next couple of weeks. IHS will upgrade the sites to their specification, a key element of this will be in bringing power to the sites.
TowerXchange: What’s next for the Hotspot team?
Charles Iyoha, COO, Hotspot Network Limited:
Having adopted an outsourced model, the number of permanent employees at Hotspot at the time of the transaction is about 30. We will continue to work with IHS to ensure the seamless integration of our sites into our portfolio and then some of the team will be integrated onto IHS’ payroll.
Hotspot Network Limited as a company will continue to operate, however our focus is going to shift to rural broadband rollout and data centre management. We will also continue to work with IHS to help them with specialised tower rollout.
TowerXchange: Do you think that the acquisition of middle-market towercos by the larger players in inevitable?
Charles Iyoha, COO, Hotspot Network Limited:
As mentioned previously, in as much as I love competition and the benefits it brings to an industry I see a limited future for smaller towercos. Their acquisition is inevitable, in the most immediate future by IHS, but then also by American Tower as their appetite to roll-up smaller towercos grows. Within the next two to three years I foresee major consolidation in the market by IHS and American Tower.
Operators want to rid themselves of the overheads and operational burdens associated with the management of portfolios of 3,000+ towers on a daily basis, especially in Nigeria with all the problems that come with business here. They have done the smart thing by partnering with reputable and financially stable towercos to manage their network rollout so that they can focus on their primary business of selling airtime.
TowerXchange: Beyond competition from other towercos, what do you see as some of the biggest challenges facing towercos in the Nigerian market?
Charles Iyoha, COO, Hotspot Network Limited:
There are lots of issues that towercos have been facing since the telecoms boom started in 2001. Some of these issues have been curbed or reduced thanks to the regulator, but we do still have major problems.
One of the problems is the issue of double taxation. In some states towercos have as many as three different licenses for the same tower and the government and the regulator need to step in here. Towercos are ready to pay their fair share of taxes but instances where we have to pay federal, state and local government taxes all for one tower should be looked into. Federal, state and local governments see the telecoms sector as a hugely profitable industry and view it as an opportunity from which they can obtain revenues. Such high taxation is however seriously affecting towerco bottom line and so there needs to be some harmonisation to better manage this. The introduction of a single body to which towercos pay taxes would help alleviate the problem and this is something that it currently being looked into.
Another major challenge in the Nigerian market relates to the the issue of community relations which affects everything in Nigeria. Youth unemployment is high and the telecoms sector is viewed as a rich resource they can tap. Whilst it is a complicated issue, it can be addressed by enabling laws to protect tower companies. Recently the Inspector General of Police has stated that the police will ensure free and unhindered access to all base stations in the country. Whilst this is a step in the right direction, we are waiting to see how his men will enforce this.
