East Africa is a dichotomy; in urban areas, increasing population density, construction and data usage is presenting MNOs and towercos with one set of challenges, whilst meeting coverage requirements for a large underserved population in remote, rural areas presents totally different issues. At the East Africa roundtable at the 2016 TowerXchange Meetup, participants focussed on how the East African stakeholders must collaborate to address challenges at both ends of the spectrum.
The East African mobile market and tower industry
When comparing East Africa’s mobile markets some stark contrasts can be observed. In Tanzania and Uganda you have markets ripe for consolidation with eight MNOs active in each, whilst in Ethiopia there is a monopoly with Ethio Telecom being the sole operator present; SIM penetration ranges from around 40% in countries such as Burundi and Ethiopia and rises to 78% in Kenya; whilst Ethiopia boasts the highest broadband mobile penetration at 58% versus just 4% in Burundi [1]. Three of Africa’s big four towercos have established a footprint in the region; Eaton acquiring portfolios from Orange, Warid and Airtel in Uganda and from the latter in Kenya; Helios Towers Africa securing the Millicom and Vodacom portfolios in Tanzania; and IHS have a footprint in Rwanda having acquired the MTN and Airtel portfolios in the country.
The region has also seen the rise of the operator-led towerco with Kenya’s Safaricom actively pursuing co-locations on around 20% of their 4,000 sites in the country and whilst Telkom Kenya had planned to pursue a similar strategy, the MNO is currently in the process of selling their ~1,000 towers, with Eaton widely expected to acquire them in the coming months.
Figure 1: Mobile market and telecom tower comparison across East Africa
Data growth and usage
In reference to the Kenyan market, one participant present referenced how the data market isn’t as regulated as it should be with the KPIs being set by the regulator tending to focus on quality in voice services and the number of dropped calls, rather than throughput and speed. There is however ongoing consultation with the Kenyan Ministry of Communications in order to set KPIs around quality of service on data.
With the demand for data in the region growing, a question was raised as to how this is affecting the shape of infrastructure in the market and what impact this is having on the towercos present. One towerco referenced that as fibre was being brought to the tower to support data growth it was resulting in the removal of microwave antennae which could have a negative consequence on towerco revenues. Towercos in the region need to work out how to build revenue streams around fibre; there are providers who are charging for bringing fibre to the site and as such making money from a towerco’s facilities, towercos need to look at this business model carefully.
Figure two: Ownership of Kenya’s 6,600 towers
Figure three: Ownership of Tanzania’s 7,686 towers
In-building solutions
Following on from discussions around increased data usage, a further question was raised on how extensively in-building solutions are being brought to East Africa. One participant referenced how they had five buildings covered by DAS in Uganda whereas in Kenya, the number of buildings covered was in the hundreds, thus demonstrating the difference in maturity of the two countries. In Kenya, one participant estimated that there are around 500 prospective buildings they felt should be target for IBS.
A DAS supplier at the table also felt that Uganda was still quite far behind Kenya in the deployment of IBS but saw IBS coming in a big way in the region. Rwanda, they felt was showing some of the strongest promise, with Ethiopia also being a region showing significant promise. Uganda and Tanzania, they felt, lagged behind these two countries.
As to the business models for IBS deployment, the same supplier felt that MNOs were keen to hand the responsibility to towercos to execute. One of the towercos at the table explained, however, that IBS are more expensive to install than a ground based tower and as such, the rates that a towerco needs to charge are higher which can make it a hard business case for the MNO to justify.
Another towerco at the table referenced how they had completed two in-building projects in Africa but didn’t anticipate that it would become a major revenue stream for them. Their motivation for doing the projects was more to continue good relationships with the operators rather than seeing it as a strong commercial opportunity.
With regards to MNO motivations to install IBS, one participant referenced that it was less about securing new revenue streams and more about addressing quality issues but that it was harder to justify capex spend for quality of service. Another participant offered the perspective that many hotels are currently installing their own WiFi and through this mobile subscribers are using WhatsApp and Skype. The resulting effect of this action is that operators are losing revenue and that deploying IBS may help protect some of this revenue.
As to how involved a towerco should get in designing and specifying an in-building solution, one towerco with experience outside of the African market explained how they preferred to give technical design responsibility to the anchor tenant. As a towerco, focus has always been on the passive equipment and with the active equipment changing so quickly, they felt specification and management of this is better managed by the MNOs.
Figure four: Ownership of Uganda’s 3,485 towers
Changes to the outdoor urban landscape
Participants observed that communities are becoming increasingly opposed to the proliferation of towers in urban areas, even the proliferation of rooftop sites. As such, new solutions will need to be found. Urbanisation is also leading to the growth of high-rise buildings in East African cities which is causing challenges for signal propagation from existing towers. This trend is causing issues for MNOs and towercos alike; MNOs lose the ability to be able to transmit a signal from a given site and when the site is owned by a towerco, they end up entering into a dispute with the MNO who no longer wants to pay for rental on that site. With the towerco having invested significant capex in the site, they are understandably not willing to lose their revenue and as such an agreement needs to be reached.
Participants felt that this was an area where ultimately there needed to be improved communication between the building owner and the operator. It is in the best interest for both parties that building tenants have access to a robust signal and so counterproductive to exclude the interests of the other party. Participants also felt this is an area where regulators should be getting more involved. In major cities in Nigeria, one of the regulatory agencies has proposed that any new building over a certain height needs to have a solution built into it and is in the process of trying to put this into law. Such a solution could be transferred across to East African markets.
Another challenge presented to towercos and MNOs is the creation of large and highly secured residential estates. Such dwellings have proven hard to penetrate with 3G which has led to complaints amongst residents. However due to their highly secure nature, gaining access to these estates to work on a solution is tough. One potential solution to explore for such settings is outdoor DAS; with the sites needing power, attaching such antennae to streetlights could present a very interesting strategy in order to improve coverage. When it comes to targeting these areas however, no one size fits all and so a whole host of different solutions will need to be assessed.
Figure five: Percentage of the population living in urban and rural areas in select East African countries
Improving rural coverage
Whilst much of the discussion focussed around challenges in urban and densely populated areas, talks also turned to rural coverage and obligations placed upon the MNOs to address the poor connectivity for the high proportion of the population living in remote areas.
In Kenya, players including towercos, ISPs and MNOs are required to pay a percentage of their revenues into a universal service fund. At present however, only the GSM operators are able to access the fund. Other parties are currently working with the regulator to change legislation so that anyone who pays into the fund is able to access it in order to make coverage expansion in underserved areas commercially viable.
One of the concerns around such a proposal is that although a towerco may access the fund to build a site, this does not guarantee that an MNO would automatically use that site. MNOs at the table felt that towercos would need to work at creating a model which would give the regulator and MNOs that assurance.
With the towerco business model being based on the addition of multiple tenants, developing a solution that is commercially viable in an underserved area with no grid connection that would most likely only have a single tenant presents a particular challenge. In addition to that, in some remote areas, such as the East of Kenya, there are increased security risks which further complicate rollout. Developing a solution to this requires collaboration between the full value chain in order to bring a cost effective alternative to the market.
One participant at the table had been working on rural coverage in Zambia, developing a low tower, low power solution. The model had initially proposed a revenue sharing agreement with MNOs but with such low ARPU in the region, this had never got off the ground. The company has since looked at developing a WiFi solution in conjunction with an ISP and a more lenient licensing structure, whereby the WiFi is funded by media owners who use the platform for advertising.
One MNO at the table shared their experience in extending free coverage to individuals through agreements with bus and taxi owners. The owners of the buses bear the cost of the service and use it as a loyalty scheme or attraction for their customers. Such innovative models are important in finding ways to deliver coverage more cost effectively.
