Iran’s first towerco

With 118mn mobile subscribers, Iran is the Middle East’s largest mobile market. Infrastructure sharing in the country has to date been limited with less than 2% of sites being shared between the country’s three national, and two regional, MNOs. Starting their towerco business in 2014, Fanasia are Iran’s first (and only) towerco who, with the support of major municipalities in Iran, are consolidating the country’s 35,000 towers and increasing infrastructure sharing in the the market. We speak to Fanasia’s CEO Hossein Khodayari to understand their business model, examine their forecast to reach 1,500 contracts by the end of 2016 and discuss what requirements they have for new site build, RMS, site management systems and energy saving solutions.

TowerXchange: Please can you provide an introduction to Fanasia.

Fanasia is a privately owned company which was established back in 2006. The company initially focussed on network planning and then moved into offering turnkey services to each of the operators in Iran. On this turnkey basis, we have built over 500 sites for the MNOs in the market. In 2014 we started our tower business, and became the first independent tower company in the market and to this date, we are still the only towerco present. We have a staff of 27 in our headquarters and a further 12 people doing operations and maintenance for the company.

TowerXchange: Can you tell us a little about the dynamics in the Iranian telecoms sector - who are the main operators and what is their market share?

There are three national operators in Iran and one WiMAX operator. In addition, there are two MNOs which only operate on Kish Island - a free zone.

MCI (Mobile Communication Company of Iran) is the largest operator in Iran and is the 15th largest operator globally. MCI have 61.8mn profile subscribers and 43% of the market share. It used to be wholly owned by the government but five years ago it was listed on the stock exchange and so is now a public company.

MTN-Irancell is the second largest MNO in the market with 45.5mn profile subscribers and 40% market share and then RighTel is the third largest national MNO with 9.5mn subscribers and around 8-9% market share. Mobinet is the national WiMAX provider which has around 800,000 subscribers although not all of these are active.

In terms of the market growth forecasted in Iran, there are currently 118mn subscribers in total and this is expected to reach 124.7mn subscribers by the end of 2017. The coverage ratio is over 100% and so this growth is being driven by a transformation from 2G through 3G to 4G as data usage grows.

TowerXchange: How many towers are there in the Iranian market and what degree of infrastructure sharing exists?

There are an estimated 35,000 towers in the Iranian market, 13,000 are owned by MTN-Irancell, 19,000 by MCI and 3,000 by RighTel (figure one). When it comes to the proportion of these towers that are shared between the operators it is less than 2%.

There are three key reasons as to why the level of infrastructure sharing is so limited. Firstly, there has been no strong motivation for the operators to share in the market and as such, the structures that have been built are typically not suitable for more than one or two tenants. Secondly, there are some differences in the network plans of the operators and therefore, not all sites have been attractive to all operators. Thirdly, there has been opposition from the MNOs with concerns around losing their competitive advantage and access control to sites along with other strategic and practical concerns.

TowerXchange: Please can you tell us how Fanasia became Iran’s first independent towerco.

We started our tower business back in 2014, with our first project being on Kish Island, a free trade zone belonging to Iran. When we started working on the Island there were 110 towers with little to no sharing between the operators. We came in and started to re-planning the network and reduced the number of the towers on the island to 27. This project was made possible by the support of the Kish Free Zone Organization (KFZO) who made the decision to refuse consent for new towers to be built or leases to be extended by the operators and mandated the MNOs to use Fanasia’s towers. We have built 27 new towers as part of this project, with most of the existing towers on the Island being unsuitable to host multiple tenants. Construction of the new towers was completed in January of this year. In order to meet MNOs’ coverage and traffic requirements, we have started to build five more sites on May 2016 and those sites shall be ready to operate by the August 2016. In the meantime there are currently 32 sites in Kish, we do expect to reach to the 40 sites by the end of 2016 due to incremental usage increases on the Island.

In March 2016, we signed an agreement with municipality of Mashhad, Iran’s second most populous city which is located in the north east of the country, to develop a core network of 350 sites. The planning phase of this project has been completed in June 2016 and the construction phase has already started. Through advanced network planning we have decreased the total number of the sites to 350, meanwhile there are more than thousand sites in this city. According to the project implementation plan we have to build 100 sites a year and since June 2016 we have started working on the first 100 sites. These 100 sites are planned to be ready for service by the end of 2016.

Moreover, we are actively marketing the business model to the top 15 most populous cities and it is forecasted that we will have contracts for 1,500 sites in place by the end of the year.

What we are starting to see is that the municipalities are coming under pressure from the city councils and the general population to stop the proliferation of unsightly structures across the cities and landscape. With the municipalities being an important permitting authority, it is ultimately difficult for operators to build new sites or extend leases on existing sites without their consent. A lot of the municipalities have seen what we have done on Kish Island for the KFZO and are looking to replicate this.

The municipalities see multiple benefits to the model, firstly it keeps their citizens happy; secondly, the model we enter is a revenue sharing model and so they benefit from the co-locations on the towers. Based on our revenue sharing model, municipalities are getting paid a portion of revenue for their administration, permission and licensing right on top of the land rental fee. In a long term model this brings the financial benefit to the municipalities approximately 150% higher than what they used to earn through the land rental fee from MNOs alone. Thirdly, the rationalisation and decommissioning of sites means that the land the old towers were on is opened up for other purposes which can create an extra revenue stream for the municipality.

TowerXchange: What were the reactions of the MNOs to the entrance of Fanasia?

In the first instance we found it very difficult to convince the MNOs to use our service, there was no motivation for them to decommission their sites and use ours. On Kish Island, as RighTel didn’t have their own towers, they were more open to the business model, however it took around 18 months of negotiation and explaining the benefits to MCI and MTN to get them on board. The strong support of the KFZO was also critical in these negotiations, as they told the operators they wouldn’t extend their licenses on their existing sites. However the operators are now starting to see the benefits in terms of capex savings although there is still some resistance to decommission their assets.

Compared with MNOs’ reactions against the service on Kish Island, we have observed a more cooperative attitude from them in Mashhad. I believe that all of the parties will soon realise the benefits that arise from our business model and then we will see smoother cooperation in further cities.

It is worth mentioning that compared to Kish, we at Fanasia have also adjusted our model to serve the parties - either municipalities or MNOs - in a more beneficial way.

TowerXchange: It sounds like there is a lot of decommissioning required - is this an area that Fanasia are also involved in? Is there a use for decommissioned towers?

If we look at the example of Mashhad, the new network will be consisting of 350 sites and consequently over three years 1,000 towers shall be decommissioned. Out of these 1,000 towers, we forecast we will use around 100 towers, but the rest should be reused either by Fanasia or MNOs themselves.

With regards to a re-use value of towers we do see the potential to buy these towers and re-use them in other areas of the country. Although our ongoing projects are build-to-suit, we will be setting up our “sale and leaseback” services in near future.

TowerXchange: You mention that your towers are unique to the Iranian market, what can you tell us about the design and manufacture of these towers?

There a couple of important differentiating features in relation to the design and specification of our towers. Firstly, they are designed to accommodate up to six tenants, whereas the structural capability of many of the operators’ towers can only accommodate one to two. Secondly, we have adopted a camouflage approach to our towers, designing structures that blend into or enhance their environment rather than take away from it.

Currently all the design work for the towers is done in-house, although we are working in partnership with an international company on innovative tower designs. Some of our manufacturing we outsource to tower manufacturers but due to the scale of the Mashhad project and our projections for future projects, we plan to manufacture our own towers. In Iran, the government is very keen to incentivise local manufacturing and so it makes sense to produce the structures locally.

TowerXchange: Beyond either upgrading or replacing sites with structures that can handle additional tenants, what other priorities are there at sites in the Iranian telecoms sector?

There is increasing attention being paid by O&M teams within the MNOs (as well as ourselves) on integrating new smart facilities into sites to better manage things such as power, access and job ticketing. Fanasia use Acsys’ smart access control system on our current sites and we have plans to roll this out across new sites that we are building.

We are now looking into different pieces of remote monitoring equipment, site management systems and energy saving solutions as we do not yet have a supplier in place. One of our reasons for attending the TowerXchange Meetup in Johannesburg is to assess the different systems that are on offer and hear the appraisals of other companies in using these different pieces of software.

TowerXchange: Are there any challenges in the operation of cell sites in Iran? Do operators experience any problems, for example, with power?

In Iran, except a handful of sites, all other sites are on-grid, and the Iranian grid is very good quality with no frequent power outages. When it comes to the operation of sites, compared to markets such as those in sub-Saharan Africa (where I also have experience of working), I would say that the operation is very straight forward.

Regarding the maintenance of multi-operator sites (which Fanasia are constructing), as the towerco business model is still being rolled out in the country, we have a long way to go. We have tried to integrate multiple maintenance requirements into comprehensive operations procedures and we will be planning to enhance that by employing innovative solutions.

TowerXchange: Do you foresee the entrance of competition from other towercos into Iran?

Whilst we appreciate the benefits brought by competition, we have, to date, not seen any companies looking to enter the market. Due to the preference of local authorities like municipalities and operators to work with qualified local companies and, on the other hand, considering the restrictions on international companies operating in Iran, we believe that competition is more likely to come from local than international players here.

TowerXchange: Do Fanasia have any plans to expand internationally?

We have already started to look at expansion into neighbouring countries and we see definite opportunities in those markets. With such a significant amount of opportunities in the Iranian market, our current priority is Iran -  we see our international expansion however as a more mid-term opportunity.

Hossein Khodayari will be joining leaders of the MEA tower industry at the upcoming TowerXchange Meetup Africa & Middle East on 19-20 October 2016, Sandton Convention Centre, Johannesburg.