Helios Towers Africa on making the ESCO model work

A growing number of ESCOs are targeting the telecoms sector in sub-Saharan Africa, with the promise of tackling one of the emerging market tower industry’s biggest challenges - energy. Whilst a handful of projects are starting to appear, the model has not yet gained major traction in the industry. We speak to Helios Towers Africa’s Alex Leigh to understand the shortfalls they see in ESCO proposals and what recommendations the towerco has to get the opex business model off the ground.

TowerXchange: Can you share some insights into where Helios Towers Africa is today in terms of energy opex reduction? 

Helios Towers Africa’s core focus is on power uptime and speed to market as customer service cannot be compromised. Our focus on Operational Excellence has reduced downtime in some cases to 10% of what operators used to achieve when they managed the same sites.

However, what is more exciting is the foundation we have in place for continuous improvement to do even better whether it be power uptime performance or opex saving initiatives. With this focus on continuous improvement we are always evaluating what we can learn from the data coming off our existing sites and what new technologies can deliver.

TowerXchange: To what extent has Helios Towers Africa assessed the opex model? What is holding back the company from exploring it further?

Whilst we have been approached by a number of companies, as of today, we have received no compelling offers from ESCOs and so have yet to adopt the ESCO model at any Helios Towers Africa sites.

In order to make the opex model attractive we see three important factors that need to be in place. Firstly, providers need to have the operational credentials to make sure the opex savings are not at the expense of power uptime. We’re looking for a provider that has proven experience in the field that will give us the confidence to entrust this important aspect of site operations to them. Many of the ESCOs are at the point that the tower industry was five or six years ago; towercos needed to convince MNOs that they had the skills and experience and expertise to manage their network. Entrusting a third party with a critical part of your business requires confidence in that third party’s ability to deliver a service that does not compromise your service to your customers.

Secondly, ESCOs must have access to cheap capital in order to make the solution affordable and/or find a way of delivering the service cheaper than we can do ourselves. At present, a lot of the ESCOs are relatively small companies with small balance sheets and so this is an area that needs to be addressed.

A third element which make the opex model attractive is the ability of ESCOs to share their infrastructure with multiple customers. This aspect of the ESCO model is particularly exciting as the wider sharing of infrastructure will drive efficiencies and holds the potential to lower opex costs further. Helios Towers Africa have unique and unparalleled experience in managing tower assets in Africa and have driven efficiencies across the continent by sharing towers and power through colocation - the ability to deepen this infrastructure sharing is a major opportunity in the management of the continent’s towers.

TowerXchange: Can you give us an indication on the volume and nature of approaches that you receive from ESCOs? How do you assess these proposals and what do you think ESCOs are overlooking in their proposals?

Typically when we are approached by an ESCO, they come to us with a business model that works for them with a single client. This approach makes the proposal too expensive for towercos. Without the ESCO committing to significant savings, there is no incentive for us to take on the risk of an alternative business model.

We recommend ESCOs to follow a similar strategy to that initiated by towercos - partially pricing in the demand beyond the anchor tenants from the onset to make the proposition more attractive to the anchor tenant.

TowerXchange: Surrounding your concerns on operational experience and balance sheet strength, have any companies helped alleviate some of these concerns? What do you think the solution is?

We believe the solution remains in partnerships between ESCOs and towercos with upside sharing and experience sharing. It is very similar to the first African towerco model and their relationship with operators. When towercos proposed taking over MNO towers, MNOs had many years of running these assets. It was important for towercos to take the lessons that MNOs had learnt and build upon them to improve performance. Today, towercos have developed five years of experience in driving uptime performance, and if power is to be outsourced, this knowledge needs to be transferred to ESCOs so that it can be built upon.

TowerXchange: How important is the stabilisation (and reduction) of opex to the valuation of Helios Towers Africa - is this element of the ESCO valuation proposition attractive? Does this mean that the ESCO value proposition is being assessed on a strategic board level as well as procurement level?

Our specialism is to provide power and space on telecom towers. An evaluation of ESCO will be assessed on a strategic level as a key selling point of towerco is operational excellence for customers and ability to deliver year on year efficiencies for shareholders. Any relationship would need to enhance this in addition to cost efficiencies.

TowerXchange: What is Helios Towers Africa’s view on ESCOs providing power to surrounding communities and other off-takers? 

Providing power to surrounding communities and other off-takers is the core benefit that has the most potential to make the relationship work. We believe sharing with local communities is essential to make the opex model attractive as more sharing is always better when considering infrastructure and efficiencies.

TowerXchange: You have previously commented that the ESCO market is in a similar place to where the tower industry was several years ago, can you elaborate on your reason for this comparison and what lessons do you think ESCOs can learn from towercos?

Tower sharing is a key driver to efficiency and is a large component of what has made the towerco model viable in Africa. To approach operators and maintain their interest in our proposal, we had to be a better service provider at a lower cost and this is exactly the challenge of ESCOs today. We believe this is mainly achieved through tower sharing, as towercos have done, along with technology and supply chain efficiencies.

TowerXchange: Do you foresee a natural transition to an outsourced energy model by both MNOs and towercos?

Infrastructure sharing is the key to efficiency in the management of the continent’s towers, and this is easily demonstrated by the benefits that tower co-locations have provided. The ability to share power will help to drive these efficiencies further delivering benefits to towercos and in turn, MNOs. Supplying power to surrounding communities and other off-takers will be important in the next phase; however it is important to establish and execute the right business model.

Alex Leigh will be joining Helios Towers Africa’s Kash Pandya (CEO), Roy Cursley (Director of Operational PM Office), Colin Gaston (Director of Operations and Technology), Rob Salbego (Technical Director) and Chuck Green (Executive Chairman) at the 4th Annual TowerXchange Meetup Africa & Middle East, 19-20 October 2016, Sandton Convention Centre, Johannesburg.

Helios Towers Africa will be joining MEA’s MNOs and towercos to discuss how to improve energy supply to the region’s 262,539 telecom towers (of which approximately half are off-grid or on unreliable grid). For further information visit https://meetup.towerxchange.com/event/33ac6379-8f70-407b-9760-92cef4e0919d/summary