Deepening the level of infrastructure sharing at Orange, Telenor, Safaricom and Cell C

The telecoms sector has come a long way since network infrastructure was seen as a source of competitive advantage by mobile network operators. With infrastructure sharing recognised as a critical strategy to reduce network costs amidst declining revenues, TowerXchange invited four MNOs to share their strategies, experiences and concerns regarding the sharing of passive and active infrastructure.

Across Africa and the Middle East there have been 31 tower transactions of scale, with highly variable strategies between operators in the region. At the one end of the spectrum, Airtel has closed tower transactions in 10 of the 14 markets in which it operates (and has agreed the sale of its Tanzanian portfolio to American Tower); whilst at the other end of the spectrum, Vodafone has preferred to keep its towers in-house, having only entered into tower agreements in Tanzania and Ghana (and in both instances retaining ownership of or equity in the towers).

Joining the panel at this year’s Meetup were operators with a diverse set of strategies with regards to outsourcing their towers. Vodafone-owned Safaricom with its portfolio of over 4,000 towers, dominates the Kenyan market. Not only does the operator have no current plans to sell their towers, but Safaricom has also formed their own internal towerco business (headed up by Muhalia Allan, this year’s panellist) and actively pursues co-locations as a revenue generating strategy. When Safaricom began to look at site sharing, this was originally on a non-commercial basis, typically through bilateral swaps, but the operator subsequently moved to setting commercial rates on their sites, and has more recently entered a full service model, providing power as well as space to their tenants.

Whilst Safaricom has opted to retain their sites, Muhalia Allan explained that they still saw towercos as playing an important complementary role in the market. In Kenya, Eaton Towers possess a portfolio of 1,200 sites following the acquisition of Airtel’s sites and the execution of build to suit programmes for operators in the market. Safaricom balance the use of their own infrastructure with co-locating on Eaton’s sites and also giving build to suit programmes to the towerco. In many instances, towercos are able to deploy sites more cost effectively and can similarly obtain attractive sites which the operator has failed to secure. As such, it makes sense for Safaricom to build the use of towercos into their business plan.

Joining the panel was Shah Faisal Safdar Khattak who oversees network sharing initiatives for Telenor Pakistan. Telenor also has retained its sites in each of the 13 markets in which it operates, although the operator possesses a significant stake in the VimpelCom group which has publically announced its intention to divest towers in a bid to raise capital, with processes underway in Russia and Pakistan and tower divestments being assessed in Bangladesh, Algeria and the CIS. Having entered the Pakistani market back in 2004, Telenor had proposed a joint rollout model with other operators in order to minimise capex spend, however negotiations around the strategy failed to reach an agreement between all parties. The company, however, favours a co-location model, preferring to use existing sites rather than rollout their own network in a bid to keep their capital expenditure low.

Speaking on the Pakistani market, Telenor’s Shah Faisal explained that there was still significant potential for mature towercos to penetrate the country, not only in regards to new build (Telenor themselves have just signed a BTS agreement with a towerco in the country). In total, there are almost 35,000 towers in Pakistan, owned by each of the five MNOs; whilst there is still significant requirement to improve population coverage in the country (a 15-20% coverage expansion is required), a network of 18,000 - 20,000 sites would be the optimal size for the market, thus demonstrating the amount of decommissioning as well as new build required. Towercos are ideally positioned to play a role in this whilst also supporting improved power supply in a country with severe energy challenges.

Cell C’s strategy is one very much making the tower industry headlines at present and TowerXchange were delighted to welcome the MNO’s head of Technical Facilities, Dana van den Berg to the panel. Having been the sole operator in South Africa to have sold their sites to an independent towerco, (agreeing the sale and leaseback of 1,400 sites to American Tower back in 2010), the company has since taken a u-turn and is currently rebuilding their own tower portfolio.

“Whilst management of passive infrastructure isn’t an operator’s core business, it is core to our business” explained Cell C’s Dana van den Berg in response to whether a towerco is better positioned to manage sites. “Having an outsourced network has created significant challenges in controlling our opex costs, and exposes our long term business plan to risks. Voice revenues are declining and although data usage is increasing, so are costs for supplying that data. As an operator you need to be wary about the profitability of your sites and be able to control your opex”

“In South Africa, the electricity grid is robust, with the majority of sites on grid, and as such, the value that a towerco can bring in terms of power provision, reducing costs and improving uptime is limited. What’s more, the lack of our own infrastructure limits our ability to negotiate with other MNOs when it comes to site sharing and furthermore, we need to be mindful that as we move to 4.5G and 5G we will need a lot more infrastructure and owning your own is more strategic. Taking all these factors into consideration, we believe that it makes sense for us to own our own network”

Orange have had a more diverse strategy with regards to outsourcing their towers, with the differing perspectives of their 21 MEA opcos informing their strategy as much as the company’s corporate strategy, explained Nat-sy Missamou, Orange’s Sharing New Business Program Director. Orange has entered into MLL agreements with IHS in Cameroon and Cote d’Ivoire, sold their Ugandan sites to Eaton (prior to the opco being sold to Africell) and have inherited towerco relationships following their acquisitions of Airtel’s Burkina Faso and Millicom’s DRC opcos (who had previously sold their sites to the Eaton Towers and Helios Towers Africa respectively). In Egypt, Orange recently acquired MobiNil who had agreed the sale of 2000 site to Eaton, however the transaction has since been cancelled.

“There is no one single strategy across our opcos” explained Nat-sy Missamou “One must consider the situation in the local market; does the opco need to alleviate debt? Are they looking to reduce opex? Do they need to improve availability? It really depends on the local issues, the relationship with other MNOs in the market and also the attitudes of the regulator. Whilst the head office has a good general view, the opco is on the front line, decisions must be made coordinating input from the two in order to reach the right solution. Whilst we retain a large proportion of our sites, towercos play an important role in our strategy. With towercos investing significant capex in upgrading infrastructure, we have seen good results in the improvement of network availability through working with towercos and in places where we need to grow quickly, we have had a lot of success through build to suit programmes such as with Helios Towers Africa in the DRC or ToM in Madagascar”.

One audience member raised the question as to whether the operators anticipated a role for towercos in managing active infrastructure in order to further develop synergies between passive and active equipment maintenance. Orange mentioned they have had some approaches by towercos to offer active platforms, for example, in rural areas whereby they could offer open RAN to all operators in a bid to more cost effectively tackle coverage requirements. Telenor referenced that it would be attractive to them to be able to offer the entire site management to a single party and as such would welcome the entrance of towercos into the active equipment sphere.

Active infrastructure sharing, the panellists felt, was the area where the highest cost savings could be made, with one panel member offering the opinion that it represented an alternative to the towerco value proposition. Spectrum is a finite resource and is extremely expensive, the ability to share spectrum could significantly improve costs.

There are already several permutations of RANsharing, with the potential for still more to evolve in the future. The foremost of these are:

- MORAN (Multi Operator RAN where antennae, transmission, power, passive equipment and all hardware are shared but operators use their own spectrum)

- MOCN (Multi Operator Core Network, in which spectrum, as well as all of the above, is shared)

- GWCN (Gateway Core Network, where both RAN and core network are shared)

Whilst all agreed active sharing is something that should be aimed for, the panellists observed that there are several hurdles and barriers to the establishment of RANsharing agreements, namely

1. Regulatory frameworks not yet in place in several markets

2. A lack of alignment of operator objectives

3. Significant upfront capital costs required

4. Reluctance of towercos to enter negotiations when you have sites owned/ managed by them

5. Imbalance of spectrum (in the case of MOCN)

In Pakistan, Shah Faisal explained, the regulatory environment had initially not be supportive of active network sharing, with reluctance having been, in part, due to the large reserves of spectrum still available. Recent amendments to policy however have enabled both MORAN and MOCN and since then, four of Pakistan’s MNOs have entered into discussions.

Entering into active infrastructure sharing is not without upfront costs however, but the business model is driven by opex reduction which typically will be seen in a 8-10 year period.

Whilst Safaricom’s Muhalia Allan agreed that RANsharing was where the real opportunity existed to reduce network costs, there were instances he felt where it didn’t make sense, such as when looking for a first mover advantage when launching 4G. One area in particularly he felt however where RANsharing could deliver the most value was in regards to in-building solutions. Access to buildings and landlord negotiations present a real challenge in the deployment of DAS networks along with high costs and disputes over who should be managing what. Safaricom have been deploying open access DAS networks in malls and shopping centres to more effectively bring indoor coverage. Whilst Safaricom are conducting multiple active sharing studies, they see it as an easier step to implement sharing of DAS than of macro sites, a sentiment echoed by the other panellists.

At Cell C, RANsharing is currently prohibited by their existing agreements with towercos however Dana van den Berg thought that it was important to keep lines of discussion open between all parties. Currently all of the operator’s IBS are shareable, and in South Africa there are roaming agreements in place between the two smaller and two larger operators. Beyond that it remains to be seen how the market will dictate the evolution of active sharing, although increasing cost pressures and requirements to drive down capex are likely to necessitate a move towards deeper infrastructure sharing.

Orange’s Nat-sy Missamou further emphasised the sentiment that active sharing was the ideal business strategy with it unlocking the highest number of benefits to operators. There needs to be, however, a long process of negotiation between all parties in order to foster trust and open communication. In terms of Orange’s experience, the MNO has entered into RANsharing with Vodafone in Spain and has also entered into agreements with MNOs in other European markets, and anticipate RANsharing coming to Africa in the near future. In Tunisia, Orange are taking part in a pilot to test active sharing alongside Tunisie Telecom and Ooredoo and they are also in discussions regarding RANsharing in Jordan.

The operators felt that a dialogue with towercos was essential to further active sharing. Whilst most towercos have been opposed to active sharing due to its threat to tenancy ratios and BTS contracts, some have started to embrace the strategy as inevitable and opened discussions with operators on the subject. Telenor offered the opinion that creative solutions should be sought after; whilst revenues from tenancies will decline, alternative strategies such as revenue sharing models could help protect the towerco business model. Telenor explained that they were open to discussing different commercial models; it is not in the best interest of MNOs to put towercos under significant stress, but it is important that the two sides work together to develop a win-win for both parties.

Whilst discussion regarding energy models was covered in more depth later in the Meetup programme, panellists noted that the ESCO model, in particular, had been gaining increasing traction in the region’s tower industry, with Millicom undertaking a project in Chad, Energy Vision in discussions with an operator in Gabon and Airtel having agreed an ESCO project in Madagascar. At the 2015 TowerXchange Meetup we were discussing tens of towers being powered under the opex model, this year we’re discussing hundreds.

Nat-sy Missamou felt that the ESCO value proposition was particularly promising in sub-Saharan Africa and forecasted that we would see further adoption of the business model, with all operators agreeing they were open for discussions on the topic. Operationally, power remains the biggest challenge and the advent of specialist energy companies with sufficient expertise and robust enough balance sheets provides an attractive alternative to tackling the issue.

Now offering power as a service to their tenants, Safaricom have further extended the role that they are playing in the power space, whilst  in Jordan, Orange have explored an alternative energy model to lower their electricity costs, constructing a solar farm that feeds power into the national grid in a bid to counteract the high energy costs in the country. As the biggest contributor to opex in much of sub-Saharan Africa, new energy models as well as more efficient equipment is critical in tackling the profitability of sites.

Continuing on the theme of deeper infrastructure sharing, discussion moved onto shared fibre and the role for independent third parties. In Pakistan, an additional 15-20,000km of fibre needs to be deployed in the next 3-4 years, far outstripping the capacity of existing fibrecos and operators in the market. With high deployment costs and security as well as environmental restrictions constraining the process, significant rollout challenges exist. Telenor themselves have piloted fibre sharing in the country, investing in joint rollout with other operators, dividing up geographical areas in order to improve cost efficiencies and accelerate time to market. Such a strategy is estimated to save operators around US$200mn. Similarly in Kenya, Safaricom referenced they too were looking to open up their infrastructure sharing to the next level and that this may well encompass shared fibre.

Summarising discussions, Analysys Mason’s Brian Burns (the panel’s moderator) concluded that whilst the common ground was that there was a priority to optimise cost base, there was no one strategy which fits all markets and purposes. Active sharing is a big goal but can be difficult to achieve; it is easier at the DAS and small cell level but more difficult on macro networks and more challenging still following a tower divestment. The ESCO model and shared fibre represent two other key opportunities to control network costs and will start to gain further momentum in the African market. Ultimately however, the future lies in cooperation, between towercos and MNOs and between the operators themselves.