With the closure of MENA’s latest major tower transaction still delayed with Zain Group’s sale of 9,800 Kuwaiti and Saudi sites to IHS Towers still a waiting final regulatory approval, TowerXchange look back on the tower deals that have come and gone in MENA, exploring factors that have contributed to the decisions and examining what the future holds tower transactions in the region.
Tower ownership and mobile market dynamics in MENA
The Middle East and North Africa is the region currently the least penetrated by the towerco business model, with fewer than 6% of towers currently sitting in towerco hands (versus the global average of 66% - see figure one). As such, with a handful of exceptions, MENA’s 275,104 towers sit in the hands of mobile network operators.
The vast majority of countries have three operational MNOs, many of which have some degree of state ownership, and there are a handful of operators with operations in multiple markets, namely Etisalat, Zain, Saudi Telecom Company, Ooredoo, Orange, Batelco and VEON. The scale of total tower counts owned by the operators in MENA varies dramatically, from over 35,000 towers in Saudi Arabia and Iran, to just 1,500 towers in Bahrain (figure two).
In spite of many commonalities between countries (a strong Arabic influence, a central role of government in the business sector, similar climates and environmental conditions and a prevalence of key telecom players across multiple markets) MENA is not a uniform market. At the one end of the spectrum you have GCC countries with European levels of affluence, at the other end of the spectrum you have developing countries with unstable geopolitical situations, a factor it is important to take into account when making statements about dynamics in the region. Whilst some countries have close to 100% population coverage, high mobile broadband penetration and are positioning themselves to be front runners in 5G, others are focussed on expanding or restoring network coverage and rolling out 3G in operationally complex markets.
The size, health and wealth of different mobile markets has a significant impact on MNO motivations to divest towers and work with independent towercos, whilst similarly having an impact on the appetite of towercos to enter such countries. More detail on key dynamics at play can be read in TowerXchange’s country by country study of the MENA tower industry.
Figure one: Tower ownership by business model, regional comparison
Figure two: Tower counts across MENA markets
Why haven’t we seen tower deals in MENA? What factors are at play?
There are a number of different factors which have held back the proliferation of sale and leaseback and towerco activity across the MENA region. Here we examine ten different considerations:
1. No overriding financial pressure to monetise tower portfolios
When studying tower transactions globally, one of the principle drivers behind operator decisions to monetise their tower portfolios has been the pressure to reduce leverage, raise capital and improve their balance sheets. Many (although not all) of MENA’s operators are well financed entities with healthy balance sheets and as such, have not felt pressured to monetise their passive infrastructure.
2. The “buyer not seller” culture within mobile network operators
Historically, many of MENA’s MNOs have been buyers rather than sellers, with their healthy balance sheets meaning that they have focussed much more on acquisitions than divestments. With no longstanding history of selling assets, the sale of a tower portfolio requires different thinking and a different strategy to that which an operator may be used to.
3. A focus on improving top line revenues versus reducing costs
With some of the world’s highest data usage, voice still generating strong revenues and ARPU being relatively well preserved relative to other regions, many of MENA’s MNOs have focussed more heavily on improving and growing top line revenues than reducing costs. As such, the efficiencies generated by infrastructure sharing and outsourcing to towercos have not taken centre stage on board room tables.
4. CTO-led strategies and the view that networks are a source of competitive advantage
It has been observed that MNOs in the region tend to be very much led by the CTO and only in recent years have the CFO and commercial teams become more involved in influencing the strategic direction of an operator, balancing the technical influence. Whilst in some markets, coverage might be the differentiator, in others it will be quality of service. With there often being little difference in market share between MNOs in some countries, maintaining that competitive edge through quality of service, OTT offerings or innovative packages are key focal points for companies, something they fear may be eroded by sharing or outsourcing their infrastructure
5. Simple operating conditions
In a number of sub-Saharan and Asian countries, towers are often located in remote areas with poor road access and no grid connection. Ensuring that such towers remain operational is highly complex with generator maintenance and refuelling as well as theft on sites representing particularly acute challenges. As such, operators in those regions have been motivated to sell towers in a bid to rid themselves of operational complexities and focus more on their core business. In more developed markets in MENA where the vast majority of towers are in urban areas and the electricity grid is reliable, such motivations do not exist. The same cannot be said however for MENA’s developing markets.
6. State involvement in MNOs and the cash-cow nature of the telecoms sector
Many of MENA’s MNOs in which the state has a significant stake have been generating healthy profits, thus making significant contributions to state coffers. Governments have been reluctant to cede control of such cash-cow businesses and as such, assets have not changed hands. Decision making in the public sector is often slower and more conservative than in the private sector and as such, radical changes in strategy are less likely.
7. Lack of clear regulatory frameworks for towercos and infrastructure sharing
Whilst infrastructure sharing and the towerco business model has become widespread on other continents, there has been until recently limited regional examples and benchmarks in MENA. Familiarising governments with the merits of infrastructure sharing and the towerco business model is a lengthy process and critical to the success of a tower transaction.
8. Government concerns over security
As a region with a number of political tensions and security concerns, governments in the region have voiced concerns about handing over control of towers to foreign entities, anxious about who could gain access to towers and the potential impact of that on national security.
9. Unfavourable political and economic conditions
Political turmoil, limits on foreign direct investment and currency devaluation in some countries has served to deter a number of towercos from entering such markets. Whilst MNOs in such countries may have been keen to sell, a lack of willing buyers has acted as the roadblock in tower processes getting off the ground.
10. A preference for doing business with known regional players
This one presents a bit of a catch 22. In all walks of life in the Middle East, business is generally conducted with the people you know. Whilst towercos have been operating globally since the mid 1990s, in the absence of local MENA towercos, the market has had to start slow while new entrants build relationships with MNOs and governments in the region.
Attempts at tower transactions in MENA
In spite of the aforementioned factors, several attempts have been made to do tower deals and stimulate towerco activity in MENA, with varying degrees of success:
2006: PTA establishes towerco licensing regime in Pakistan
Select towercos active
In 2006, the Pakistan Telecommunications Authority (PTA) established a licensing regime in Pakistan, setting unofficial goals to promote infrastructure sharing in the country. Several companies have been awarded towerco licenses since then although only Tanzanite Tower, edotco and AWAL Telecom ever commenced commercial towerco operations.
2010: NTRA awards towerco licenses in Egypt
HOI-MEA active
In late 2010 and early 2011, Egypt’s National Telecom Regulatory Authority issued telecommunications infrastructure licenses to four Egyptian companies, namely HOI MEA, Alkan, EEC and Mobiserve’s Mobitower. The licenses enable the companies to build, own, retain and lease space on towers in the country, effectively functioning as independent towercos.
Whilst four companies were awarded licenses, only HOI-MEA has built and retained towers, developing a modest portfolio of 38 sites built for Etisalat and Vodafone since the license was awarded. HOI-MEA have reportedly been looking for a buyer for their tower portfolio.
2011: Batelco explore the sale of tower portfolios in Bahrain and Jordan
Process cancelled
In December 2011, Bahrain Telecommunications Company (Batelco) announced plans to sell its tower assets in Bahrain and Jordan. With zero debt, the decision to explore a tower transaction related to the funding of future acquisitions outside of its domestic market in a bid to offset falling revenue in Bahrain’s already small mobile market. Batelco appointed Citigroup to run the process and reportedly received two binding bids for the tower portfolios, rumoured to be between US$200-300mn.
In May 2012, the operator announced that it had decided not to move forward with the sale and leaseback transactions, with Batelco’s then CEO, Sheikh Mohamed Al-Khalifa noting that the company had “the ability to raise funds at much lower rates than tower companies and thus could not justify the lease back arrangements.” Rumours suggested that the acquisitions that Batelco had earmarked fell through and as such, raising capital became less of an urgent priority.
Abandoning the tower sale process, Batelco announced that it had instead decided to pursue tower sharing opportunities with other operators in the market.
2015: MobiNil (now Orange) agree the sale of 2,000 towers to Eaton Towers in Egypt
Process cancelled
In April of 2015, Orange (then trading as MobiNil) announced the sale of their stake in the company’s tower subsidiary, Egyptian Company for Mobile Tower Services (ECMTS) to Eaton Towers for EGP1bn (US$131.2mn). The agreement encompassed the purchase of approximately 2,000 towers (around one third of Orange’s total tower count in the country) with a 15-year leaseback contract for the operation and maintenance and also for the additional build-out of new sites. The towers purchased by Eaton were in three geographic areas: Delta, Upper Egypt and Red Sea and excluded Orange’s rooftop sites in Cairo.
Eaton subsequently entered negotiations to acquire a second tranche of Orange towers, although no deal was announced.
Following the agreement, Eaton Towers and Orange worked on the technical handover of the towers, with Eaton beginning to shadow operations from January 2016. 13 staff were recruited from Orange into Eaton’ Egyptian team whilst Karim El Azzawy (formerly of Egyptian managed service provider, Mobiserve) was appointed as the country manager.
In March 2016, the Central Bank of Egypt devalued the Egyptian Pound by almost 13% as they shifted their exchange rate policy in a bid to boost foreign reserves and increase competitiveness. As per the signed agreement between Orange and Eaton, the devaluation meant a revision to the commercial terms of the deal, with further devaluation and revisions expected.
On the 21 July, the longstop date laid out for completion of the transaction, Orange Egypt was still awaiting certain regulatory approvals relating to the change of control of ECMTS, the separate company into which they had transferred the 2,000 towers for Eaton to acquire.
With the prerequisites and conditions necessary for completion of the deal not met, the Orange Egypt board made the decision to not extend the deadline and as such terminated the agreement.
Read more on potential towerco activity in the Egyptian market in “Major new build forecast in the Egyptian tower market”.
2011 & 2016: Saudi Telecom Company and Mobily discuss the formation of a towerco JV in Saudi Arabia
Talks abandoned
In 2011, Saudi Telecom Company and Mobily first entered into discussions surrounding the potential formation of a joint venture into which they would pool their existing tower portfolios in a bid to reduce passive infrastructure related capital and operating spend. The pair were understood to be considering selling off a 49% stake in the projected US$2.5bn venture but talks stalled and plans surrounding a joint venture were shelved.
The two parties once again re-opened joint venture discussions in 2016, signing an initial three month agreement to study the joint venture in the August of that year, an agreement which was subsequently extended before the pair appointed Standard Chartered as an advisor to oversee the process in 2017. Talks once again dissolved, with the two parties reportedly unable to agree on how ownership should be shared.
2016: Mobily shortlists three bidders for tower sale in Saudi Arabia
Process cancelled
In between joint venture discussions with Saudi Telecom Company, Etisalat’s Saudi Arabian opco, Mobily, formally launched a tower sale process in 2016 after having appointed TAP Advisors to run the deal. Mobily’s strategy was motivated by a need to reduce their debt burden after substantial accountancy errors in 2014 led to their annual profits being revised down from a profit of SAR219mn to a loss of SAR913mn.
The tower process attracted a high degree of interest, with names linked to the transaction including IHS Towers, Digital Bridge, TASC Towers, edotco, Providence Equity Partners and Towershare plus local investors and conglomerates including Saudi Aramco, Al Rahji Group and Al Zamil Group. The deal reached an advanced stage with technical and commercial due diligence completed and with Mobily receiving three binding bids, reportedly at terms they were happy with.
However, with Mobily having managed to refinance much of their original debt at more attractive terms, the urgency to sell towers was reduced, and as such, when Saudi Telecom Company once again approached them to open joint venture discussions, Mobily abandoned the tower sale process.
2016: Djezzy study the potential for a tower sale in Algeria
Formal process never initiated
In 2016, VimpelCom (now VEON), who own a 49% stake in Algeria’s Djezzy, commenced a strategy to monetise their tower portfolio globally, kicking off processes in Russia, Bangladesh and Pakistan (and later, the CIS). At the same time, a team was appointed at Djezzy to assess the business case for a sale of the company’s 6,500 Algerian towers.
With limits on foreign direct investment in Algeria (limiting international ownership to 49%) and talks around active infrastructure sharing between Djezzy and Ooredoo materialising at the time, the preliminary study revealed limited appetite amongst towercos to participate in a tower transaction in the country. With processes underway in Russia, Bangladesh and Pakistan, the M&A team at VimpelCom turned their attention to such more imminent transactions and no formal tower process was announced in Algeria.
2016: Zain enter into exclusive negotiations with TASC Towers and ACWA Group in Saudi Arabia
Deal cancelled
In early 2015, Zain appointed Citigroup to study the potential for a tower sale across its operations in multiple markets. Later in 2015, Zain’s then CEO, Scott Gegenheimer confirmed the company was opening a process for a sale of both their Saudi and Kuwaiti towers and in March 2016 it was announced that they were narrowing down potential bidders.
Stop-start discussions around Mobily and STC’s joint venture and Mobily’s tower sale in Saudi Arabia delayed the sale process, however in December 2016 Zain announced that it had entered into exclusive negotiations with a consortium involving TASC Towers and local conglomerate, ACWA Group for the sale and leaseback of their Saudi Arabian tower portfolio, with a reported deal value of around US$500mn.
With the acquirers unable to raise the necessary equity however in the desired time frame, the deal was subsequently cancelled.
2017: MCI, Rightel and Fanasia form Iranian Towers
Joint venture operational
In early 2017, Iran’s leading mobile network operator MCI and number three operator, Rightel joined forces with Iran’s first towerco, Fanasia to create a new towerco going by the name Iranian Towers.
Fanasia, an Iranian company with a background as a turnkey service provider to the country’s MNOs, first commenced towerco operations in the country in 2014. Their first project on Kish Island, conducted with the support of the Kish Free Zone Organisation, was to rationalise the number of towers on the island. With 110 sites on the Island, each with a single tenant and unsuitable for the addition of further tenants, Fanasia built 27 new sites which the operators were mandated to use, whilst existing sites were decommissioned. The municipality benefited from a revenue sharing model on top of the land rental fee and further benefited from the freeing up of land under the old towers. Following the success of the Kish Island project, Fanasia reached a similar agreement with the municipality of Mashhad, Iran’s second most populous city to develop a core network of 350 sites in March 2016.
Speaking at the time of Iranian Towers’ formation in an interview with TowerXchange, MCI’s CTO Morteza Taheribakhsh said “Iranian Towers was established to act as an exclusive towerco for both MCI and RighTel. It is expected that most new sites required by both operators will be built and operated by Iranian Towers. Furthermore, we will gradually proceed to purchase and leaseback the existing sites of MNOs. Therefore both build to suit and buy-leaseback scenarios have been considered by Iranian Towers.”
Taheribakhsh added “In Iran, as with the rest of the world, operator voice revenues and ARPU are continuing to decline whilst demand for data continues to increase. Significant capital is required to deploy 4G and 4.5G technologies which are required to support the increased data requirements. This places significant strain on mobile network operators and as such cost saving measures become increasingly important. Considering this fact, the primary motivation behind the creation of Iranian Towers is cost management. Sharing the cost of new site deployment as well as site operations will bring considerable savings to the business. Having Iranian Towers in place will enable MNOs to invest in their technological requirements without worrying about site infrastructure costs.”
The first phase of Iranian Towers’ operations was the construction of approximately 1,000 new towers, capable of hosting multiple tenants, across major cities in the country to accommodate 4G and 4.5G rollout. The second phase of Iranian Towers operations is to involve the sale and leaseback of the operators’ two tower portfolios. With MCI owning 21,000 towers and Rightel just 4,000, the exact number of towers that will be transferred to the towerco is yet to be decided.
2017: edotco Group acquire Tanzanite Tower in Pakistan
Deal completed
In June 2017, edotco announced that it had entered into an agreement to acquire Tanzanite Tower, Towershare’s towerco business in Pakistan. The deal, encompassing 700 towers and valuing Tanzanite at an enterprise value of US$90mn enabled edotco to add a further footprint to its portfolio and add instant scale to its operations in Pakistan, and marked the first in market towerco consolidation in the extended MENASA region.
2017: Jazz agree tower sale to edotco and DH Corp in Pakistan
Deal cancelled
In August 2017, VEON’s Pakistani subsidiary, Jazz announced that it had reached a deal for the sale of its wholly owned tower company, Deodar, to Tanzanite Tower, a towerco wholly owned by edotco and Dawood Hercules.
The transaction, for a total consideration of PKR98,700mn (US$940mn) covering Deodar’s total portfolio of approximately 13,000 towers was for an initial 12-year period with the option to renew for three consecutive periods of five years each.
Commenting on the transaction at the time, Jean-Yves Charlier, Chief Executive Officer of VEON, said: “This transaction is highly value accretive for VEON and GTH and a further execution of VEON’s asset light strategy. It also reflects the start of a long-term partnership with a strong counterparty with significant experience in tower management.” Proceeds from the deal were to be used for general corporate purposes, the funding of recently awarded spectrum and repayment of a proportion of Jazz’s outstanding debt.
In September 2018 however, Jazz announced that the tower sale had been cancelled due to a failure to get the necessary regulatory approvals to proceed. For further information on the cancelled sale process read “TowerXchange’s updated Pakistan tower market study 2018”.
2017: Zain agree the sale and leaseback of towers to IHS in Kuwait
Process ongoing
On 10 October 2017, Zain Kuwait announced that it had reached a deal with IHS Towers for the sale and leaseback of its tower portfolio in the country. As previously mentioned, Zain began studying the potential to sell its tower portfolios back in 2015 when they appointed Citigroup to lead the process.
Whilst Zain’s larger tower portfolio (and Mobily’s concurrent tower sale) in Saudi Arabia stole much of the limelight, Zain reportedly received 15 bids for their Kuwaiti portfolio. The operator undertook a rigorous processes to narrow this down to five shortlisted bidders before finally settling the deal with IHS Towers and Towershare for an agreed deal value of US$165mn (Towershare having since been absorbed into IHS).
The deal was expected to close during 2019, but has been delayed alongside Zain’s sale to IHS Towers in KSA.
For further detail on the transaction read “Zain postpones KSA tower sale to IHS, towerco remains committed to the region”.
2018: Zain agree the sale and leaseback of towers to IHS in Saudi Arabia
Process ongoing
On 28th November 2018, Zain announcement that it had reached a deal with IHS Towers for the sale and leaseback of its 8,100 Saudi Arabian towers for US$647.7mn. The deal, for an initial term of 15 years also includes a build to suit component, provisioning for the addition of 1,500 new towers over the next six years.
However, on the 20th June 2019, the Saudi telecoms regulator, the Communications and Information Technology Commission (CITC) wrote to Zain Saudi Arabia saying that “IHS Holding Limited has not yet met the regulatory requirements for the sale and lease back of passive infrastructure”, precipitating the operator announcing the postponement of the tower sale.
IHS Towers has since been working with both Zain and the Kingdom’s regulator in order to establish appropriate next steps. For further detail on the transaction read “Zain postpones KSA tower sale to IHS, towerco remains committed to the region”.
2018: Oman Tower Company formed
Independent towerco established
In February 2018, Oman 70 Holding Company, AktivCo (Camusat’s investment arm) and the Omani Government set up Oman Tower Company (OTC).
Although relatively quiet through most of 2018 and 2019, the company has now received orders for 100 new sites and plans to build approximately 600 towers in its first five years. It also has an interest in acquiring or managing the existing portfolios of Oman’s MNOs.
2019: STC form new towerco carve-out called TAWAL
Carve-out completed
After a number of stop-start discussions with Mobily regarding the formation of a joint venture, in Q1 2018, Saudi Telecom Company revealed that it had established a dedicated towerco subsidiary
called Communication Towers Co. Ltd. which would be responsible for owning, constructing, operating, leasing and commercialising telecom towers for the operator.
In April 2019 the company was activated and rebranded as TAWAL and 14,200 towers transferred from the balance sheet of STC to the balance sheet of TAWAL. Around 2,200 strategic sites remain controlled by STC, but the new towerco has been created with the mandate to encourage infrastructure sharing in the Kingdom and engage in build-to-suit.
For further detail on the deal read “Saudi Arabia makes major strides in the tower industry”.
Figure three: A timeline of tower transactions, joint ventures and towerco activity in MENA
Figure four: Tower strategies of MENA’s major operators
What towerco and transaction activity could we see moving forward?
The continued appetite for deal making in MENA, despite regulatory hurdles, and the recent establishment of two new towercos is expected to act as a catalyst for further activity and for other operators to follow. Whilst the specific nuances and dynamics of different markets play heavily on an operator’s tower strategy in a given country, figure four examines what we know about the tower strategies of multi-country operators with a footprint in the region, speculating as to what this means we could expect going forward.
In addition to the multi-country players, several single country operators have been rumoured to have an appetite to explore tower transactions. In Oman, Omantel (which now owns a 21.9% stake in Zain) is expected to announce a tower sale process and in Tunisia, the (now cancelled) sale of the business to Abraaj Group was expected to precipitate a tower sale.
As in other regions, most towercos looking at a prospective buy and leaseback opportunity will be looking for a credit-worthy seller in an attractive market. The dollar linked economies of many countries in the region present an attractive opportunity and with the MENA region seen as virgin territory for towercos, interest is stirring from towercos in all four corners of the globe.
The importance of local partners cannot be underscored enough in MENA and so it is likely that we may see partnerships between international towercos and local companies as they aim to bring both towerco and regional expertise to a bid. In the GCC in particular, the huge wave of infrastructure development that is underway means that telecoms must compete with other infrastructure asset classes for local investment, but as companies and countries look to diversify away from their dependency on oil, telecoms infrastructure could present an attractive investment opportunity.
While progress has been moving back and forth on a regulatory front in Kuwait and Saudi Arabia, history shows us that decision making in the region has traditionally been slow and cautious by regulators and operators alike. There is a continuing need for education of relevant stakeholders on the merits of infrastructure sharing and the importance of independent towercos and infracos in rolling out and managing the region’s communications infrastructure more cost effectively.
In a bid to support the development of the nascent tower industry in MENA and foster improved infrastructure sharing, TowerXchange will be hosting a VIP networking event in Dubai on 28-29 January, welcoming operators, towercos, regulators, investors and other important industry stakeholders to discuss key issues and opportunities. Participation is already confirmed from a large proportion of companies referenced in this article including Etisalat, Saudi Telecom Company, TAWAL, Oman Tower Company, IHS Towers, American Tower, edotco and TASC Towers. For further information, please visit please click here.
Figure five: MENA tower heatmap
