A new type of communications infrastructure in Bahrain

Governments, regulators and MNOs in the Middle East are starting to think carefully about how best to use and deploy their wireless communications infrastructure, and nowhere more so than in Bahrain, where the Telecommunications Regulatory Authority has published an extensive new report which assesses both the quality and quantity of towers needed in Bahrain. As a result of this report, which carefully considers social and environmental factors as well as commercial drivers, we can expect to see as much as 90% of Bahrain’s tower stock being re-built over the next 15 years. TowerXchange takes a look at the Bahraini market, the history of the existing infrastructure and how ready the country is for a third party towerco. 

The Kingdom of Bahrain is, in fact, an archipelago of 33 islands covering 741 square kilometres in the Arabian Gulf, a fact which further complicates achieving connectivity for Bahrain’s 1.41mn inhabitants. 

As one of the first countries in the Middle East to discover crude oil, fossil fuel revenues make up a large chunk of Bahraini GDP, although the country is working hard to diversify with growth in financial services, real estate, manufacturing and construction driving a GDP growth of 2.5% in 2017, despite the stagnation in the oil sector. 

The Kingdom of Bahrain has three mobile network operators: national incumbent Batelco, Saudi Telecom Company-owned Viva and Zain serving a subscriber base of 2.2mn (source: TRA Q2 2018).

Established in 1981 as a public joint stock company listed on the Bahrain Bourse, Batelco’s major shareholders are mainly government entities such as the Mumtalakat Holding Company and Amber Holding, as well as the Social Insurance Organisation. Batelco held on to a monopoly for more than 20 years after its creation, reaching 100,000 mobile subscribers by 1999, before pressure from international bodies prompted the government to pass the telecommunications law in 2002.

Batelco’s monopoly officially ended in 2003 with the entrance of MTC-Vodafone, which rebranded as Zain in 2007. The TRA had received 10 applications for the licence from various international and regional applicants, indicating high demand to enter Bahrain’s then-untapped market.

In 2009 VIVA, the Kingdom’s third major operator and a subsidiary of Saudi Telecommunications Company (STC), was granted the third operator licence.

Since then, telecommunications in Bahrain have gone from strength to strength, with mobile accounting for 48% of all retail revenue in 2017, the biggest single category, and mobile broadband traffic increasing 12% from Q217 to Q218, according to the TRA.  However, although data usage climbed in 2017, mobile revenues still dropped by 4% between 2016 and 2017, continuing a trend of declining ARPUs across the board. 

With Bahraini operators finding themselves under the same pressures as operators all over the world: declining or static ARPUs coupled with increasing pressure to spend on infrastructure in order to support technology rollout for data-hungry subscribers. 

This need to review infrastructure may be exacerbated by new regulations as in 2016 the Telecommunications Regulatory Authority of Bahrain (TRA) commissioned a study to examine the rationalisation of the Kingdom’s total tower count from the current total of 1,500 towers down to a core network of 400 sites. In early 2018, the TRA introduced the new Public Radio Communications Stations Regulation (PRS Regulation) to regulate the deployment of new towers and “rectify existing ones in accordance with best practice”. The detailed legislation lays out key specifications for new and existing towers, specifying everything from the type of concrete used in the foundations to key health and safety requirements. The rectification plan is to take place over the next 15 years, with more than 90% of the towers requiring modification and the TRA setting out a goal of increasing the percentage of sites being shared from 12% to 40% in the country.

It seems that the TRA is very open to relieving pressure on the MNOs to bear the brunt of this infrastructure overhaul by opening the market up to a third party infrastructure provider. When questioned by TowerXchange on different business models to reach the targets set in place, the TRA stated “Currently there are three operators who are licenced to deploy masts and towers in Bahrain. As a result there are three different mast and towers networks, i.e. one for each operator. The Authority considers there is room for improvement by merging these different networks into one or at least two. This could be done either by introducing a towerco company, a joint venture between existing operators or other feasible business models.”

Bahrain’s attitude towards towercos has long been positive, with Batelco formally opening a process to sell its towers in 2012 and attracting several interested parties, before deciding instead to focus on sharing infrastructure more effectively with Zain and Viva. In addition, Zain are known to be open to the sale of their telecoms assets, agreeing to a sale and leaseback deal with IHS Towers in Kuwait and Saudi Arabia, and Saudi Telecom Company have taken steps to reform the way in which their towers are managed, establishing a new (although not yet commercially operating) towerco business, Communication Towers Co Ltd, in Saudi Arabia. 

In 2012 much was made of Batelco’s debt-free status, and the fact that they were under no pressure to sell the towers to pay down debt, unlike many MNOs who have brought towers to market in Europe, Africa, Latin America or Asia. However, as ARPUs have declined since 2012 and infrastructure owners are being pushed to upgrade and rationalise their networks by the regulator, it would seem that now is an optimal time for Bahraini operators to review how they manage their tower assets. 

The TRA has been careful not to specify whether they are encouraging the entry of an independent towerco into the market, a joint venture between the MNOs or another ‘feasible business model’, but the Bahraini operators will be summing up the pros and cons of each. 

With a proposed reduction in tower numbers by as much as 73% (from 1,500 to 400) and a total of as many as 90% of towers needing to be decommissioned, re-built or upgraded, whoever takes on this work will need a healthy appetite for new build and operational excellence. While a JV between the operators may allow them to distribute the pressure on their network upgrades more evenly, it’s also possible that a tower sale in Bahrain could allow one operator to benefit financially from their tower assets, while ensuring that a third party takes on the pain and financial commitments needed to overhaul and rationalise Bahrain’s infrastructure. In a market where the regulator is very hands-on, a third option, where a deal could be brokered between all three operators and an independent towerco also seems viable. 

The towerco which enters the market will need to have experience of building and managing networks in tough climates. As a small country with urban populations, a towerco entering Bahrain would most likely need to see their entry into the country as part of a broader MENA play as a portfolio of this size is unlikely to achieve the scale to transform a towerco’s portfolio.. IHS Towers, of course, have a strong track record here and the added benefit of an existing relationship with Zain. American Tower, Helios and Eaton have experience of building and managing towers across Africa and edotco are present in Asia and Pakistan already. 

Entering the Bahraini market won’t be as straightforward as other sale and leasebacks, not least because the scale of new build and mandatory upgrades will far outweigh the towers which can be acquired with an operational lifespan of over ten years, but the opportunity to enter a well regulated market with three tier one operators will no doubt pique the interest of the international tower community.