Introducing Vulatel, Helios Towers' new South African spouse

TowerXchange speaks with Helios Towers’ CCO, Alex Leigh and their new South African partner Tlhabeli Ralebitso, Chairman and CEO of Vulatel. Local majority black-owned Vulatel are the 34% owner of the joint venture Helios Towers South Africa as well as being a key player in the building and maintenance of South Africa’s rapidly growing network of fibre. In our interview we discuss the background of both firms in South Africa and how they plan to work together, the size, quality and potential for the fibre and tower markets of South Africa, and plans for expansion.

TowerXchange: To begin with, please tell us a little bit about Vulatel and how you fit into the telecoms infrastructure ecosystem in South Africa.

There are two key elements to what Vulatel do. First of all, we are subcontracted by the large operators to design and implement new build fibre-optic and wireless projects. But we are also contracted to do maintenance on existing assets all across the country. For example, we maintain Vodacom’s broadband connect wireless network alongside other operators’ national networks. By offering services and maintenance to existing players, Vulatel has built up a strong knowledge base of where assets are and are not across South Africa. Together with really strong local knowledge it produces a winning combination. The founding team all previously worked at Vodacom and came together through 2016 and 2017 to establish Vulatel, and that expertise has given us skills and expertise, and an understanding of the MNO business case for fibre and wireless infrastructure.

A strong service proposition and good understanding of what South Africa’s operators want has given Vulatel two key advantages. It has meant we have been able to establish ourselves quickly and start offering our services at scale because we can navigate South Africa’s operators. And we also understand the requirements of the market: where the gaps are which need filling and what is needed to reach scale and to build on top of existing networks. 

TowerXchange: Last month you announced your joint venture plans with Helios Towers to create a new infrastructure platform, Helios Towers South Africa, what specifically appealed to you about Helios as a partner? And vice versa?

Lots of things attracted us to Helios. We felt there was a true meeting of minds between the management teams – there’s an eagerness to get started and a positive approach to doing things which are similar across the two teams. Plus, South Africa’s MNOs are looking for infrastructure and service provisions together. They don’t want to lease infrastructure separately to retaining services and together Helios and Vulatel can fulfil that need. And the appeal of working with an experienced towerco, with significant scale, access to long-term funding, and with a long-term commitment to the South African market was obviously also very attractive. A good partnership requires a clear vision and a consistent cultural approach and throughout the discussions leading up to agreeing the deal both sides shared the same can-do attitude.

We both share a common vision for what needs to happen in South African telecoms, and our discussions around this vision helped us to form a clear strategy for what to do next. Vulatel have done a great job understanding what their customers want and developing a compelling proposition which Helios is excited by too. 

Helios Towers South Africa is a new entity, it will be controlled by Helios Towers though a 66% stake, and Vulatel will hold the other 34% stake.

It’s through Helios Towers South Africa that we will build our South African infrastructure platform. We recently announced the acquisition of SA Towers. HTSA will hold an 85.9% stake in SA Towers once the transaction is finalised. The SA Towers management team is probably the best in the country for planning, permitting and constructing new towers, so we’re really excited about them joining. So far SA Towers have focused on the big cities but as Helios, Vulatel and SA Towers work together we’ll expand that footprint through organic growth.

TowerXchange: South Africa will require both significantly more mobile tower infrastructure and significantly more fibre-optic investment, please explain how these complement one another.

MNOs in South Africa are prioritising organic growth and that implies building out their networks and densifying in places, but they also have licence conditions which require them to enter more marginal markets too. On most of those towers they are going to require fibreisation because without fibre you can’t offer real 4G services, and certainly not 5G. And Vulatel is in a good position to offer the maintenance as well as the infrastructure build out.

TowerXchange: How do the challenges of permitting and building fibre, small cells and macro towers compare? Are there efficiencies possible from bringing these together?

Towers take a long time to build in South Africa. There is a long lead time on permitting – it can be anywhere up to two years – because of a long period of consultation and different phases with various stakeholders. This is inconvenient initially but once you start building sites and have a pipeline and a good foundation of effective permitting, this can help drive the value proposition of large speed to market improvements for customers.

One of the things that motivated Helios to acquire SA Towers, beyond its existing portfolio of towers, is its pipeline of permits and the great property team that combined with the Helios Towers process and systems will be a fantastic growth engine.  It really goes to show the big benefits possible from the right bolt-on acquisitions for our joint venture platform.

Towers are much harder to permit than fibre. It is more straightforward to get permission to dig up the street in South Africa. Municipalities are interested in improvements to fibre optic connectivity and are happy to engage to get fibre deployed. From submitting the paperwork to closing the road to install the fibre can take just two weeks, depending on what other work is required in that area, so it is about 50 times faster than permitting a tower. The benefit from combining the two comes largely from talking to the same sorts of people and combining the delivery of fibre and tower. You can rationalise the human resources you put into planning and coordinate installations better.

TowerXchange: How do you suggest overcoming the challenge of backhauling small cells, particularly in developing markets where fibre remains scarce?

The fibre roll-out to high density, particularly in relatively affluent residential areas, is accelerating organically and growth of fibre in those areas will partially meet the challenge of supplying backhaul to small cells and a densified network. But in a South African perspective, for the urban township areas which are less affluent and are unable to support a fibre deployment economically, we will still need to use microwave backhaul instead of fibre. But the economics of less well-off, but still dense areas, still struggles to justify fibreisation, even combining a fibre and wireless roll-out.

Helios Towers tends to refer to “smart solutions” rather than focus narrowly on bringing fibre and small cells together. There’s a spectrum of different deployments all trying to achieve the same thing and it doesn’t make sense to narrowly define a small cell. If you can bring fibre to a structure, like a lamppost, which is fibreised and connect an antennae to it then it makes a lot of sense economically to think of it as a small cell. 

But the basic story across Africa is that infrastructure is coming on strongly in some areas and is not in others. But there are two opportunities to try to move things along. One is looking for partnerships in areas which already have developed fibre infrastructure and build small cells or smart solutions on top of that existing network. Then there are the solutions which involve providing new fibre in partnership with property developers. But for most of South Africa, at the present time, it isn’t small cells which are the pressing problem, it is towers that need to be fibreised and the towers that need to be built for infill.

TowerXchange: What proportion of South Africa’s towers, businesses and homes are connected to fibre optic? What progress can be expected towards full coverage?

I cannot give you accurate figures, but I am happy to guestimate. In my view, less than 50% of towers are fibreised and in many areas 4G is being supported by microwave. Running 4G on microwave backhaul obviously limits its performance and offers a big opportunity for us to provide that fibreisation. South Africa is not going to reach 100% fibreisation any time soon, and we have lots of deep rural areas which are going to keep their microwave backhaul for a long time.

But there is a big chunk of tier two towns which require fibreisation and many of these towns have national fibre networks running past them, so the opportunity to fibreise relatively easily is there. And as operators like Liquid Telecom deploy more long distance fibre, more and more cities will become accessible. Without making any promises, I think we’re looking at least a 3-5 year programme before tower fibreisation reaches a critical mass. 

Businesses are less well connected than towers. Around 40% of South Africa’s businesses are connected to fibre, but even major businesses outside main urban areas will be working off wireless. Fibre to the home is even rarer: only 300-500,000 homes are fibreised, so there’s a huge opportunity there too.

What happens next is not clear though. Capex requirements can change quickly in developing markets. The recent withdrawal of legislation for South Africa’s Wholesale Open Access Network could lead to more spectrum being available and that will change the balance of capex for spending on fibre, towers or spectrum. Significant demand for fibre isn’t going away, but its magnitude isn’t easy to predict.

It’s easy to talk about whether something is connected to fibre or not, but you can’t forget that not all fibre is created equal. And there are big variations in satisfaction and service quality. A key reason we’re so happy to be working with Vulatel is their commitment to delivering a good product. The design, maintenance and quality of assets are all high and the fibre installed performs with minimum downside and minimum breaks and will consistently put us in the top quartile of quality.

I think Tlhabeli is braver than me to put a figure to it, because data on how many assets are connected to fibre are difficult to collect and verify, but he’s right there’s a significant need still out there. Likewise, I wouldn’t put a figure to the current South African tower count, but we believe operators have been adding 1,000-1,500 a year on top of the 29,000 towers reported by TowerXchange. We expect the market to be building 10,000s of kilometres of fibre just for the rings and backbone to connect up South Africa’s towers. And that will just be the first step towards building a mesh of connections to each tower. The demand for data is already there to service this fibre, it will just take time and careful planning to delivery it in the most capital efficient way and we are part of the solution. 

TowerXchange: The fibre market in South Africa is highly fragmented. What is the origin of this fragmentation and do you now have plans to consolidate the market?

There’s more than enough new build opportunity that there’s no need to acquire or replicate existing routes. Recent consolidation of existing operators haven’t appeared to create much value and Vulatel and Helios are concentrated on their existing strategy. There’s a limit to the capital available for any investment in South Africa and there’s no sense in acquiring existing assets where there’s as good, and often much better, opportunities elsewhere that play to your existing strengths.

TowerXchange: Please summarise your vision for the future of your partnership.

The priority for me is to hit the ground running and get the business going. There’s a huge number of opportunities over the next few months to build and provide the product they’re so excited by. As I’ve mentioned, there’s more opportunities than there’s capex to fund them, so we’re focusing on the best options.

Helios Towers plans to invest around US$100mn over the next 3-4 years in South Africa and we are reviewing all angles to do this.

Regulatory hurdles sometimes restrict what we can do market to market, so we will select projects on a case by case basis but we will consider all approaches in all markets. For example, there are lots of fibre assets laid down in Ghana by operators and fibre providers such as CSquared and they may represent an opportunity for Helios Towers. In Tanzania, TCCL has a mandate to own fibre assets and in the DRC Liquid Telecom is making investments. Helios Towers is working to understand the best way to play in those markets, and our excellent partnerships in South Africa can only support our understanding. So we are actively tracking opportunities, but we don’t have a defined pan-African fibre strategy.

In South Africa, as Tlhabeli mentions, we are selecting the best projects to accelerate tower growth and lay fibre across the network. We’re also thinking about the market for edge datacentres. Vulatel manage regen sites on their fibre network – where fibre signals are boosted as they travel long distances – where they already have an air conditioned space, with racks, guaranteed power and pre-existing customer relationships. This is the perfect base to build an edge datacentre, so we’re really excited about the long-term possibilities to become South Africa’s digital infrastructure problem solvers beyond our already excellent core business plan with Vulatel.