MNOs seek alternatives to towercos

TowerXchange Meetup Africa opened with a mobile network operator-led panel on the 8th October 2019. Our panellists discussed their aims and goals for improving towerco-MNO relations, and also the alternatives which mobile operators were exploring for helping them build networks faster and reach customers more quickly. We welcomed Airtel Africa’s CTO Razvan Urugeanu, Navi Naidoo, CTO of MTN Group and head of their rural connectivity programme and Ian Paterson, Chief Investment Officer of Africell – a tier 2 operator with operations in Gambia, Sierra Leone, DRC and Uganda.

Our panel of mobile operators had some tough home truths for their towercos, as well as some kind words too. Despite being part of the same value chain there was frustration on show from mobile operators at their towercos’ lack of flexibility and focus on what their customers want. Ian Paterson of Africell, described it as “sharing in the value creation in an equitable manner.”

ARPUs in Africa are US$2-3 per month, but everyone expects the same quality of service they receive in the US where consumers happily pay US$50 per month. Whoever can achieve that, our panel agreed, would succeed, and whoever fails will disappear; whether they are MNOs, towercos, ESCOs or vendors.

For all the industry’s success in improving performance, African cell sites do not enjoy availability or autonomy close to that in North America, and that remains a source of frustration.  A hesitance to invest in the latest energy innovations, to maintain sites effectively and to do just enough to hit SLAs is not enough. Razvan Urungeanu of Airtel said that 98% availability is not good enough, it might be seen as “normal” or “acceptable” in Africa, but it is not good enough; people already expect 100% uptime. And whether the problem is a power failure at a cell site or a problem with backhaul or Airtel’s own core network, it isn’t good enough. By the end of 2020 80% of Airtel’s network will be 4G, and that level of technology shouldn’t go hand-in-hand with regular service outages.

Towerco inflexibility was another complaint shared by all our panellists. Navi Naidoo of MTN highlighted the frustration felt by mobile operators relying on towerco contracts signed during the 2G era, but being applied as they installed 4G equipment. The additional loading of 2G, 3G and 4G equipment on a tower, and the associated amendment revenues for towercos, have pushed up the opex of mobile operators, and he argues, reduced the scale and speed of their 4G roll-outs.

Similarly, towercos have been reluctant to roll-out where MTN wants them to roll-out, when it comes to rural sites. Having outsourced their tower construction and maintenance some years ago, MTN is beginning to be frustrated with towercos that won’t build towers where there is limited opportunities for a second tenant. In fact, in Cameroon and Cote d’Ivoire MTN are restarting tower building on their own account. Airtel also have ambitious tower build programmes which may result in towers being built in-house or with another partner outside of the big four (soon to be three).

Mobile operators have released a lot of capital from their towers over the last decade, and have enjoyed leaner operations and less operational headaches as a result, but there is concern about the towerco-MNO relationship going into the future. Whether it is rural roll-out or moving to 5G in a few years times there is a sense that towercos may not be the partner of choice for mobile operators in the future; ESCOs offer power management expertise without the divesture of towers and rural network innovators are building networks where towercos are not. Openness and adaptation are the values mobile operators are looking for as the industry in Africa enters its next phase.

Mobile networks are driving increased demand in cities by connecting villages 200km away. Sites which look uneconomical on outgoing calls alone can induce demand for people who want to stay in touch with mum or send remittances home. MNOs see that benefit, but pricing by towercos doesn’t reflect that. Airtel’s Razvan Urungeanu suggests a quid pro quo of cheaper leases in rural areas that would be made up for by inducing increased demand in urban areas. Viewing a network business through the returns of individual sites is short-sighted.

Africell’s Ian Paterson tells a similar story of the DRC. Africell currently cover three provinces in the DRC and want to go into a fourth but their expansion is delayed while the costs and revenue potential of new sites are assessed. Enormous swathes of the country are uncovered, and he sees it as an open goal for the industry to leave these people unconnected.

Our panel expects to see more self-build by operators, but still have a preference for working with towercos. Rather than using their own capex to build towers, they would prefer to see more build-to-suit entrepreneurs enter the market, or set-up joint ventures which would enable further build out of towers.

As well as working with towercos in Uganda and DRC, Africell manage their towers in Gambia and Sierra Leone. They are aggressively exploring investment in power and have a technical department that examines potential solutions in energy storage and renewables. They are at a relatively early stage of their innovation journey. There’s an economic rationale and environmental case too. Major outside investors are prioritising emissions reduction and so they are planning on focusing on renewable solutions for their new sites and then slowly retrofitting their old sites. However, old sites pose a problem as they often lack the space required for solar panels, the renewable energy of choice for cell sites.

For Airtel, power availability is going from worse to worse in their 14 markets, with grid stability a problem in all their markets. To counter that, towercos and MNOs have become the biggest fuel distributor in whatever country they operate; and that’s a big negative. MNOs are telecoms firms, not distributors. The efficiency towercos have brought to diesel distribution is welcome. While distribution networks have improved, in some of MTN markets there are still problems of actual access to fuel. Although MTN are a major fuel buyer, in some markets there isn’t enough fuel. This is driving demand for solar as much as any green agenda.

As energy requirements on African sites multiply with the addition of LTE and soon 5G base stations, compact, renewable power solutions will become essential. But the perennial issue, rife across all operations is theft. Diesel theft is a major issue, but batteries and solar panels are also targets for theft.

Echoing earlier comments, our panellists said they were augmenting their own efforts by looking for new partners for managing their power. The ESCO model in which operators retain towers but outsource power management is looking ever more attractive.

Everyone at the meeting was united in wanting to advance rural connectivity, although the ambition of those plans varied widely. Our panellists are all advocates of faster and deeper investment into rural areas, but are all also aware of the challenges inherent in doing so.

In Nigeria, there are still 30mn people in the North East who are without coverage. The potential even in a big market like Nigeria remain huge. But site costs need to come down, many areas remain uncoverable while towers cost over US$100k to put up, base stations are energy intensive, VSAT expensive and opex onerous. In the DRC, Airtel Africa built 200+ rural sites which then sucked up more resources keeping them running that the rest of the Airtel estate in the country combined.

Ian Paterson was optimistic that solar-only sites paired with battery backup could reliably deliver 22+ hours of connectivity a day for lower income communities. Mobile operators need to be looking for innovative solutions to unlock the final areas of the country through energy innovation.

Navi Naidoo reiterated MTN’s belief that “everyone deserves the benefit of a modern, connected life” and to that effect they have recently closed RFPs for turnkey partners for their Rapid Rural Roll-Out Programme. They are aiming for 5,000 rural, ultra rural and ultra-ultra rural sites over the next few years. They are targeting very rural areas, and very scattered settlements. And they want sites to stay up, they can’t bring people the benefits of connectivity then tear them away through negligible uptime. Their ultra-ultra rural solutions are targeting towers at a tenth of their normal price, aiming for structures that cost no more than US$10,000.

As well as being cheap, they are making their roll-out very community involved. They are keeping it focused through their CHASE programme; Coverage, Handsets, Affordable, Service Bundling and Education. People need access to charging and SIM cards, they need handsets they can afford and services that they understand and benefit from.

MTN Group still considers South Africa far from commercial 5G services, and its other markets even further behind. Outside South Africa the power availability is not there and the density 5G would require would tax their ability to power all their sites. More so than power, regulators pose a major stumbling block. In South Africa, mobile operators don’t have enough spectrum to offer full 4G- services, let alone 5G. Regulators in other markets are more progressive than in South Africa, but spectrum for 5G is still not available.

Razvan Urungeanu is passionate about 5G, but he is not interest in having “the first 5G network in X country” for its own sake. He has fended off calls from several vendors with offers to help him launch a token 5G network, but he lacks the capacity to build a real 5G network in his markets, and a business plan to effectively monetise it. There is a lack of fibre to the site, and Africa’s towercos are just not ready to transfer what they know in other markets into an African context for the denser networks and alternative typologies required for 5G, a sentiment echoed by Africell’s Ian Paterson.

A Massive MIMO is 125kg today and the towers on which he leases space are not ready for such substantial antennae. On the other end of the chain, Africa lacks 5G handsets. Razvan suggests 30% of handsets are 3G, around 15-20% 4G, with the remainder 2G. Without handsets significantly reducing in cost and increasing in number, 5G will not come to Africa.

On the other hand, Paterson thought that Africa’s long-term future will feature 5G extensively. Much like Africa has leapfrogged fixed-line telephony, 5G offers the chance for Africa to leapfrog some of the other elements of current digital infrastructure. This should be a source of optimism for 5G in Africa.

Hyperscalers like Facebook, Google and Alibaba are moving into Africa to take advantage of improvements in connectivity and are investing to further improve digital infrastructure themselves. They are investing in fibre and datacentres to enable them to deliver more content and services to African consumers, and MNOs are happy to piggyback on this infrastructure investment.

ESCOs are offering MNOs an alternative for tower power management that is more service-orientated than towercos, with less commitment. Smaller towercos are springing up to fulfil build-to-suit contracts that have been refused by larger towercos. And rural connectivity specialists are offering ultra-cheap towers with flexible financing and revenue shares which are proving appealing to MNOs that want to expand their network even further.

Towercos were a vital partner in African telecoms as the number of subscribers in Sub-Saharan Africa grew from 400mn at the start of the decade to 600mn today, but there are now a number of new partners mobile operators can choose between, and towercos will have to think about how to respond to the increased competition.