Pioneering towercos from South Africa, Botswana and Angola joined current and prospective suppliers and partners at the Southern Africa round table at the TowerXchange Meetup Africa 2018. The resultant discussion provided intriguing and contrasting snapshots of opportunities for towercos, and their partners, in five Southern African countries. TowerXchange has supplemented what we learned at the round table with additional market research to build the following analysis.
South Africa
Any review of opportunities in Southern Africa tends to commence with a look at South Africa, simply as a function of the size of the market. With a stock of around 29,000 towers, a competitive MNO landscape with four established prospective tenants and new entrants Rain, South Africa would seem at first glance to be an ideal market for towercos, yet a significant majority of the country’s towers remain trapped on MNO balance sheets.
Tensions run high between the country’s MNOs and American Tower, which has the largest independent portfolio of some 2,608 towers. Many stakeholders attribute these tensions to the relatively high leaseback rate agreed by Cell C when they sold their towers back in 2010, and as a result Cell C are seeking to rebuild their own tower portfolio. These tensions also translate to significant downward pressure on lease rates in South Africa – challenging since the cost of land continues to increase.
South Africa has also seen the carve-out of the African continent’s first operator-led towerco of scale, Telkom’s Gyro Towers, which markets co-locations on around 6,500 structures. Vodacom also have an in-house towerco boasting an impressive tenancy ratio, believed to be around 1.8x. International towercos have long coveted MTN’s ~11,000 South African towers, but rumors of a potential sale and leaseback of those assets have not resurfaced for several years.
South Africa is home to several smaller private towercos including International Tower Corp, Eagle Towers, Coast to Coast, Blue Sky Towers, Pro High Site Communications and Comco. Broadcast towerco Sentech also markets 300 sites for co-location by MNOs.
By far the fastest growing towerco in South Africa is Atlas Tower, which has over 700 sites in the country, with a healthy pipeline of further sites secured. Atlas are confident they will have over 1,000 South African towers by the end of 2019, representing a significant share of the 1,000-1,500 new sites being built per year in the country.
Africa’s third largest towerco Helios Towers recently entered South Africa through the acquisition of private towerco SA Towers, and in a partnership with fibreco Vulatel, with a goal to deploy R1.4bn into communications infrastructure, including 10,000km of fibre and both macro towers and small cells along those fibre routes. American Tower has similar aspirations to diversify into fibre, having already signed a partnership with fibreco Frogfoot.
Spectrum is in short supply in South Africa – which could suppress demand for densification sites. The controversial Electronic Communications Amendment Bill (ECA) will not be passed before the country’s 2019 general election. The ECA included a framework for the creation of a wholesale open-access operator. While this may seem a daunting prospect for South Africa’s emerging tower industry, similar open-access models have been proposed and seldom realised in several other countries, while in Mexico the open-access operator ALTAN Redes quickly became the towercos’ number one customer.
Botswana
Both Pula Towers and the aforementioned Atlas Tower have secured licenses to build towers in Botswana – they both describe the licensing process as relatively quick and easy.
While the ~850 towers in Botswana remain on the balance sheets of the three MNOs (Orange, Mascom and incumbents BTC), there does seem to be a gap in the market for independent tower companies. The caveat of course is that Botswana is a small country (566,730 sq km) with a population a little over two million, but the country does not lack liquidity for good investments, and the towerco model makes sense to local financiers. While 4G rollouts commenced as long ago as 2015, there is still need for densification sites.
Estimated tower counts
Angola
There are around 1,000 towers in the capital Luanda and ~3,000 nationwide in Angola. That inventory of towers needs to be doubled to achieve coverage targets – reports suggest less than 50% of the country’s administrative divisions currently have mobile coverage.
Market leader Unitel owns the majority of Angola’s towers, challenger Movicel’s network includes around half as many structures. In late 2017, fixed line incumbent Angola Telecom was awarded a license enabling them to launch a wireless service, but no launch seems imminent, while a fourth operator is expected to be announced shortly. Unitel has deployed 4G to Angola’s largest cities, but the majority of subscribers remain on 3G platforms.
Tower ownership has transferred from government to Angola’s MNOs, but the government remains an engaged stakeholder: regulator the Institut Angolias Des Communications (INACOM) has created a committee to create basis of common basis of sharing towers, indeed INACOM arranged for a substantial delegation of stakeholders to attend the TowerXchange Meetup 2018. INACOM objectives include to promote a culture of infrastructure sharing and to accelerate permitting. There is also an enthusiasm to reduce opex, both in terms of lease costs and power. Independent towercos are recognised as a potential means of bringing down opex, and for accelerating rollout for new entrant operators.
ANTOSC are Angola’s first independent towerco in the process of building 30 sites with a further 70 sites planned for 2019. The towerco expects to have around 400 sites within three years.
Prospective towerco enterpreneurs /investors continue to maintain a watching brief over the Angolan market, monitoring the streamlining of permitting processes to make a local tower industry viable, and the potential creation of an investible towerco license regime, supported by rule of law to enforce contracts. The identity and rollout strategy of the fourth MNO will be critical to the investibility of Angolan towers.
The identity and rollout strategy of the fourth MNO will be critical to the investibility of Angolan towers
Namibia and Zimbabwe
The roundtable covered Namibia and Zimbabwe only briefly as there was finite appetite among participants to invest in the countries’ tower markets.
While Namibia is seen as an attractive potential tower market, extensive government participation, including in the country’s two leading MNOs and in the country’s only towerco PowerCom, mean international towercos have struggled to secure a license in the country. Two state-owned MNOs MTC and Telecom Namibia lead the market, with privately owned new entrant Paratus stimulating competition. MTC is currently extending its 3G network into rural areas, with plans to build 524 rural towers in 2018-19.
Telecom Namibia owns Namibia’s sole towerco, PowerCom, which has around 300 sites with tenancies from all three MNOs as well as a number of non-traditional tenants.
“Namibia may be too small for two towercos,” concluded one round table participant.
At time of writing, unrest and inflation continue to headline a level of country risk which makes international investment difficult in Zimbabwe.
“While Zimbabwe interesting country, there are obviously substantial macro economic and political issues to consider,” said one round table participant. “Historically they’ve required 51% local ownership, which effectively rules international tower investors out of the market.”
There are around 2,700 towers in Zimbabwe, ~1,500 of which are owned by market leaders Econet Wireless. There has been pressure to share infrastructure, particularly directed at Strive Masiyiwa’s Econet Wireless, which at one point saw the operator seemingly on the brink of carving out a towerco. That seems less likely in the immediate future, but Econet has created their own Energy Services Company (ESCO) Distributed Power Africa, which does provide power to third parties.
There has been some suggestion that Econet’s competitors, state owned NetOne and partially State-owned Telecel, could be part-privatised. Each owns around 600 towers.
Cell site energy in Southern Africa
While distributed generation is not as widely deployed in Southern Africa as West Africa, there are significant pockets of demand.
While perhaps as few as 100 of South Africa’s sites are off-grid, there is a growing demand for towercos to provide backup power as a service in the country, driven by load shedding, itself a symptom of finite generation capacity. It should be noted that power-as-a-service is not yet the norm – most South African towercos provide ‘steel and grass’ only.
In Angola’s capital Luanda main electricity grid power is widely available but not 100% reliable. “You need backup power to achieve Service Level Agreements”, said one round table participant. As many as 85% of Angola’s sites have a degree of reliance on distributed generation – mostly diesel gensets, with some battery hybridisation, and with increasing adoption of renewables, particularly at remote rural sites.
Namibia’s extensive grid means most sites need only rectifiers and battery banks, with backup diesel gensets only on critical sites. PowerCom report that less than 1% of their towers are off-grid.
The vast majority of Zimbabwe’s towers are on-grid, and the country has plenty of generation capacity.
The general reluctance of many Southern African towercos to take on power (“power cash flow is not consistent and long term, like tower cash flow, so I’m worried about value creation,” said one towerco at the round table) may mean an increased appetite to partner with ESCOs. “Not all MNOs require us to manage power,” said one towerco “and where we do provide it, we prefer a pass through model.”
Ten tips for tower entrepreneurs
One of the tower entrepreneurs TowerXchange most respects in Africa – in fact worldwide – is Atlas Tower CEO Nathan Foster. While moderating the Southern Africa round table, Nate shared a few pearls of wisdom applicable to towerco entrepreneurs globally.
1. “Every tower site is its own profit centre – you can make good money on ten towers”
2. If you seek to scale beyond that “be careful from SG&A perspective.”
3. “We’ve invested in countries where there is good rule of law – where we can enforce your contracts.”
4. You won’t be first to market for long: “We started in Alaska – there are six towercos there now.”
5. “We have to get increasingly creative to get vertical real estate into dense urban areas.”
6. “We’re building smaller towers on average than in the past – we call them small macros – we have a patented Clean Site that is 10-20m.”
7. “Towercos must be faster and better at acquiring real estate than MNOs - a lot of our staff are former town and city planners.”
8. “If you can control the four corners of a rooftop (and increasingly the sides of buildings) it’s an asset you can lease back to operators.”
9. How do Atlas identify new sites? “We use third parties, RF engineers… we have a great speculative programme”.
10. “While we acquire sites speculatively, only a very small percentage of our actual build is speculative – naked towers in advance of a lease.”
