1,400 Airtel Tanzania towers up for sale, expressions of interest requested

Despite the prospect of an imminent IPO, Airtel subsidiary Airtel Tanzania is planning to sell and lease back its 1,400 towers. Originally put on the market in 2014 alongside Airtel’s other tower portfolios, the assets were not acquired, as well as the Airtel towers in Chad, Gabon, Malawi and Madagascar. A potential sale in 2016 also hit the rocks. Earlier this year a legal dispute with the government delaying the sale was resolved, and Airtel Tanzania has now moved to put its towers on the market.

On the 14^thMay Airtel Tanzania published notice that it was seeking a buyer for its over 1,400 telecommunications towers. The notice outlines Airtel Tanzania’s interest in finding a “reputed and experienced tower company” to take ownership of the towers and lease them back to Airtel Tanzania. Expressions of interest are expected by 5pm Friday 17^thMay with final bids from eligible prospective bidders expected by 5pm the following Friday. Prospective bidders are expected to have five years of demonstrated experience in managing at least 5,000 towers and a track record of high service levels. Airtel Tanzania also specifies that bidders must have a good track record of providing tower services on a non-discriminatory basis to all telecom players. The criteria rule in all four major regional towercos, Eaton Towers, Helios Towers, IHS Towers and of course American Tower. Smaller African towercos like West Africa’s Pan African Towers do not meet the site management cut-off, but it remains to be seen whether a credible newer towerco like iSON Tower might be considered.

The sale of Airtel’s Tanzanian towers had been mooted in 2014, when Airtel sold towers in eight other African countries. A similar proposal to sell Airtel’s towers to American Tower in 2016 was also unsuccessful due to a requirement to list shares on the Dar es Salaam stock exchange. Since then, an ownership dispute with the government has also prevented a subsequent tower sale, with Tanzania’s President John Magufuliclaiming that Bharti Airtel had originally illegally acquired its Tanzaniasubsidiary from Tanzania TelecommunicationsCompany Ltd (TTCL) and that the government had been deprived of its rightful share of ownership. Bharti Airtel disputedthis version of events but has since sought a resolution to the dispute so it could resume normal business operations.

Resolution came in January this year with Bharti Airtel transferring 9% of the shares in its Tanzania subsidiary business to government for an undisclosed amount.  Bharti Airtel’s stake in Airtel Tanzania is to be reduced from 60% to 51%, with it retaining control but the state’s share increasing from 40% to 49%. The ownership dispute was not only delaying any sale of Airtel Tanzania’s towers, but was seen as a major impediment to the planned IPO of Airtel Africa

Airtel Africa has appointed eight banks (Goldman Sachs, JP Morgan, Citigroup, BofA Merrill Lynch, Absa Group, Barclays, BNP Paribas and Standard Bank) to run its IPO process. The IPO is planned to reduce Airtel Africa’s debt, which currently stands at US$5bn and also to provide funds for its operations. It had been speculated that tower sales were being delayed until after the IPO, but it now seems that the tower sale in Tanzania is being brought forward.

Tanzania is the market where a tower sale is most straightforward, thanks to the maturity of the market created by incumbent tower operator Helios Towers, and where a tower sale will be most lucrative – Airtel’s Tanzanian tower portfolio is simply larger, and probably more valuable, than the towers in Airtel’s other remaining markets Chad, Gabon, Malawi and Madagascar. A pre-IPO tower sale will put more cash on Airtel Africa’s balance sheet and frees up money to compete in the relatively lucrative Tanzania mobile market.

According to the GSMA, there are 43.4mn mobile subscribers in Tanzania, against a population of 60mn. Figures drawn from the CIA World Factbook show population growth is running at nearly 3% a year, economic growth has averaged 6-7% per year from 2009-2017 and the population’s median age is around 18, meaning there is enormous potential for the country’s telecoms market. TowerXchange estimate there are 8,278 towers in the country, with 3,519 owned by Helios Towers acquired from Vodacom and Millicom with the remaining split amongst the country’s seven MNOs.

In 2016, Helios Towers said that 80% of their sites were on grid and that grid availability was around 20 hours per day.

3G and 4G uptake has been robust, on the back of high demand for data services. Mobile broadband users numbered 22.87mn in 2018 and Fitch Solutions forecasted this figure to grow to just under 40.72mn in the five years to 2023. In urban areas operators are facing increased competition for the 33% of the population which are urbanised. Besides Viettel-owned Halotel, operators have not extensively expanded their services into rural areas, because of the significant expansion costs, low ARPUs and regulatory risk. However, services are slowly growing in rural areas, and the country continues to urbanise.

In 2016, a sale of 1,350 Airtel towers to American Tower was unsuccessful because of a regulatory rules which aim to have telecom companies, including towercos, list 25% of their shares on the Dar es Salaam Stock Exchange.

Airtel Africa has also retained its towers in Chad, Gabon, Malawi and Madagascar

Chad is one of the most challenging markets in Airtel’s operational footprint, with just 6.6mn mobile subscribers in September 2018 and a penetration rate of only 42.7%. GDP per capita in Chad is also just US$760 which reduces demand for more than the most basic prepaid services. There are three MNOs, Airtel, Tigo and Sotel, and an estimated 2,000 towers in Chad. With electrification at just 4%, power is a significant issue in Chad and Millicom’s Tigo has signed an ESCO contract with Camusat’s Aktivco. Previously Airtel had agreed a tower sale to Helios but this was cancelled due to an unfavourable regulatory environment. Unlike Tanzania, TowerXchange has seen no sign of a change in regulatory environment or investor-friendliness in Chad.

Gabon’s population is smaller than Chad’s but its GDP per capita is instead one of the highest in Africa, at around US$18,000 per, making it a much more attractive mobile market. However, there are only two MNOs in the market since the merger of Gabon Telecom and Moov to create the country’s largest operator ahead of Airtel. Airtel’s efforts to monetise their towers in Gabon never made much headway due to an unsupportive regulatory environment and all the country’s towers remain MNO captive for the time being. Whilst the electricity grid in the main cities is okay, the grid is much less extensive in more rural areas leading to 30-35% of the country’s approximately 1,000 sites being off-grid. Energy Vision signed the first real ESCO contract in Africa with Airtel which has significantly helped Airtel’s operations in the country, but complicates any tower sale.

Malawi is another African country that is both smaller and poorer than average, with a GDP per capita of US$1,200. It has a population of 20mn but just 8.6mn mobile subscribers, an estimated 1,000 towers and just three MNOs, including the Airtel, Telekom Networks Malawi and tiny start-up Afrimax Malawi. Airtel reached an agreement in 2015 to sell their towers to Eaton but the deal was called off for undisclosed reasons, there has since been no sign of them returning to the market.

Madagascar is an interesting telecoms market, if also a challenging one. There are four MNOs in the country of 25mn people, but they have struggled to find growth opportunities in value-added services or mobile broadband because of the country’s size and low incomes. GDP per capita is US$1,600 and a large proportion of the population still lives in rural areas. Orange and Airtel operate in the Madagascan market with local-operator Telma the market leader. Blueline is the country’s newest MNO and offers 4G-only services Towerco of Madagascar owns 1,200 of the island’s 2,100 towers and was initially spun out of Telma but now an independent towerco. Airtel owns 509 towers in Madagascar and there have been rumours of interest in acquiring Airtel’s towers in the past, with Airtel Tanzania’s towers now up for sale interest will turn to Madagascar as the next domino to fall.

Expressions of interest should be submitted by 5pm on 17^thMay and must be delivered to info@airtel.co.tz with the subject line “EOI for Purchase of Tower Assets of Airtel Tanzania” or by delivery to Airtel House, corner of A.H Mwinyi Road and Kawawa Road, Morocco Area, Kinondoni, Das es Salaam Tanzania. Last date for submissions of Bids are expected to be submitted by 5pm on the 25^thMay.