Atlas Tower Group targets the rest of Africa

Before the announcement of the acquisition of Atlas Tower South Africa by SBA Communications, covered elsewhere in this journal, Atlas Tower Group was expanding into new markets in Africa. Expanding out of South Africa will require changes in approach to fit local dynamics and cultures and offering power-as-a-service, but the core Atlas Tower strategy will not change. TowerXchange discussed the change in direction and entry into new markets with CEO Nate Foster.

TowerXchange: Atlas Tower are best known to our readers for your activities in South Africa, tell us how you have gone about evaluating opportunities in the rest of Africa?

In Africa, culture and custom can be as important to a deal as good business plans or operational synergies. We only really need two things: MNOs interested in investing in active rather than passive infrastructure, and a rule of law that protects our investment for the long-term. 

We are focusing on Kenya and Southern Africa because their situation is better for power, rule of law, strength of judiciary, literacy rates, et cetera. Of course, there are also many points against these markets and they are not the only ones we have seeded our business in, but they are only the ones we wish to discuss at this time.

TowerXchange: American Tower is consolidating Eaton Towers’ operations in East Africa, to what extent has this opened up space for a new towerco to enter those markets?

The fundamentals of the business aren’t really based on the competitive environment as much as it is the MNOs’ willingness to take advantage of the towerco business case.

Some markets can have 20+ towercos and be healthy for us, whereas those with only one towerco or no towerco have proven to be risky. There is no correlation.

TowerXchange: Kenya is heading for a duopoly, with Safaricom facing off against Airtel-Telkom, does that level of concentration put a dampener on opportunities there?

Yes – no one likes a two MNO market. It’s not diverse enough for a fair market to shape the winners and losers. It is no secret we are struggling in that market. I believe the entire economic ecosystem in Kenya suffers as a result of the duopoly.

TowerXchange: What is the balance of build-to-suit opportunities between urban infill and network extension?

Each market goes through its cycles of urban infill and network coverage. We seem to always float between 65% infilled and 35% coverage in the aggregate over the last 6 years of development in Africa.

TowerXchange: You are well known in South Africa, but a relatively new face in the rest of the African region, how have you found site selection and landlord negotiations differ where you are a new entrant?

All African markets seem to differ slightly from one to the other on land and contract negotiation. Frankly I find it fascinating how from an outsider’s view, in two seemingly similar markets, they are actually very different in the law, the customs and enforcement of agreements. The same quality of service the same integrity we apply to the MNOs, we apply to the landlords.

TowerXchange: Are there other towers that can be bought, e.g. the rollup of smaller towercos, ‘Onesies and Twosies’ or unconventional sites in East Africa? 

No. We apply very thorough Foreign Corrupt Practices Act (FCPA) principles to all our deals. It’s been difficult finding the right quality of contracts and assets in other towercos as in ours. I think the market will change slowly over time, but even in South Africa we are finding smaller towercos who continue to miss out on critical steps that ensure long-term value, or push sale price up.

TowerXchange: Moving outside of South Africa means offering power-as-a-service, which is a new challenge for you. Will you be building this capability internally or working with a partner?

We are working with key partners, but you still need to absorb critical elements of power-as-a-service into the mechanics of your business. It has not been a difficult convergence for us. It is an important part of the cash flow equation, but I find there are numerous ways to help straight-line it.

TowerXchange: What is your appetite to deploy your own capex into energy efficiency programmes versus partner with ESCOs?

We want to deploy capex. That’s the name of the game. Our value is the capital we can invest in a market. However, we are doing various pure short-term opex based models (leasing) before we achieve some scale.

Start-ups work form the centre out, meaning urban core first, where power is usually the best. So we can usually fill power gaps with batteries and rectifiers and don’t need more complicated systems than that. We have had no problem finding suitable and experience suppliers of equipment, RMS, or ESCO.

TowerXchange: What is your procurement model and process for those interested in working with you? Who are the key stakeholders?

Helmundt Strumpler, Director of Ops for SSA is in charge of all operational RFPs including for power.

TowerXchange: How is the business financed and what does this mean about your ‘digestive capacity’ to acquire or build more towers? Are you recycling SBA Communication’s investment into expanding the group?

We have a much larger appetite today. We will continue on the trajectory of mostly building new infrastructure. We are using our family operation and funding, historic Limited Partners and identifying new Limited Partners to partner with. Our SBA relationship is limited only to South Africa.

TowerXchange: You have also established an investment vehicle to look at opportunities further afield, can you tell us more about these projects?

We have discussions ranging from pre-tower seed capital to late stage funding rounds with seasoned towers. We prefer the early stage opportunities where some of our operational tools can be applied to the right team. It’s a challenge to find the right team that hold the correct blend of skills, relationships and regulatory commitment that we believe are essential.

TowerXchange: Mobile operators have encouraged the establishment of smaller towercos to increase competition, reduce lease-rates and boost flexibility by towercos. What do you think is a healthy balance for operators and towercos?

I am strong supporter of entrepreneurial towercos. I have no problem with having many in a market – maybe 5-10 is rational number in a 3-4 MNO market.

The larger concern we have is the funding shops who take advantage of a founder or management team and lock them into a scheme were they have little real chance to make money. They play into the ego of the founders and by the time they learn how little they get to keep it’s too late to make a change.

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

Atlas Tower Group is now a mix of the Atlas Tower operating company that is continuing to develop, acquire, and own assets in Southern and East African markets and the US. Our Atlas T Fund is set-up to contribute capital in a wide range of structures to the right companies with a similar mind-set to us.

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Atlas Tower is an independent global Wireless Infrastructure company. Atlas Tower built its first towers in 2007 in Alaska, USA. Following eight years of tower development in nine other US states, the company expanded to South Africa in 2014, and in 2018 moved into Kenya and Botswana. The company was founded by husband and wife pair Nate Foster and Randi Clendennen.

As of Q3 2019, Atlas’ South African portfolio totalled 901 sites, which is expected to reach 1,000 by the start of 2020. In 2019 SBA Communications announced plans to exercise options to acquire 94% of Atlas Towers SA.

The company has focussed its business model around organic rather than inorganic growth. Atlas Tower outside South Africa remains independent of SBA and has invested in Kenya and Botswana and plans to follow a similar strategy of build-to-suit growth to that which was followed in South Africa.

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