Since the August 10th 2020’announcement of a new framework for towercos, many towercos have been working with Egypt’s regulator, the National Telecom Regulatory Authority (NTRA), to secure permission to operate in Egypt. No towerco has yet been awarded a licence, and while TowerXchange understands that some of those which originally showed interest have withdrawn, at least four more are continuing their applications. Conditions around local shareholding and coverage obligations are extending discussions, but TowerXchange hopes that a new licence will be issued by the end of March. The Egyptian market requires significant new build; the country’s newest MNO Telecom Egypt is building its own network in anticipation of the end of its national roaming deals; Egypt is building a new capital outside Cairo which will demand 1,000s of new sites; Egypt combines a growing subscriber base with an already high number of SIMs per tower (3,851 ’ mid-ranking for an African country, and high for a Middle Eastern one).
This new build demand cannot presently be satisfied by existing towercos active in Egypt, and MNOs lack the access to capital to deliver as many sites as are needed. Back in 2010 and 2011, five Egyptian companies ’ EEC, Alkan, ECMTS, Mobiserve’s Mobitower and HOI MEA (now simply branded HOI) ’ were awarded towerco licences valid for a 15-year period, but only HOI built towers, with their portfolio standing at a modest 38 sites. In 2016, Eaton Towers (which has since been acquired by American Tower), reached a deal to acquire 2,000 of MobiNil’s (now Orange) 6,000 sites but the deal was cancelled. Until recently, there had been no further towerco presence in Egypt.
An announcement by the regulator that a new towerco license was to be awarded, piqued the interest of the towerco community. TowerXchange understands that of the towercos or consortia that registered their interest in the license, four remain in serious contention for a licence.
The new licensing framework’
Under the terms of the new framework, the new licence will be for a 15-year period with an upfront licence fee payment of US$3mn and annual licence fees equating to 3% of the annual turnover (to a minimum value of EGP500k (~US$32k)). The licencee will need to provide a performance bond letter of guarantee with a value of up to EGP10mn (~US$625k), and commit to spending a minimum of 0.5% of annual turnover on R&D, whilst abiding to the universal service rules, regulations and fees set by the NTRA.
Stung by the failure of its past licencing process to generate towercos which built and operated a significant number of sites, the new process lays out some terms to ensure only towercos with substantial international expertise can take part. Applicants for the licence will be required to own a minimum of 5,000 existing towers and have been active for a minimum of three years in building wireless infrastructure, with their portfolio valued in excess of’’EGP3bn (~US$187mn) and revenues having exceeded EGP200mn (~US$12.5mn) in the past two years, ruling out smaller or less established companies who had been eyeing up the market unless they can find a partner or demonstrate they are credible in other ways.
One of the most significant developments under the new regulatory framework is the requirement to have a minimum of 20% local ownership in the licencee (as well as a minimum of 20% international ownership). In the case of the first towerco licence, this local 20% ownership should be held by the established company ’Egypt Towers’ which is owned by the National Services Projects, a civil engineering company which is subordinate to the Ministry of Defence. TowerXchange understands that the towercos pursuing a licence are in the process of finalising their shareholder proposals; the ownership and control of a towerco being of utmost importance to current operations, future cashflows and potential valuations.
Another unusual attribute of the process is a towerco coverage obligation. This was initially targeted at 5,800 sites in the first three years ’ a figure significantly higher than had been indicated in earlier licensing discussions (and which would imply four back-to-back years of record growth). This has also contributed to extended discussions, with towercos seeking to understand how they can meet coverage obligations when traditionally these are the responsibility of MNOs. Towercos are also concerned about how to guarantee such new build numbers in a market where MNOs will not be under to compulsion to work with towercos at all rather than roll out sites themselves.
Who are the interested parties in the licence?
A number of parties have been linked to the Egyptian towerco licence:
Helios Towers
Pan-African towerco with a portfolio of over 7,000 sites on the continent and an appetite for further geographic expansion. In August last year, the company announced a deal to acquire 1,220 sites in Senegal adding a sixth market to its countries of operation and is reported to maintain a keen eye on the Egyptian market.
IHS Towers
With roots in the Nigerian market, IHS’s operations now span three continents and nine countries (Brazil, Cameroon, Colombia, Ivory Coast, Kuwait, Nigeria, Peru, Rwanda, Zambia), with their tower count approaching 28,000. Their most recent deal was the acquisition of Skysites in Brazil in January of this year and the company continues to evaluate new opportunities for geographic expansion.
TAWAL
Saudi Arabian towerco with a portfolio of 14,500 sites carved out of Saudi Telecom Company, TAWAL has made no secret of its plans to expand its activities to other markets. STC had signed an MOU to acquire Vodafone’s stake in Vodafone Egypt but with that deal cancelled, the status of the TAWAL application remains unknown.
Paradigm Infra/SBA Communications
Paradigm Infra is a towerco founded in 2019 by a team of highly experienced executives with significant emerging market towerco experience, including former ATC employees, Steve Harris, Steven Marshall and Hal Hess (with Moustafa Sobh bringing Egyptian experience as Paradigm’s North African advisor ’ having worked with ATC and Eaton in the market).’’Paradigm Infrastructure has a focus on emerging/ growth markets and whilst it does not meet the new framework’s prerequisites in terms of number of towers and years in operation, TowerXchange understand that the towerco has formed a consortium with SBA Communications to pursue the licence. SBA Communications has 32,453 towers, principally in the Americas, but in 2019 they entered South Africa through the acquisition of Atlas Tower.
Who has withdrawn?
American Tower
The world’s largest independent towerco with a portfolio of over 180,000 sites across the US, Latin America, Europe, India and Africa. The company is highly acquisitive, its most recent deal being the acquisition of Telxius in Europe and the Americas, hot on the heels of its acquisition of Eaton Towers (the Eaton team having experience of the Egyptian market through their cancelled deal with MobiNil). American Tower is known to have been on the ground assessing the Egyptian market for the past couple of years. However, TowerXchange understands that American Tower has withdrawn from the process, perhaps due to a deprioritisation of the MENA region, or due to unconventional factors in the licence.
China Tower
The world’s largest towerco, China Tower was formed initially as a joint venture between China’s three MNOs, absorbing their 1.44mn legacy towers. The company has since built over half a million sites, with their portfolio standing at over two million towers. The company has yet to extend their presence beyond Chinese borders but had been rumoured to have been looking at the upcoming towerco licence in Egypt.
Fibre Misr
Formerly known as Equinox Egypt, Fibre Misr is a leading provider of ICT solutions and services in Egypt and so whilst lacking the tower background, provides significant local expertise to partner with a towerco player. Whilst such players had expressed an interest in entering the Egyptian towerco market, TowerXchange has failed to see the eventuality materialise.
What time frame could the licence be awarded in?
The NTRA plans to issue the first towerco licence before opening applications for a second licence, and TowerXchange understands that the process may be completed as early as the end of Q1 2021.
An ESCO market no more?
In the past two years both Orange and Etisalat have launched RFPs looking for ESCO partners in Egypt. Both processes have been unsuccessful because of the likely continuation of fuel subsidies. The ESCO business model relies on swapping upfront capital costs for low long-term opex costs, usually by deploying renewable energy solutions. Egypt has discussed reducing fuel subsidies on a number of occasions, but also pulled back given the political risks. Twice now ESCOs have looked like solutions in search of a problem. While MNOs want to outsource their power headaches, the economics in Egypt have yet to make sense. While bad news for ESCOs, this reinforces the business case for towercos who will be safe from the competition for sites which ESCOs have generated in the rest of Africa.
What is the current tower landscape in Egypt?
Bar HOI-MEA’s 38 towers, all of Egypt’s telecom towers are owned by the country’s MNOs. Vodafone has the largest tower portfolio, sitting at around 8,500 sites, with Orange and Etisalat each having around 7,800. Telecom Egypt’s tower portfolio lags behind that of its peers (approximately 2,800 sites) with the company only having launched mobile operations in 2016.
All operators have spoken of the requirement for a significant amount of new build. In 2020 TowerXchange understands 2,100 sites were built; 600 by Vodafone, 550 by Orange, 550 by Etisalat and 400 by Telecom Egypt.
Such new build requirements are driven by both capacity and coverage; Egypt has a growing subscriber base and an already high number of SIMs per tower, and whilst 4G rollout is more extensive in major metropolises, outside of this there is major work to be done, particularly given the number of new roads and compounds being built that lack adequate coverage. Egypt is expected to launch 5G in 2021/2022 which will certainly require more sites and towers to provide the necessary 5G coverage.
Infrastructure sharing is already widespread in the Egyptian market, with Orange reporting back in 2017 that around 20% of its owned sites were shared with other operators, and that they leased space on around 1,000 sites owned by other MNOs (these figures are likely to have increased since the rollout of Telecom Egypt’s network).
Such strong appetite for new site build, coupled with a culture of infrastructure sharing in the country creates an ideal opportunity for a towerco entering the market. Whilst the license framework speaks of scaling up to 5,800 new sites in the first three years, Paradigm’s North African consultant Moustafa Sobh, told TowerXchange that in reality the figures could be much higher: ’With the full support of the NTRA and Egyptian government (thanks, in part, to the inclusion of the Ministry of Telecommunications in the joint venture [via Egypt Towers]), the new towerco entering the market could have the potential to scale up to more than 10,000 sites in less than three years once M&A opportunities with the country’s four MNOs are explored.’
As one of Africa’s largest and most attractive mobile markets, all eyes are currently centred on Egypt as the industry awaits further news on the award of a new towerco licence.
