Pan-middle eastern operator Zain has confirmed the first of three tower deals alluded to in their Q3 results, by agreeing a transaction with Dubai based TASC Towers worth US$88m for 2,607 towers.
The latest sale comes hot on the heels of an announcement that Zain had received a US$807m non-binding offer from the Saudi Arabian Public Investment Fund (PIF) for their 8,069. Saudi Arabian towers, which you can read about here. In February 2020 Zain sold 1,620 towers in Kuwait to IHS Towers for US$130m.
Zain have signed a 15-year lease back deal with TASC and have also transferred an additional 223 sites on a managed basis.
From a price per tower perspective, the Saudi Arabian portfolio was valued at just over US$100,000 per tower, while in Kuwait this was slightly lower at US$80,246. In Jordan though, TASC have acquired the portfolio for just US$33,755 per tower.
While the reason for the discount is not certain, it could point to Zain's ambition to streamline the management of it's towers through outsourcing to towercos rather than using the sale as a significant capital raising exercise. Zain Vice-Chairman and Group CEO, Bader Al-Kharafi, commented that "This transaction gives Zain Jordan greater flexibility to invest in network upgrades and cutting-edge technologies, enhance efficiencies enabling a laser focus on its core business and customers"
TASC will manage Zain Jordan’s supporting facilities such as power generators, fuel tanks and protection kiosks. The deal also includes a build-to-suit agreement allowing for a minimum of 525 network sites to be built over the next five years.
Zain Jordan will retain its active infrastructure, including wireless communication antennas, intelligent software, and intellectual property with respect to managing its telecom network.
High opex had led to a consensus that infrastructure sharing in Jordan could be on the rise sooner rather than later. The telecommunications sector is subject to heavy taxes in Jordan, and operators have been exposed to increased electricity prices which has had an impact on their profits.
TASC have previously enjoyed a modest portfolio of towers in Jordan, so acquiring the Zain makes them the largest tower operator in the country. The other 2 MNOs in Jordan have a similar mobile market share and as such, the market is highly competitive.
Jordan’s Telecommunications Regulatory Commission (TRC) is in the process of creating a centralised database of fibre optic networks in a bid to limit duplication of infrastructure and encourage network sharing.
Whilst no such scheme currently exists for towers, infrastructure sharing does exist between the MNOs, with Orange reporting that just under 15% of the sites that it uses are shared with other operators.
This should enable TASC to unlock value through co-location opportunities with the other two operators. Orange and Umniah are estimated to own just over 2,000 towers each (see below).
The Jordan deal precedes a tower transaction in Iraq that is in process and expected in Q2 2022. Zain have also revealed that a tower deal with TASC is close to finalisation in Bahrain, which TowerXchange expect will complete early in 2022.
Zain are estimated to own 4,551 towers in Iraq, and around 500 in Bahrain.
The project to monetise towers is being led by Zain’s Chief Strategy Officer Kamil Hilali who is overseeing these deals.
Estimated tower ownership in Bahrain
Despite its small landmass, Bahrain has a total of 1,500 sites of which around 12% are currently shared, leading to significant parallel infrastructure. In 2016, the Telecommunications Regulatory Authority of Bahrain (TRA) commissioned a study to examine the rationalisation of the Kingdom’s total tower count down to a core network of 400 sites.
In early 2018, the TRA introduced the new Public Radio Communications Stations Regulation (PRS Regulation) to regulate the deployment of new towers and “rectify existing ones in accordance with best practice”.
The new detailed legislation lays out key specifications for new and existing towers, specifying everything from the type of concrete used in the foundations to key health and safety requirements. The rectification plan is to take place over the next 15 years, with more than 90% of the towers requiring modification and the TRA setting out a goal of increasing the percentage of sites being shared from 12% to 40% in the country.?
When questioned by TowerXchange on different business models required to reach the targets set in place, the TRA stated “Currently there are three operators who are licenced to deploy masts and towers in Bahrain. As a result there are three different mast and towers networks, i.e. one for each operator.
The Authority considers there is room for improvement by merging these different networks into one or at least two. This could be done either by introducing a towerco company, a joint venture between existing operators or other feasible business models.”?
If TASC complete their transaction with Zain’s it will become the first towerco to penetrate Bahrain, and there could be many opportunities to upgrade and renovate sites, or decommission parallel infrastructure. Bahrain is a leader in 5G, with operator Batelco reaching nationwide coverage in October 2020. Both Zain and stc launched 5G commercially in mid-2020.
Iraq market dynamics and tower ownership
Other than Zain, Iraq has two nationwide MNOs. Asiacell are owned by Ooredoo and Korek Telecom was once part Orange-owned, before Orange’s stake was confiscated and awarded to local shareholders. Litigation is ongoing.
Zain has the largest mobile market share, with Asiacell close behind, but Korek Telecom is the country’s fastest growing operator and is dominant in the Kurdistan region. In addition to the three nationwide operators, there are a host of 4G LTE players in the Kurdistan region.
The government had proposed the introduction of a fourth national operator (in which the ruling government would have a stake) although further details are yet to emerge with political issues thought to be holding the process up.
There are 14,769 towers in the market split between the national and Kurdistan operators (figure seven). Approximately 10-15% of the country’s total stock was understood to have been destroyed or damaged during the conflict with Daesh, with power systems particularly damaged, and so major reparatory works have been underway.
Build-to-suit opportunities exist for an independent towerco such as TASC, as there has been significant under investment in networks in recent years with 3G coverage understood to be particularly poor and so significant network expansion is required. Korek Telecom forecast that they need to build a further 2,500 sites. 4G licences have been awarded and Zain was first to market with a 4G launch in September 2021.
Major investment has been pledged by international investors and donors in a bid to rebuild Iraq’s economy, with significant funds expected to be channelled into telecoms. Iraq’s MNOs are struggling with high opex, attributable in large part to security and logistics issues across the country.
Upon entering Iraq, power will be one of the major challenges TASC could face. Figures for power availability vary by region and by time of year, ranging from zero grid to 16-18 hours in Kurdistan in summer.
The vast majority of sites are reliant on two diesel generators. Hybrid solutions are yet to have any large scale trials in the country, and whilst fuel is not expensive by a global comparison, the costly and difficult logistics associated with fuel delivery and generator maintenance means that a switch to hybrid solutions is attractive.
What does this mean for MENA?
Operators across the MENA region are looking to monetise their towers, but are battling with the lack of an existing towerco market and an uncertain regulatory environment.
TowerXchange data points towards 85% of the regions 274,469 towers still being owned by operators. This compares to 42% in CALA, 47% in APAC (excluding China) 48% in Europe, and 60% in Sub-Saharan Africa.
As more details emerge on the Zain/TASC transactions and other towerco/operator deals close in the coming months, a framework for towerco development in the middle east could develop in a relatively short period.
Zain’s revelation that it has plans to sell its towers in five markets (including Kuwait where it is finalising the transfer of its last sites to IHS Towers) would be the culmination of a process stretching back many years.
Zain would be left with towers only in Sudan, where international sanctions and local political difficulties make a sale difficult. Monetisation of their towers would give Zain an advantage over its competitors in the region, releasing capital and enabling a focus on its digital services division.
The unique telecom tower industry of the middle east is finally taking shape. Zain’s deal with IHS Towers helped to open up the region as a new telecom tower market, but Zain’s deals with TASC and PIF reveal a lot about how the industry will work in the region.
In Saudi Arabia Zain was unable to attain regulatory consent for a deal with IHS Towers, but has been able to find a willing buyer in the government’s Public Investment Fund. TowerXchange understands that those towers will ultimately end up under the control of TAWAL, stc’s towerco in Saudi Arabia.
In moving to TAWAL those sites will enable Saudi Arabia to create the base for a regional (or global) towerco. The region has recognised the value of the model. Now it is a matter of time until the model is more widely disseminated.
Zain is also recognising the value of its towers, and other operators are too. Zain has maintained a minority stake in the Kuwaiti towerco which bears the IHS Towers name. IHS maintain control, but Zain’s partial ownership could point to how other operators go about their tower business.
TowerXchange understands that a similar partnership model will be deployed for its three markets with TASC. Zain will not be ceding full ownership of its towers, rather, it will be creating a new business interest which should only grow in value.
Towercos that hope for straightforward sale and leaseback transactions and simple build-to-suit markets will miss out on opportunities in MENA. As Iyad Mazhar, Founder and Director at TASC said at TowerXchange Meetup MENA 2021: investors and towercos in MENA have to respect the interests of local regulators, the existing operators and local development plans.
Governments across MENA are investing in digital infrastructure and towercos can be part of that; but they must learn to adapt to seize these opportunities.
For more information on TowerXchange Meetup MENA please contact me at jack.haddon@towerxchange.com
