Hot on the heels of an announcement that their Saudi Arabia towers were being sold to the Saudi Arabian Public Investment Fund (PIF), multi-country operator Zain have disclosed that further tower sales are on the cards in Iraq, Bahrain and Jordan.
While reporting their Q3 results to investors Zain point towards receiving a US$807m non-binding offer from PIF. You can read all about that deal here.
Other key events highlighted in the towerco section include a tower transaction close to finalisation in Jordan, that is expected to complete in Q4 2021, and a tower transaction in Iraq that is in process and expected in Q2 2022. Later in the presentation, Zain also reveal that a tower deal with TASC is also close to finalisation in Bahrain.
Zain are estimated to own 4,551 towers in Iraq, 2,500 towers in Jordan, and around 500 in Bahrain, but it is not immediately clear if TASC will inherit their entire portfolio in these markets.
Zain’s announcements come after a sale of 1,620 towers in Kuwait to IHS Towers for US$130m in February 2020 and the planned PIF tower sale in Saudi Arabia – where the portfolio was valued at US$807m for 8,069 towers.
The project to monetise towers is being led by Zain’s Chief Strategy Officer Kamil Hilali who oversaw these deals.
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. In anticipation of this, TowerXchange has broken down the market dynamics in the three countries Zain and TASC will be doing business.
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.
Tower ownership in Iraq
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. While 4G licences have been awarded 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.
Tower ownership in Jordan
Jordan is the only of the three markets where TASC already has towers. There are three MNOs in Jordan; Orange, Zain and Umniah (owned by Batelco) which have a roughly similar mobile market share and as such, the market is highly competitive.
There are just over 7,000 towers in the country, roughly split between the three MNOs with TASC owning a modest portfolio of sites.
However, TASC would become the largest tower owner in the country if they inherit all of Zain’s 2,500 sites.
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.
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. High opex has led to a consensus that infrastructure sharing in Jordan could be on the rise sooner rather than later. TASC’s acquisition looks like it might be the next step in this direction.
What does this mean for MENA?
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 buying 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 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.
TowerXchange Meetup MENA is taking place in Dubai on 28-29 March 2022. Visit https://meetup.towerxchange.com/mena for more information.
