One of MENA’s hottest markets just got hotter

With an estimated 36,187 towers serving four MNOs with 189mn subscribers, the Pakistan tower market has plenty of room for growth. It has been estimated that 30-40,000 additional towers will be required over the next five years, so it is little wonder that TAWAL has sought out its first foothold outside Saudi Arabia here. MNOs are also increasingly working with towercos and a regulator in the Pakistan Telecommunication Authority (PTA) that is working to create a regulatory environment that encourages shared infrastructure. Pakistan is set to be among one of the markets with the most growth potential in 2022. Ahead of our Pakistan panel at TowerXchange Meetup MENA 2022, we dive into the current state of the MNO and towerco landscape, and explore where the growth is coming from and why.

 

To learn more about Pakistan join TowerXchange Meetup MENA on March 29-30 in Dubai. Click here to learn more. 

On February 9,  2022 TAWAL announced plans to acquire AWAL Telecom from its owners Progressive Technologies Investments. TAWAL is the stc owned towerco carve-out based in Saudi Arabia. It owns 15,500 telecom towers there and its domestic focus has been on supporting Saudi Arabia’s digital transformation plans in line with the Saudi Vision 2030 by rolling out smart-city-ready technologies such as camouflage telecom towers, smart poles capable of supporting 5G and IoT devices, in-building solutions (IBS), and small cells. Its acquisition in Pakistan is its first foray out of Saudi Arabia. 

 

TAWAL has agreed in principle on a full acquisition of Pakistani tower company AWAL Telecom from its shareholders. The acquisition will see TAWAL bring significant capital investment, processes, and expertise to the market and introduce innovative products to its portfolio. The deal is subject to approval by the Pakistani Telecommunication Authority. 

 

Mohammed Alhakbani, Chief Executive Officer, TAWAL said “Pakistan is an exciting market with high growth potential, and TAWAL is looking forward to extending our digital transformation and ICT infrastructure development capabilities to the country. The country is witnessing growing mobile service penetration, which is creating infrastructural demand that TAWAL is ideally placed to address. We are excited about adding the AWAL team to our international operations under the TAWAL umbrella and laying the groundwork for further global expansion.”

 

TowerXchange interviewed AWAL Telecom’s CEO in 2019, when it had built 45 telecom towers in the north west of the country. The towerco was planning for 20% year-on-year growth when the pandemic hit and suffered from the drawback in build-to-suit which followed. AWAL covers North and South Waziristan, Orakzai Agency, parts of the Khyber and Mohmand Agencies, Frontier Region Dera Ismail Khan, Frontier Region Bannu, Frontier Region Tank, and Frontier Region Hangu. At the time, AWAL worked with three of Pakistan’s four MNOs and entered 2020 with a tenancy ratio of around 2.0x.

 

More than just adding 45 Pakistani sites to TAWAL’s portfolio, AWAL is a beachhead for TAWAL to enter Pakistan and engage in its towerco market. There are opportunities for 1,000s of build-to-suit sites each year, and the opportunity to acquire sites from mobile operators (or to consolidate one or more of the country’s three other towercos). 

 

MNO landscape

 

Source: PTA Telecom Indicators December 2021

 

With a relatively low mobile penetration rate of 85% and a data penetration rate of just 49%, there is significant opportunity for long-term growth in the market from an operator perspective. Pakistan has four mobile network operators. Market leaders Jazz were formed through the acquisition of Warid by VEON’s Mobilink and have captured 38.46% of the market. 

Jazz have carved out 10,500 towers into a vehicle called Deodar and have been involved in a sales process for some years. edotco, Enfrashare, and IHS Towers have all been linked to the deal at some point. TAWAL may have just become the favourites to acquire them.

 

Evidence suggests that the latest saga of the sale could be the final one, as it is expected that non-binding offers will be submitted by the end of Q122. Parent company VEON announced plans to crystallise the value of its tower assets and has already closed the sale of its Russian towers (read TowerXchange’s analysis of the deal) with Pakistan and Bangladesh tipped to be the next markets where deals will be done.

 

Jazz is continuing to expand their network alongside the other operators, (the Pakistani market has continued to add around 2,000 towers a year in recent times) and are doing so predominantly through towercos.

 

Behind Jazz in terms of market share are Norwegian outfit Telenor. Telenor are also interested in selling towers in Pakistan, yet no formal process is underway. In Europe the operator has carved out towers into a towerco (Telenor Tower Holdings), but to date their Asian towers have been excluded from any such activity. Telenor also has extensive experience in working with towercos in a developing market context from its years of operations in Myanmar (an investment they are now looking to exit).

 

Telenor is a keen advocate of all forms of network sharing in Pakistan (potentially influenced by the high levels of sharing in its Nordic homeland); towers (sharing primarily with Jazz), fibre (sharing with Zong), and has taken a lead role in exploring active infrastructure sharing. Telenor and Zong undertook Pakistan’s first RANsharing trials across around 30 sites. The Norwegian-owned MNO has also shared in-building solutions (IBS), both under the multi-operator ran (MORAN) model where spectrum is not shared.

 

Ufone has been exploring the potential sale and leaseback of their towers in Pakistan for some time. The process was stalled by the de facto merger of PTCL and Ufone, and associated management changes, but Ufone's sites could yet come to market.

 

Rather than work with a towerco, Zong recently signed a 7,000 site management contract with i-eng which will ensure a major role for i-eng in Pakistan for years to come

 

 

edotco, Enfrashare and Associated Technologies Limited (ATL) are currently the country’s three major towercos, but TAWAL’s entrance promises to shake this up. The towerco sector is already well developed with most new site build is taking place through these towercos. TowerXchange estimate the prevailing tenancy ratio (the average number of tenants across all towers in the country) to be around 1.25x in Pakistan, so increasing co-locations is an obvious opportunity.

edotco, Enfrashare and Associated Technologies Limited (ATL) are currently the country’s three major towercos, but TAWAL’s entrance promises to shake this up. The towerco sector is already well developed with most new site build is taking place through these towercos. TowerXchange estimate the prevailing tenancy ratio (the average number of tenants across all towers in the country) to be around 1.25x in Pakistan, so increasing co-locations is an obvious opportunity.

 

Of the 10,000 co-locations that already exist in the country, most originate from barter arrangements, with some application of commercial lease rates, but more often offset against one another so no cash changes hands. These agreements will continue to be converted to commercial leases as towercos continue to become more prevalent.

 

Operators in the country have structured network rollout plans, so towercos need to secure locations in commercially attractive locations to increase their tenancies.

 

While there has been extensive infrastructure sharing between operators, significant parallel infrastructure exists, especially in urban areas, implying that decommissioning is likely to be a key part of towerco strategy in the future.

 

Axiata-led edotco has been present in Pakistan since 2017, when they acquired local tower company TowerShare. At the time, TowerShare owned approximately 700 sites in Pakistan, but in the years since edotco have grown their footprint to 1,742 towers and 2,298 tenancies, for a tenancy ratio of 1.32.

 

Market leader Engro Enfrashare was founded in 2018, and is a subsidiary of national conglomerate Engro Corporation. Enfrashare has over 1,800 operational sites with a current tenant base of 1,963 and has framework agreements in place with all four MNOs in the country.

 

Associated Technologies Private Limited (ATL) is an infrastructure development company which has been active for over 30 years. Traditionally, they have built, supplied and installed towers across the country from their base and factory in Lahore. Since beginning operations, it is estimated that ATL have installed over 14,000 of the country’s towers. Recently the company has moved into managing and operating towers for their MNO clients. Currently they own around 300 towers.

 

Another small towerco called Helium Towers has been established and TowerXchange has learned it owns and manages a portfolio of 150 sites.  

 

AWAL were a local towerco set up in 2014 which specialises in rural and tribal areas which managed 45 towers in the country. AWAL is the first towerco to be acquired by TAWAL in Pakistan but it may not be the last. 

Tower operators in Pakistan cite power as the number one operational challenge in the market, followed by security and landlord issues.

 

Towercos in the country must offer a full tower+power service because Pakistan’s electricity grid is unstable, and outages can last eight or more hours. The situation has improved notably in recent years and backup diesel genset runtime is being reduced at sites on the country’s better grid connections, with diesel generators increasingly being removed from such sites.

 

2022 has brought with it a significant increase in energy prices across the country, which is causing significant problems in terms of profitability for towercos and increasing costs for operators. As a result, increased use of solar solutions is expected in 2022, with operators and towercos alike setting ambitious targets to scale the number of sites that have solar capabilities.

 

Shared solar farms are also being considered that could power sites within its vicinity that are lacking on space for their own dedicated solar solution. As ever, one of the main challenges of solar solutions is its storage, and upgrading batteries to lithium-ion, as well as monitoring technology that can optimise their charging, is a near-universal focus area.

 

TAWAL has built up its expertise in managing off-grid sites, as well as battery and solar hybridised sites in Saudi Arabia. The towerco has also built its own site monitoring system as well as working with data management experts within the industry, so the Saudi incomer will hope to transfer this expertise to a new market to capitalise on these investments.

Pakistani MNOs have also begun to work with ESCOs, with numerous proof of concepts taking place or concluded and one ESCO-light deal signed. Energy-service companies (ESCO) for telecoms take ownership of a sites energy assets and offer guaranteed power for a fixed or variable monthly fee. In Africa and parts of LATAM and Asia the model has served to enable MNOs to divest themselves of a major operational headache while retaining ownership of their towers and decarbonising their operations. 

 

In some markets tower sales are not possible due to regulatory barriers and in some developing markets, network location is still seen as a differentiator. It is this context that has seen interest in ESCOs rise in prominence in Pakistan where ESCOs are able to manage isolated sites with otherwise high opex. Engro’s energy partner REON Energy has completed a successful 20 site ESCO pilot with Zong, improving availability from 91% to 97.5% in six months. Zong are now doing a 100 site RFQ.

 

REON Energy and Telenor are also exploring the ESCO model. The Engro subsidiary and MNO have signed a long-term lease for a complete power pack at sites, including solar, battery and complete power solution swap which is different to a traditional ESCO model, but is a step forward in establishing the model.  

How the entrance of TAWAL will impact this nascent trend remains to be seen, but with nearly 40,000 towers in the market and 5%+ growth each year, there is likely space for both models to thrive. 

 

 

Pakistan is a growing market, and the PTA has just created an advisory committee to prepare for the auction of 5G spectrum, promising even further growth opportunities. The government is aiming to complete the auction of 5G frequencies by January 2023 at the latest. 4G overlay is still ongoing in many areas, and there is significant investment required to expand the network into new areas and to densify. 

 

TowerXchange will be discussing all these issues and more at TowerXchange Meetup MENA on March 30th 2022 in our panel discussion “Pakistan: to what degree will towercos and ESCOs take over?” Already confirmed to take part are Sajid Mahmood, Director, Associated Technologies Pty, Fawad Haider, VP, Head of Mergers, Acquisitions and Strategic Projects, Jazz, Moqeem Ul Haque, Group Chief Strategy and Transformation Officer, PTCL, Mubeen Hassan, Head of Network Rollout, Telenor Pakistan and TAWAL are the event’s Diamond Sponsor. I hope if you are interested in learning more you will join us in Dubai. Click here to learn more.