On 1st June 2022 IHS Towers announced it has completed the acquisition of MTN South Africa’s 5,701 tower portfolio for a total of $413 million including providing Power-as-a-Service to all 13,000 sites where MTN South Africa is a tenant. The sale-and-leaseback makes IHS Towers the largest towerco in South Africa and a key player in both power provision and 5G digital transition for the telecom sector.
The deal
IHS Towers has completed its acquisition of MTN South Africa’s 5,701 tower portfolio. This unique deal also includes a power-as-a-service arrangement for MTN’s tenancies on its own sites as well as those on sites owned by Vodacom, SBA South Africa, American Tower, or any other tower lessor in South Africa, totalling approximately 13,000 sites.
The deal is valued at ZAR 6.4bn (US$413mn), equating to around US$72,500 per tower, with assets expected to generate revenues of US$192mn and adjusted EBITDA of US$85mn in its first year of operations alone. Due to the BBBEE (Broad-based Black Economic Empowerment) integration programme which was launched by the South African government to address the country’s historic racial inequalities, IHS Tower will own 70% of the portfolio while the remaining 30% will be owned by a South African consortium with B-BBEE accreditation.
Competition for the portfolio was competitive with MTN receiving over 20 expressions of interest for its tower infrastructure, but in November 2021 IHS Towers announced that it had signed the agreement. In an interview with TowerXchange at the time San Darwish, IHS Towers Chairman and CEO, stated that it was “a combination of commercial value and technical expertise, especially around power management” that allowed them to ultimately win the bid.
The deal brings IHS Towers’ operations up to ten emerging markets, six of which are in Africa, and maintaining its position as the largest independent towerco on the continent with over 30,000 sites. Commenting on the deal recently, Sam Darwish said that “the closure of this acquisition is an important milestone for IHS’s growth story. IHS was founded in Africa and the region continues to be a key anchor for our company. Through this transaction, IHS has now entered the most industrialized economy in Africa as South Africa’s largest independent tower operator. MTN Group have been a long-term partner of IHS, and I am delighted that we will expand that collaboration and facilitate mobile connectivity in South Africa. We will leverage our deep operational excellence and engineering expertise, honed across our other African markets, to meet South Africa’s increasingly sophisticated data demands and expedite the roll-out of new technologies.”
Ralph Mupita, MTN Group President and CEO, commented “With the regulatory approvals and all conditions precedent to the deal finalized, we are pleased to have IHS bring global capabilities to our South Africa network. Additionally, with this deal, we continue to deliver on our Asset Realization Programme, strengthening the balance sheet and improving returns”.
For MTN the sale deal is the latest of a series of asset sales as part of their Asset-Realisation process which the group has been running for over two years, with tower-related sales forming the bulk of their capital raised from selling non-core assets. Other deals include selling their 49% stakes in ATC Uganda and ATC Ghana to American Tower in 2020, shares in Belgacom International Carrier Services and e-commerce firm Jumia, as well as their 29% stake in IHS Towers’ being one of the key driving players behind their IPO in October 2021.
“Over the years, MTN SA has built and maintained the best network in the country, and we believe that in IHS, we have found a partner with the necessary experience and expertise to maintain and enhance this critical part of the business. This international partnership also brings foreign investment into the market to create greater competition” added Charles Molapisi, MTN South Africa’s CEO.
Who are IHS Towers
IHS Towers began its life in 2001 as a small Nigerian engineering firm initially building and then maintaining towers for MNOs, expanding to providing maintenance and eventually offering co-location services in 2009. Over 20 years since it was founded it has become one of the world’s largest emerging markets-focused telecom infrastructure firms and is listed on the NYSE. Their journey started with an acquisition of 800 towers in Nigeria from Visafone in 2010, expanding to a pan-African presence with entrances into Cameroon and Cote d’Ivorie in 2012. From there IHS Towers expanded its presence throughout Africa with acquisitions in Zambia and Rwanda in 2014 as well as further growing their portfolio in Nigeria. The result is a portfolio weighted towards Nigeria and three of Africa’s leading MNOs: Orange, MTN, and Airtel.
In 2020 IHS Towers elevated itself onto the global stage with market entrances in Kuwait through a sale and leaseback agreement with Zain involving 1,162 towers, and taking ownership of 2,312 towers in Brazil, Colombia, and Peru through the acquisition of Cell Site Solutions. From beginning as a tower builder in Nigeria, IHS Towers has grown to be the word’s fourth largest multi-market independent towerco, with nearly 39,000 towers, a tenancy ratio of 1.56x and a deal history spanning 18 major transactions in three regions and nine countries.
The sale of MTN South Africa’s portfolio is the latest of a long string of sales that has brought the two corporations into a close partnership with one another and throughout IHS Towers’ journey MTN has been a central partner. IHS Towers expanded into multiple African markets by acquiring MTN sites; in 2012 they acquired 820 sites in Cameroon and 911 in Cote d’Ivorie followed by 748 sites in Zambia, 550 sites in Rwanda and then gaining significant scale through a deal acquiring 8,850 sites in Nigeria in 2014. At present, IHS Towers services MTN on around 17,600 of their original sites, with many more built since.
What this means for South Africa
TowerXchange estimates there are 26,310 towers in South Africa with a subscriber count of 96 million and a SIM penetration rate of 161%, making it one of Africa's best covered markets. South Africa is served by four MNOs and 5G fixed-wireless operator Rain. In the year ending December 2021 Vodacom had a 42% market share, MTN held 31%, Cell C 12% and Telkom 15%, with the remainder held by MVNOs. In 2010 American Tower acquired 1,400 sites from Cell C for US$200mn, kicking off South Africa’s telecom tower industry. Since then a long tail of smaller towercos have formed serving the mobile operators; few of those smaller towercos reached scale, and those that did have since been acquired; SA Towers and Eagle Towers by Helios Towers since 2019, Blue Sky Towers by American Tower in early 2021, and 94% of Atlas Towers by its silent partners SBA Communications in 2019.
Vodacom is now expected to form a carve-out towerco in South Africa, akin to Vantage Towers, having already developed a moderately successful commercial towerco-lite business model in-house, including a platform on which other frequency holders can view available space on Vodacom sites, but without formally carving out its towers. Telkom has also carved out their real estate and tower business into a separate unit, Gyro Group, to better commercialise its 6,200 towers. Given the extent of parallel infrastructure Gyro Group’s total has been shrinking even as it has been building new sites in new locations. After spending some years correcting leases and auditing their structures Gyro is now in a position to monetise their towers or seek a strategic partner; no decisions have yet been made.
With the IHS-MTN sale and leaseback, IHS Towers has now become the second largest tower owner in South Africa behind Vodacom. The arrival of HIS Towers has created a unique situation in South Africa where for the first time all four major African towercos are active in the same market; Helios Towers with 253 sites, IHS Towers with 5,701 sites, SBA South Africa with 1,350 sites and American Tower with 2,923 sites. There is also a long tail of up to 25 middle-market (and mom-and-pop) towercos active. With the likely re-entrance of Atlas Tower next year too the South African telecom tower market has never been more competitive.
PaaS innovation
A core part of the IHS Towers-MTN sale and leaseback is the pan-network PaaS deal in which IHS will provide power to all 13,000 sites MTN is co-located on, forming a towerco-ESCO hybrid model. IHS, as with other towercos operating in the African market, is used to providing PaaS to its customers but has traditionally provided power for tenants on sites which it owns. Now, IHS will provide power not only to the newly acquires sites but also to sites owned by other entities where MTN is a tenant.
South Africa possesses one of the most expansive electricity grids in Africa, with MTN reporting all but 53 of its sites being on-grid. However, grid quality in the country has been in decline and subject to rolling blackouts due to the failures of state-owned monopoly ESKOM, a particular challenge for the telecom sector which has not invested in substantial back-up options unlike in other African markets where many sites remain off-grid. This problem has been compounded by rampant battery theft which has prompted a consortium of operators including MTN, Vodacom, Telkom, Cell C and Liquid Intelligent Technologies as well as ICASA to form the Communication Risk Information Centre (COMRiC) in response. Unlike their sub-Saharan African counterparts, South Africa’s towercos tend to operate a steel and grass model more akin to the developed markets of Europe and the U.S. with power managed as a pass through. IHS Towers is taking on a particular challenge in becoming the first towerco to offer PaaS at scale.
MTN has insisted that any sale and leaseback must include a pan-network ESCO agreement to mitigate these challenges which explains why IHS Towers, with their power management expertise and years of experience operating in challenging markets alongside MTN, was a prime choice as a buyer. Talking to TowerXchange late last year, IHS Towers Chairman and CEO Sam Darwish highlighted that they will be increasing their investments in renewable power to make their PaaS business model inherently sustainable and reduce reliance on diesel generators. 45% of their African sites have already been hybridised using a combination of diesel generators with solar and/or battery systems, something which is key to both firms' ambitious ESG goals as IHS Towers and MTN have committed to achieve net zero emissions. IHS Towers have also developed rigorous anti-theft solutions including systems monitoring diesel flow, access control policies, remote monitoring systems, and “state of the art” Network Operating Centres to track site access.
In addition to theft and ESG goals, two other challenges exist for IHS in providing PaaS services in South Africa. The first is around access and space, as on IHS Tower-owned sites they control access and how the tower compound is used. However, most site power managed by IHS Towers will be at sites where they need to negotiate access and pay for space for their energy equipment. MTN have equipment on towers owned by other MNOs and other towercos, which raises questions about how easy it will be to access these sites to manage and maintain their equipment. What rates will IHS Towers be charged if they want space to install solar panels, enlarge battery banks or install hardened sites to deal with theft?
The second challenge is more economic; in Zambia, IHS Towers is managing off grid and bad grid sites where the energy assets it owns are in near constant use, drawing on grid power where possible, cycling solar, batteries and gensets to maximise the value of the energy equipment on site. In South Africa, sites may be able to rely on grid power for large portions of the year, but still require back-up power which can support the sites for over 4 hours several times a year. To reach a typical SLA in advance of 99.5% it may be necessary to invest in on-site batteries which are rarely used. Nobody likes to own assets which are left unused, but nobody likes spotty signal either. Finding the right balance will be essential for making this strategy work.
Digital infrastructure opportunities
South Africa has one of the most advanced telecom infrastructure sectors on the continent with a well-developed mobile sector, partly due to the poor availability and service of fixed-line networks which has made mobile networks a popular alternative. The recent focus has been on backhaul capacity, fibre and LTE network to improve internet service connectivity; Telkom expects to close its outdated copper network in 2024. Since 2016, 3G population coverage has been above 99%, and 4G coverage reached 97.7% in 2021 (Statistia, 2022). 5G remains in its infancy in Africa but is expected to grow in South Africa especially.
After a delayed multi-spectrum auction held in March due to legal wrangling, ICASA finally completed its auction for 5G spectrum, generating nearly US$1bn to support the country’s investments in upgrading digital infrastructure and paving the way for a digital economy. At the centre of this strategy are the MNOs, who have made considerable investments into improving their network capability. MTN, alongside Telkom, gained a spectrum in 800 MHz and has set an ambitious target of providing 25% national 5G population coverage by the end of 2022.
However, the launch of 5G is threatened by South Africa’s deteriorating power and it is here that IHS Towers may be able to make a real difference to the lives of millions and the economic prospects of South Africa. Taking on the responsibility of providing power to MTN’s extensive tower network which is being equipped with more energy-consuming 5G equipment will be a significant challenge where renewable energy solutions, particularly the use of batteries which are prone to theft, may create vulnerabilities. Despite this, MTN’s 5G rollout plans offer a multitude of opportunities for IHS Towers to expand its portfolio and extent of services, not only in South Africa but globally. The growth of on-site power demands will create a perfect opportunity for IHS Towers to expand its PaaS model operations from the least developed countries to middle-income countries where increased power challenges are opening up new opportunities. Furthermore, 5G rollout will require significant network densification creating opportunities to expand Build-to-Suit programmes in both macro towers and especially small cells.
TowerXchange will be hosting TowerXchange Meetup Africa on October 11-12 in Johannesburg, South Africa. Please contact Chris Greaves for more information at christopher.greaves@towerxchange.com
