New TASC: everything you need to know

Last week TASC Towers, Kuwaiti-based Zain Group and Qatar-based Ooredoo announced the creation of the largest tower company in MENA by merging most of Ooredoo’s tower portfolio with TASC Towers, who currently own and operate Zain’s towers in MENA.

The new tower entity, which has been named as ‘New TASC’ will become responsible for managing just under 30,000 towers across six MENA markets; Qatar, Algeria, Tunisia, Kuwait, Jordan and Iraq, with an estimated value of US$2.2bn.

Ooredoo and Zain will retain equal shareholdings of 49.3% through an asset and cash equalisation process as Ooredoo’s tower portfolio is much larger than Zain’s. TASC Towers will retain the remaining 1.4% through Digital Infrastructure Assets LLP.

Chairmanship of the new entity will rotate between both principal shareholders, starting with Bader Al-Khafari, Vice Chairman and CEO of Zain Group, and Aziz Aluthman Fakhroo, Board Member and CEO of Ooredoo, as Vice-Chairman.

Ooredoo: A Qatar-based multinational operator, Ooredoo is 68% owned by the Qatari government with a 10% stake from ADIA and 22% owned by outside investors. Ooredoo is one of the oldest and most experienced MNOs in the Gulf, having launched in 1987 in Qatar as Qtel before rebranding in 2013. Ooredoo has experienced significant growth over the last few years, transforming from a single market operator to a multinational with operations in seven countries.

Zain: Kuwait-based multinational MNO Zain is one of the oldest in the region launching operations in 1983. Zain provide services in eight MENA countries; Bahrain Iraq, Jordan, Kuwait, Lebanon, Saudi Arabia, Sudan and South Sudan. It also owns a minority stake in Moroccan MNO Inwi.

Zain pioneered the tower model in MENA, becoming the first operator to sign a sale leaseback in 2019 with IHS Towers in Kuwait, followed by a sale of its Saudi Arabian towers to PIF in 2022. TASC Towers then signed an agreement with Zain to acquire its tower infrastructure in Jordan and Iraq, with plans to for Bahrain, Sudan and South Sudan to follow.

TASC Towers: TASC Towers was founded in 2017 by executives from former towercos, MNOs and engineering companies. TASC signed the first pan-national SLB agreement in MENA to acquire Zain’s tower portfolios in Jordan, Iraq and Bahrain (the last of which has yet to close). The towerco built on an initial small portfolio of towers in Jordan by adding Zain’s 2,607 towers in early 2022, and in December 2022 finalised its deal in Iraq for 5,100 towers.

Diving into the deal: what we know so far

New TASC will become a leading towerco in six markets providing the leasing of antenna and equipment space as well as power back-up. 20 wireless and FWA (fixed wireless access) operators are active across those six markets, illustrating the potential for lease-up on the assets. The towerco entity will also be incorporated in the Netherlands, although it is assumed a large portion of their team will continue to operate from Dubai.

The industry standard capital structure that has been put in place will deliver the sites over a staggered closing of individual markets. Once completed, New TASC will become the 15th largest towerco globally with a 40-42% EBITDAaL.

Following the core tower model, Ooredoo and Zain will both have industry-standard long term anchor lease agreements with Ooredoo’s MLA at 10 + 10 + 5 + 5 renewal intervals for a total of 30 years.

All three partners describe New TASC as an independent towerco, although TowerXchange will be categorising the towerco as ‘operator owned’ in our League Table alongside TAWAL, EDOTCO and Indus Towers due to this ownership structure. However, the independent management team for the towerco will be keeping tenant relationships “at arm's length” to help entice further tenancy partners in local markets.

One area of separation in debt and capital. Ooredoo highlighted that it won’t be consolidated TASC Towers’ debt and the towerco will need to raise its own financing for growth, although it does have the support of its anchor shareholders.

Rene Werner, Chief Strategy Officer at Ooredoo group, described the conditions as a “balanced deal which gives the tower company a solid healthy financial operating margin, while helping our opcos secure further investments into their business”.

New TASC will benefit from operating scale for functional expertise such as new builds, a standardisation of procurement and energy saving initiatives. New TASC would benefit from having financing benefits based on scale and strong anchor tenants, as well as regional operator expertise and regulator relationships.

During Ooredoo’s capital markets day, Rene discussed the various benefits the operator can expect from the merger as well as the favourable conditions of the deal. This includes operational support from a core infrastructure partner with solid SLAs in place and a “strategic site concept” with a clear approach for site delivery.

Rene also highlighted “achiev[ing] for Ooredoo a substantial value crystallisation with above-average transaction multiples plus a relatively high asset valuation per tower”, with a multiple of 13.2x enterprise value to EBITDaL in line with their expectations based on portfolio size. Ooredoo also achieved a value uplift of US$1-1.1bn by unlocking the value of their previously dormant tower assets.

The lease agreements included consumer price inflation in some markets (while these were unnamed it can be assumed markets such as Iraq, Algeria and Tunisia will be included), protections such as only partial flow through of CPI increases, and currency protection from fluctuations as the service rent fees will be paid in local currency.

New TASC has opportunities for growth in existing markets, both organically and through M&A. The merger comes with a commitment of 1,800 build-to-suit over the next 5 years, with a right of first demand for any additional sites that the operators require.

There is also a recognised opportunity for organic expansion through M&A in the markets New TASC will be present in. As a first mover in four markets, TASC finds itself operating in markets with plenty of other MNO portfolios available, particularly Iraq which was highlighted for having “massive consolidation opportunity”.

TASC Towers is also taking over energy management, becoming responsible for grid connections as well as generator ownership and maintenance, although batteries will sit under the MNOs. Operators will be responsible for reconciliation and settlement of grid power costs.

After the merger, New TASC will start with a tenancy ratio of 1.05x, with increasing this figure set as a key development metric to improve efficiency and cost-reduction.

The new towerco will operate in solid macroeconomic environments, especially compared to peers active in Sub-Saharan Africa like Helios Towers and IHS Towers. Significant economic and site growth in expected in all markets the exception of already highly developed Kuwait thanks to very strong 2022 and 2023.

Algeria: TowerXchange estimates there are at least 19,350 towers in Algeria, of which Ooredoo own 5,000. The country has a developed MNO market with 4G rollout still progressing. There have been some half-hearted moves in favour of infrastructure sharing by the regulator, but they have been stop-go. Algeria also maintains a 51% domestic ownership rule which has deterred international towercos investing in its towers. An ownership structure which involves a domestic towerco could ease these concerns and enable the creation of an independent towerco to work with the country’s three MNOs, Djezzy, Mobilis and Ooredoo. Grid is good across the country.

Iraq: TASC Towers is already active in Iraq having acquired 5,100 sites from Zain earlier this year. There are over 17,000 towers in the Iraqi market which is still rebuilding its network and rolling out 4G. Ooredoo’s brand in the market Asiacell has the largest portfolio with 7,500 towers. The combined towerco would own 63% of the market. TASC Towers also has a build-to-suit agreement for 198 sites with Zain meaning most co-location and a significant amount of BTS in the market would flow to the new towerco. There’s significant scope for decommissioning parallel infrastructure in the market. The grid is also poor in many places, suggesting a significant investment will be required by New TASC to upgrade site energy systems.

Jordan: Jordan is one of the oldest towerco markets in the region and where TASC Towers got their start. In 2021 Zain agreed to sell 2,607 towers to TASC Towers, giving it 3,100 or the 8,300 towers in the country. The combination of towercos would do little to change the internal market dynamics, but the larger overall operation and scope for investment could change the game for efficiencies and new energy infrastructure in the country. The additional capital available could also enable the new towerco to compete for build-to-suit for Orange Jordan and Batelco-backed Umniah.

Kuwait: Kuwait is a fascinating market as it was one of the earliest towerco markets in the region, and the first to see a sale-and-leaseback transaction. In 2020 Zain agreed a sale of 1,620 towers to IHS Towers for US$130mn and kicked off the wave of investment the region is now seeing. IHS Towers has been consolidating its position in the market for some time, and no doubt had its eyes on Ooredoo’s 1,200 sites. However, it appears that Kuwait will now enjoy two towercos. IHS Towers has been building towers in the country and is still seeing towers transferred from Zain, so the entrance of a new towerco will change dynamics in the market.

Qatar: Qatar is home to just two mobile operators, Ooredoo and Vodafone and would thus be not a major target for towercos were it not for its huge gas wealth and ambitious domestic construction plans. Ooredoo own 2,900 of the 5,000 towers in the market, and the introduction of a towerco is likely to see tower build for both operators flow to it. The scope for investment in cutting-edge digital infrastructure is also huge. Lease-up may be limited in Qatar so far, but will become a home to next gen connectivity services which New TASC can provide to both MNOs.

Tunisia: In March at TowerXchange Meetup MENA we learned that Tunisie Telecom was planning a carve-out of its 2,850 towers. We estimate that Ooredoo also own roughly 2,850 towers in the market with Orange owning the balance of the 8,000 total towers. There is also a nascent towerco called NATIC present, but which has failed to make significant progress in acquiring or building towers. 15% of sites have swaps and part of the new towerco’s plans will be to convert these to commercial agreements rather than equipment swaps.

The formation of ‘New TASC’ with two multinational operators merging their tower portfolios across multiple markets is unheard of. However, there are similarities between this deal and previous examples around the world where MNOs have merged their passive infrastructure.

Imposingly perched at the top of TowerXchange’s towerco league table sits China Tower Company, operating 2,061,000 towers and just over 2/5th of all towers globally. This behemoth of a towerco has some resemblance to the ‘New TASC’.

China Tower Company was formed in 2014, when China’s state-owned MNOs China Mobile, China Telecom and China Unicom agreed (or were told by the Chinese Communist Party (CCP)) to a merge their combined tower portfolios into a single entity with each MNO retaining a share in the company. Unlike in the case with TASC where Ooredoo and Zain are equalising their shares via a cash payment by Zain, the Chinese MNOs have varying stakes in the towerco.

Source: China Tower Company shareholding structure

The merger also came with a commitment from all MNOs to step away from passive telecom infrastructure in the market and handing over all responsibility for building, operating and maintaining both the tower and backup power infrastructure to CTC. This also extended beyond the macro to indoor systems and enterprise private networks such as transportation corridors and large venues, which followed a year later in 2015.

Analysts initially valued CTC at US$34-36bn, yielding an average tower valuation of just US$22,000, significantly lower than the US$80,000 CTC had been offering to independent tower developers, and well below replacement cost. Many of the acquired sites were over 10 years old with outdated and poorly built sites. However, the major value destroyer was the lack of independence in management of China Tower Company, both from its MNO shareholders and the CCP. CTC company’s 4.1x EBITDA multiple is far below that of best-in-class SBA Communications (currently around 24x), or New TASC at 13.2x.

Despite the structural similarities in having three major MNOs merging their telecom tower businesses to become anchor customers and shareholders of a new towerco, there are also some key differences. Despite China’s enormous size and scale, this all takes place in one single country, helping to streamline the regulatory and policy frameworks to make this happen. Secondly, all this was conducted under the guise of the CCP and ultimately was a merger between state-backed or state-owned companies. China Mobile, China Unicom and China Telecom are all majority state-owned MNOs, while China Reform Holdings Corporation is a state-owned investment holding company.

While Ooredoo is majority-owned by the Qatari government (53.5% held by the Qatar Investment Authority), Zain is a 100% publicly listed company, and both are owned by different sets of private and government investors. There is significant external financial discipline on the firm, and independent management is being affected at New TASC.

Italian towerco INWIT offers another comparator. INWIT was formed in 2015 when TIM, the mobile arm of Telecom Italia, carved out its tower portfolio into a dedicated infrastructure for EURO875.3mn and listed 40% on the Milan Stock Exchange.

In 2019 Vodafone decided to combine its 11,000-tower portfolio with TIM’s INWIT with the two operators agreeing to an active sharing agreement. This led to the creation of a towerco giant with 22,100 sites and Vodacom receiving a EUR2.14bn cash payment as well as a 37.5% stake in INWIT.

Source: INWIT: Currently, Daphne 3 S.p.A. is 90% controlled by Impulse I S.à.r.l. (in turn controlled by Impulse II S.C.A); the remaining 10% is held by TIM S.p.A. Central Tower Holding Company B.V. is indirectly owned by Oak Holdings 1 GmbH (in turn co-controlled by Vodafone GmbH and OAK Consortium GmbH).

Both MNOs had the advantage of minimal network overlap because Vodafone and TIM had operated a co-ordinated network planning programme many years prior to the deal. This also meant most of towers already had Vodafone and TIM as the anchor clients, so the combined entity started with a 1.75x tenancy ratio.

Since the merger INWIT has gone on to further consolidate ownership of its anchor tenant’s infrastructure acquiring Vodafone Italia’s 700 antenna systems in July 2021, and a greenfield pipeline of 10,000 new macro sites and small cells with its right of first refusal from TIM and Vodafone.

One big driver for this merge was to deepen coordination on 5G rollout. Prior to the deal, Vodafone and TIM both spent EUR2.4bn respectively in spectrum auctions and both MNOs had been in talks about collaborating on how to deliver on rollout, both in passive and active equipment as well as spectrum. INWIT currently trades at a multiple of roughly 21x its EBITDA thanks to its high tenancy ratio, strong position in its domestic market and independent management. The difference in valuation with CTC is stark.

Both China Tower Corporation and INWIT are examples of where MNOs had previously collaborated on merging their passive (and indeed active) infrastructure in a single country, but the New TASC deal’s uniqueness is in its multi-country reach. While there are no other examples of this deal structure, we can look at the next-closest idea; Orange’s plan to merge with Vodafone and Deutsche Telekom.

In 2021 Orange has published plans to spin off its tower operations in France and Spain into what is now TOTEM. Like both Ooredoo and Zain, Orange recognised (and still does) the value of these strategic assets and wished to retain control of the tower infrastructure entity.

In a statement by at-the-time CEO Stephane Richard about the carve-out, he had mentioned an interest in either a controlling stake or one shared with another big operator. While not naming anyone in particular, Vodafone’s Vantage Towers and Deutche Telekom’ DMFG were known to be in discussions on a possible “industrial” merger to create a pan-European cross-MNO towerco.

Vodafone also weighed up a merger between the three giants later that year, with the CEO of Vodafone’s recently formed carve-out Vantage Towers indicating an interest to acquire or form a merger with other tower assets in Europe, highlighting TOTEM and Deutsche Telekom’s assets as suitable candidates.

But by December the idea had been abandoned by Orange due to French opposition, as the French state owned 23% of Orange and was wary of losing control, as well as seeing the new company move to London. Talks with regulators were understood to have failed to progress, with regulatory bodies concerned about competition and control issues in their respective markets.

Had a merger gone ahead, Europe would have seen the formation of a towerco with upwards of 115,000 towers across 11 European markets and rivalling Cellnex in scope and scale.

While towercos gain significant benefits from scale by combining cash raising powers, increasing procurement leverage, diversifying risk, consolidating operations centres and sharing key people and resources, there are also downsides from too many cooks over one pot. Ultimately combining the interests of different MNOs is very difficult which is why the independence of towerco management is paramount. New TASC can win if they can present the new majority-operator owned towerco as acting independently.

With the staggered closing process, the first countries are expected to complete in H1 2024, although we do not know which country will be first to close. Total completion is expected in Q2 2025, but it was noted that this is due to regulatory approvals, indicating this has not yet been finalised. It wouldn’t be unreasonable to assume delays here, as Helios Towers found closing their acquisition in Oman. Given Helios Towers was not a first mover unlike TASC Towers in four of its markets, it would come as not surprise if regulators took time to finalise as the regulatory framework is emerging alongside the transaction.

So what’s ready today? Asset transfer and operations are all under stablishment, with the MNOs readying opco operations for the new towerco model. Most of the leg work seems to be in the process including financial separation and closing of accounts, legal entity readiness, staff transfer, data and IT migration, technology transition plans and site portfolio assessment. Only regulatory signoffs remain unfinished, which will be followed by a full handover.