At TowerXchange Meetup MENA 2024 we heard from the CXOs of the region’s leading towercos TASC Towers, TAWAL, IHS Towers, Helios Towers, LATIS and Engro Enfrashare about how the region’s now vibrant tower ecosystem is evolving.
MENA towercos reach new heights
Spurred by a recent wave of M&A including the latest Ooredoo-Zain merger with TASC Towers, Towerco penetration has grown massively, but with plenty more room for growth. “The more the merrier”, according to one speaker, as the MENA tower industry sees a very natural progression. Whether this is independent, quasi-independent or operator-owned towercos speakers agreed that there is clear economic value and synergies for towerco presence across the region.
It’s also become apparent that the towerco model or infrastructure sharing and management has become cemented in the minds of operators in the region, with all MNOs apparently now at some stage of evaluating their passive infrastructure strategy, at least at board level. The next question will be how they will decide to bring their towers to market; whether they’re retaining value through a carve-out or sale leaseback, either to an independent or operator-owned towerco.
The structure of a sale leaseback might also vary between 100% cash or retaining minority stakes (known as schmuck equity) that could be anywhere from 10-40%, with a long-term view of being bought out over time, as Airtel and Vodacom did in Africa. This may also come with board level representation, which can be a double-edged sword for towercos. MNO board presence can help open doors and streamline customer relationships but might impact a towercos ability to position itself as a neutral entity.
The merger between two multinational MNOs Zain and Ooredoo to pull their tower assets into a single entity TASC Towers brings a new tower model to the region. A towerco joint venture between two operators is largely unheard of, outside some unique examples such as China Tower Corporation, but TASC has proven that you can bring ‘competing’ operators to the table and “make it work”.
Perhaps this alludes to a future opportunity for active sharing (subject to regulation) and, if both MNOs are active in the same market, further adjacent synergies as well. TASC may become an example that proves competing operators can work together and create shared value from their passive infrastructure.
Other towercos largely welcomed the creation of TASC Towers, bringing the tower model into new markets and creating healthy competition in existing ones. It also didn’t shake their strategic directions, with speakers showing continued commitment to focus on their customers and growing their presence in the region.
MENA has seen a wave of M&A activity, which has helped drive towercos to new frontiers, but has also led to dampening existing tenancy ratios having acquired mostly single-tenant sites, a recognition that the industry is still in the early stages of its evolution. The next stage of MENA towers will see a greater focus on upgrading existing sites for co-locations and building relationships with MNOs to expand tenancy ratios.
Will further towerco growth be driven by independents or carve-outs?
The TASC-Ooredoo acquisition unsurprisingly spurned a question as to whether further towerco growth will be driven by sale leasebacks or further carve-outs. The proportion of towers owned by true independents is shrinking, and speakers questioned the role of independent towercos in this space. The answer will become clearer as MNOs continue to explore their passive infrastructure options, especially now that TASC Towers has entered so many new markets.
This discussion caused some deviation in thought between the independent and operator-owned towercos on stage. There are some advantages to having an MNO shareholder; creating deep customer relationships, actively investing operators in the success of the towerco, and opening doors to government and regulator engagement to drive further value creation.
One speaker suggested that the idea of an ‘independent’ towerco is fading away as they sign MSAs with competing towercos and take over their rollout plans, with the culture of infrastructure sharing becoming mainstream regardless of whether the towerco is operator or independently owned.
A big value discrepancy has emerged between the valuations of operators and towercos; as an MNO Ooredoo is trading at 5x, but its holding under TASC Towers is expected to be much higher, showing a clear arbitrage over the last decade. MENA MNOs continue to demonstrate solid financial performance, with strong revenue growth driven by attractive macro conditions in certain markets.
Many are also state-owned, so tower sales for the purpose of freeing up capital is less of a priority. Speakers discussed how MNOs will likely seek to keep retaining stakes in any towerco deals for the purpose of value creation. However, this may be impacted by an operator-owned towercos ability to growth organic tenants.
This will also become a good indicator as to whether operator-owned towercos are able to prove their neutrality; whether they can tenant new customers or find themselves limited to shareholding operators. This may also hint at the mindset of competing MNOs who have not yet sold their tower; whether they see a towerco like TASC a neutral partner to divest their towers to or look to put out a competitor tender. But all speakers unanimously agreed that creating a culture of co-location is in the interests of everyone.
Saudi Arabia’s tower ecosystem reaches maturity
At Meetup MENA 2023 we heard for the first time from the region’s newest towerco LATIS, which became the first independently owned towerco in Saudi Arabia, 80% owned by PIF. Having taken over Zain’s portfolio, the towerco is working on structural upgrades and preparation as well as already delivering on an aggressive build-to-suit pipeline with 400 new sites deployed so far.
The government’s ambitious Vision 2030 strategic direction to diversify and modernise the kingdom’s economy sees digital infrastructure as a core component to achieving this, with towercos having a major role to play in supporting the various smart city and megaproject developments. One speaker described the market as a “workshop” for what the tower model could be.
LATIS and TAWAL are both also seeing significant uptake in smart connectivity solutions too, with street furniture including smart cells and small cells as well as inbuilding solutions (IBS) as low latency networks fail to penetrate through buildings.
Towercos are also becoming a partner of choice, not just for operators but other types of customers as well; building developers, megaprojects and even private enterprises. The cultural shift in how operators view their assets is still a work in progress, but it is changing, and we can expect to see a similar trend emerge in adjacent services as well in the future.
The kingdom is also set for an uptake in new site rollouts, with LATIS expecting to deliver 1,000 build-to-suit this year and new sites which were expected to be built over 10 years being reduced to just 3. Overall, towercos are expecting to see a strong focus on organic growth. 5G is a major contributing factor, with increasing data speeds and national coverage requirements driving demand to densify networks.
At some point consolidation is going to kick in, especially given the amount of network overlap. But until 4G and 5G coverage really matures there will continue to be demand for new builds driven by aggressive government 5G KPIs. 5G penetration on around 80% of sites means significantly more equipment and space is needed on each tower, impacting both the tower load as well as power consumption.
In Pakistan “assets are always for sale”
Another market that gained attention on the panel was Pakistan, for both its enormous opportunities and risks that it offers for the tower industry. Pakistan has seen deals come on and off the market, subject to shifting macro conditions. The independent towerco model is mature, having been around for 10 years, and found success in building organically at scale as Pakistan. This trend will continue long into the future as the country has a 14,000-tower infrastructure gap just to meet its basic coverage needs.
While the fundamental demand for towercos and towerco services is there, economic problems have always halted any M&A activity. But the recent PTCL acquisition of Telenor shows that deals can materialise quickly, Pakistan needs to use its capital efficiently. MNO consolidation is also expected to help lift ARPUs and ease price squeezes due to competitive pressures, creating opportunities for network efficiencies
While there has been no major sale leaseback, Pakistan’s MNOs are engaged in repeat sales of small numbers of towers; Engro Enfrashare bought 150 towers last year, and this drip-fed approach may be the most effective method to transfer towers from operators to towercos. Pakistan’s organic market is facilitated by the ongoing focus on 4G networks, which suits the BTS model well.
Despite huge opportunity for growth, rocky macroeconomic conditions continue to keep potential investors at bay. ‘Normal’ private equity funds lack the risk appetite, so Pakistan needs the backing of more strategic investors such as sovereign wealth funds and development finance institutions who are more open to facing challenges markets to reap the high developmental impacts of their investments.
Inflation is a major factor of this risk and is constantly bringing parties back to the table to renegotiate contracts. Towercos are focused on educating their MNO customers about indexation and the importance of access to US$ to allow new towers to be rolled out. It’s vital for towercos to have clear, well-maintained escalators for the model to work. MNOs understand how this system works and will push on costs, so towercos need to know where to “hold the line”; not conceding too much and risk falling beneath investment thresholds.
Sovereign wealth funds dominate, but private capital is finding a role to play
Despite markets risks and instabilities in some countries, there is big demand to bring fresh capital into telecoms infrastructure, and from a surprisingly diverse cast of investors, both private equity and infrastructure finance, as well as long-term, efficient capital from sovereigns. Sovereign funds do take a slightly different view on market risk, prioriting strategic development over short-term economic conditions.
Foreign investment, particularly from developed markets, takes a slightly different approach, which carefully analyses where this capital is invested and what it’s expected to do. Where sovereign wealth funds dominate there is going to be a limited role for private capital to play outside minority stakes to bring in a particular expertise or angle.
This may change as the market grows and a more diverse array of players become active in the region, creating opportunities for investors from different background and with different perspectives to find avenues for their capital. But it was mutually agreed that the region will mostly see private capital from global players, mixed with local private capital from smaller investors alongside sovereign wealth funds.
