Meetup Africa shone a spotlight on one of Africa’s largest, most dynamic, and more recently most challenging market in Sub-Saharan Africa; South Africa. Two big transactions over the last 2 years brought two big players into the market; IHS Towers acquiring MTN’s portfolio in 2022, and Vodacom South Africa carving out its portfolio into the country’s newest towerco MAST Services in 2023.
It’s all about resiliency
Unsurprisingly, energy tops the priority list for South Africa, a topic traditionally much lower down in the past. The decline of ESKOM and loadshedding has forced the industry to switch gears in an effort to shore up network resilience, with power-as-a-service making a quick arrival to the market. Towercos discussed the challenge of sites which have been
built with permanent, available grid but are now facing up to 12 hours of loadshedding per day. As a result, significant capex is being reallocated from network expansions towards network resilience. Typical SLA contracts in the market expect uptime of 99.8%
They key to ensuring sites meet expected uptime is in predictive intelligence systems to quickly identify weaknesses, vulnerable sites and forecast downtimes, helping prioritise capital to areas it is most needed. Energy equipment is also in high demand, particularly batteries to act as a back-up solution for on-grid sites, as well as solar PV to reduce generator run-time.
Mobile operators are keen for towercos to deploy energy capex in the short term, while towercos worry about the long-term future for this equipment. Both IHS Towers and ATC both provide PaaS in Nigeria on 15-year contracts, but South Africa’s energy crisis may not last that long. If the power problem goes away in the medium-term this doesn’t present a new commercial opportunity for towercos, who might risk sinking huge amounts of investment into a short-term fix.
The spike in loadshedding has led to an increase in theft and vandalism of telecom sites, particularly as demand for energy equipment shoots up. This is, of course, in addition to the already high level of theft South Africa has faced in years before. Access control solutions have also, according to some speakers, been quite limited beyond fencing and physical barriers to entry.
Alongside power, security has become another key avenue of investment for MNOs to ensure network resiliency, presenting an opportunity for towercos, who can capitalise on new revenue streams through power and security.
While network resiliency has come to dominate the strategic decision-making of MNOs and their towerco partners, some players are already seeing some uplift from 5G, and the industry will need to prepare for later demand. Operators have invested large sums of money into spectrum allocations and are expected to start capitalising this in the
medium-term. This presents a fantastic opportunity not just for new site rollouts, but colocations and operators look to increase their points-of-presence through the existing network.
Not just about big players, but the ‘little’ guys too
A competitive tower market and low barriers to entry have led to South Africa having some of the highest numbers of towercos active out of any market, not just in Africa but globally; total counts are hard to confirm but estimates go beyond 35, many having between 10 – 100 sites. For these smaller players, the commercial model for success is critical, focusing on a build-to-sell model.
However, new rollout headwinds due to inflation and a focus on network resiliency means the pool of capital for new builds has shrunk, leaving the market oversaturated. Small towercos have been able to play a key role despite the large number of major towercos because of their agility to quickly lease up new sites, focusing on rural or black spots where bigger players aren’t always building.
However, the lack of scale means small towercos are struggling to access the capital needed for site resiliency, making their towers vulnerable to vandalism and loadshedding. Loadshedding is a particularly serious problem as PaaS is very capital intensive and requires expertise in energy management, as the shift from a more traditional real estate to operations business is a major change, and quickly becoming a requirement to remain competitive with the MNOs.
South Africa will always remain a large-towerco market, but this has led to the speculation of towerco consolidation as small towercos will inevitably need to exit the market to the bigger players. However, one speaker raised the issue that small towercos have mostly deployed for a single operator, building portfolios which haven’t maximised commercial potential and making the assets less attractive. Consolidation will also depend on proper valuations; small towercos looking to exit can’t value their assets on old tower multiples.
As one speaker put it, “the ingredients of the cake are all well known, but the recipe is still being experimented with”. South Africa has seen a big shake-up with new players, new challenges and new business models causing some confusion as to what the long-term outlook is.
However, one clear outcome from Meetup Africa was that the industry now knows what the problems are and are working on differing strategies to address these. It will be important for MNOs to understand the new reality they find themselves in, especially in terms of costs, length of contracts and what investments will be needed.
