Understanding the economics of rural connectivity  in Africa

Parallel Wireless are one of the key innovators in the Open RAN space. That technology is enabling lower-cost rural deployments to expand across Africa thanks to a combination of reduced power consumption, lower maintenance and a go-getting business model that sees Parallel Wireless offer turnkey solutions to towercos and operators. TowerXchange was delighted to talk with Yisrael Nov, EVP Global Sales at Parallel Wireless to better understand why is driving the expansion of 1,000s of these sites across Africa.

Before transitioning to Sales and Marketing, I worked as a technical engineer for 40 years, starting with the original AMPS radios and companies like Motorola. In my role at Parallel Wireless for the past seven years, I have brought technical expertise to our sales and marketing strategy. Parallel Wireless, founded 12 years ago, is one of the original pioneers of Open RAN technology.

We have experience with public wireless and public safety networks, and we are currently focused on expanding urban and rural coverage across Africa and internationally. Our customer base spans from Australia to Colombia, Peru, Nigeria, Ghana, and Alaska.

The goal of Open RAN is to disaggregate hardware and software, similar to how personal computers operate. Just as you don't use Dell for PowerPoint and HP for Word, there is a complete separation of hardware from software. You select a PC based on price and performance, not the applications installed on it; you expect the application to work on every computer brand. Similarly, in Open RAN, operators are not limited to a single vendor's hardware or software but can mix and match components to suit their needs. By separating the software from the hardware, an operator is free to purchase hardware from any vendor and load the software from any other vendor.

The cellular world is evolving rapidly, leading to extreme competition and companies merging into a single unified network to reduce expenses and improve profitability. This merging often results in telco companies losing customers. To improve profitability, tower companies have started investing in equipment such as the Radio Access Network (RAN), renting out the tower and the baseband. However, as the number of customers decreases, profitability also reduces. Adopting Open RAN can address this challenge by allowing tower companies to utilize any hardware with any software from any vendor. This means tower companies can enter the Open RAN game with equipment that matches the needs of operators and their existing modern equipment, benefiting both the tower companies and operators.

Open RAN is gradually gaining adoption among western companies today, although MNOs tend to be conservative in their deployment strategies. We estimate that thousands of sites are currently live and active based on Open RAN standards.

Open RAN offers MNOs full ownership of network equipment, enabling them to avoid being locked into service agreements with major OEMs. However, pricing from major OEMs remains competitive due to their ability to produce equipment at a larger scale.

The growing credibility of Open RAN is demonstrated by both Nokia and Ericsson becoming vendors of Open RAN-compatible equipment. They are now offering hardware that works on open standards in addition to their own technology standards.

Open RAN is particularly advantageous for towercos, as owning active equipment and controlling the software reduces the risk associated with entering the RAN space. By committing to a single OEM, towercos risk losing control of their assets and limiting the options they can offer their customers. Open RAN solutions eliminate these risks, making them a valuable asset for towercos operating in the mobile operator space.

Parallel Wireless is a software company, but we offer end-to-end solutions for building entire sites. We can provide software only, for firms that prefer to manage their own networks, or we can offer a full turnkey service including towers, power, transmission, core, or any other necessary components. Some of our customers build towers, provide radios and power, while others only purchase radios or software.

Parallel Wireless is renowned for its energy-saving technology and GreenRAN™ line of products. Our recent announcement about our hardware-agnostic software enabling our Distributed Unit to run on any hardware provides significant power-saving advantages. As an equipment supplier, Parallel Wireless offers solutions that can help towercos save on equipment costs and electricity consumption, reducing both capital and operating expenses.

The number one challenge in rural Africa is power, followed by finding skilled and knowledgeable engineers and accessing remote sites, which can be challenging especially during rainy seasons. If a site loses power, finding someone nearby who can fix it can be difficult, and even if someone is available, reaching the site may be a challenge. The simple solution is to reduce the power demand and complexity of the site, allowing for less frequent visits.

We have products that are low power and low complexity, which are already deployed in several markets including Nigeria, Ghana, Guinea Conakry, Tanzania, South Sudan, Malawi, CAR, and DRC, among others. These products are being used by major operators like MTN or Orange.

Expanding coverage in rural areas presents several challenges beyond just the distance from infrastructure. It's crucial to use network and spectrum efficiently. It's more cost-effective to cover more ground and handle more traffic with existing sites than to set up new ones, which can be very expensive. In areas with lower population density, inefficient spectrum usage results in wasted capacity, leading to the need for more sites elsewhere, increasing costs. To effectively cover these challenging areas, we need to set up fewer sites and ensure that we're maximizing the potential of each one.

The economic challenge of building a capital-intensive business while ARPU (Average Revenue Per User) is low or barely growing poses difficulties. MNOs are seeking partners and ways to reduce their capex intensity, which is essential for serving rural areas. Just as towercos have transitioned from providing towers to providing power, they should also consider offering antenna and radio services. For some networks, the only viable solution may be for a towerco to offer a full active network for all operators to share, creating a single network infrastructure for the country's mobile networks.

Our work in Africa aligns with a broader trend of infrastructure providers covering rural areas through revenue-sharing models. Traditional towercos like Helios Tower, American Tower, and IHS Towers are all exploring this strategy. AMN has emerged as a rural specialist, while NuRAN and Vanu are other competitors in the space. However, there is a distinction: some competitors operate using low-power devices, whereas Parallel Wireless utilises high-powered solutions.

Efficient but higher-powered solutions are more effective for serving a larger number of users. A typical Parallel Wireless site is powered by solar and battery and uses VSAT for backhaul. However, in some areas, we have sites connected to the grid, and our busier sites use hybrid generators.

In Ghana, we are partnering with Vodafone, a local brand now owned by Telecel. Vodafone has deployed nearly 100 sites with Parallel Wireless and continues to expand. For these companies, the key is having the capital to invest in building and expanding their network flexibly.

The Universal Service Fund in Ghana is enabling us to build sites, but we are also operating on a purely commercial basis in places like Nigeria. In Nigeria, we are a technology partner to IHS Towers and Hotspot Networks, working directly with MTN and 9Mobile. We have deployed 1,000 sites using our technology in Nigeria and are continuing to grow.

At the network level, there isn't a single model for rural connectivity. Some towercos are willing to build a rural portfolio as a loss-leader to maintain customer satisfaction. However, most towercos are unable to commit capital to ventures with lower returns than their core business, or where the business case relies on uncertain revenues. The return on investment for a normal macro tower is typically very good, making it challenging for alternative business lines to compete.

A rural site could generate US$5-10k in EBITDA per year. With a suitable capital expenditure (capex) amount, a towerco can still make money. However, when the rate of return falls below this threshold, specialist rural companies may target the business, or local investors may seek partners, or the universal service fund may support investment.

While individual sites vary in profitability, the scale of rural Africa is immense. For example, in the DRC where we have a site with one of the operators, there are 80,000 people living around this "rural" site. In the DRC alone, there are 20-40 million people without coverage, indicating substantial potential for towercos to expand.

At a low hundreds of sites, the economics may not work. However, due to the scale of the connectivity challenge in rural Africa, the model can support multiple players, provided they are experts at managing power, building simple sites, and working with local operators.

Over the next two years, our primary focus is to continue helping operators save on power. We will achieve this by releasing new solutions and products that cater to the market's growing interest in energy-efficient rural solutions.

One aspect of our plan involves deploying Parallel Wireless-powered equipment on towercos' towers. This deployment will optimize capacity on our towers by consolidating radios and different technologies into more efficient deployments.

Additionally, we anticipate collaborating closely with towercos as a technology partner to support their expansion efforts. Our goal is to deliver innovation and energy-efficient solutions to the market, ensuring that Parallel Wireless remains at the forefront of driving green energy efficiency in the telecom industry over the next 24 months.