While the level of digital transformation in MENA varies by country, there is no question that some markets, mainly those in the Gulf Cooperation Council (GCC), are positioning themselves as pioneers of the digital economy and next-generation technology. Nearly all of the Gulf states have implemented digital transformation strategies and have been rolling out commercial 5G networks, with countries like the UAE having some of the densest and fastest mobile networks in the world.
But with all this exciting new technology comes the monumental task of delivering a new digital infrastructure network. The Middle East Institute expects spending on digital infrastructure in the Gulf region alone to hit US$70bn by 2024 as a growing young and technologically adept population fuels the growth of digital industries. E-commerce is expected to reach a value of $49bn by 2025, health-tech to reach US$11bn by 2025, Fintech to reach US$3.46bn by 2026 and EdTech to reach $23.1bn by 2028, making digital transformation core to the growth and diversification strategies of many MENA countries.
Much of this investment burden is placed on the backs of MNOs, who have been vigorously spending on passive and active digital infrastructure to meet the exponentially growing data demands of their customers. At Meetup MENA, the telecom tower industry discussed the role of towercos in supporting their MNO partners manage the load of new digital infrastructure, the opportunities in new infrastructure verticals and where the business model sees synergies, or will need to evolve.
The need for digital infrastructure in MENA
While digital transformation is not a new topic in the MENA tower industry, the level of 5G rollout in a growing number of countries across the region is increasing demand for digital infrastructure beyond towers. IBS, street furniture, small cells, fibre, data centres and subsea infrastructure are all vital for MNOs to provide the capacity demanded from the network. This presents a massive opportunity for the infraco, which were identified as a key player in digital transformation strategies. All of the next-generation applications, 5G, IoT and edge computing among them, are reliant on an underlying digital infrastructure network and towercos have a major role in supporting MNOs and property owners who are already working together to drive digital transformation.
On Meetup MENA’s digital infrastructure panel, speakers discussed how towercos need to think carefully about where they add value for their customers. IBS, small cells and fibre-to-the-tower (FTTT) were all recognised as synergistic and have already seen a degree of adoption at a global level by the tower industry, while for other verticals such as fibre-to-the-home (FTTH) and data centres the compatibility isn’t yet clear.
Helios Towers, IHS Towers, TAWAL, TASC Towers discuss the digital infrastructure landscape at Meetup MENA
A big driver of digital infrastructure solutions in MENA are smart cities, which have become a popular buzzword for the region. Described by one speaker as a “top-down vision in a bottle”, smart cities in MENA have a broad scope of different departments wanting to implement their own ambitious plans, but not all of these projects justify their own independent networks. Rather, a single holistic network built and operated by a neutral infrastructure provider serving the needs of a multitude of different stakeholders and industries is a highly cost-effective and sustainable solution.
MNOs need high-capacity networks, but towercos need a better regulatory environment
Arguably the most compatible and widely adopted parallel digital infrastructure vertical for towercos is in small cells. MNOs need to deploy denser networks, especially in urban areas, to manage increasing capacity as existing sites will quickly become overwhelmed by low latency 5G. With 5G rollout, smart city deployment and digital transformation happening so fast, MNOs need a solution that can also quickly scale to meet rapidly accelerating capacity demands. In Meetup MENA’s small cell working group, it was highlighted that MNOs will find themselves urgently needing to increase capacity of their networks and will have no choice but to deploy small cell cluster en masse.
Small cells will also be key to solving the challenge of the huge increase in energy consumption as a result of 5G adoption, especially with MNOs and towercos adoption carbon reduction strategies. It was suggested that MNOs will have to colocate on small cells to keep the network as sustainable as possible and prevent a massive spike in energy costs, and towercos should be leading their small cell service pitch with this as the key selling point.
However, much of the working group discussion focused on the need for regulators, governments and municipalities to better understand and adopt more flexible approaches towards small cell deployments. Site acquisition remains incredibly challenging, where towercos and MNOs must go through a lengthy process to approve each small cell deployment. As a result, small cells cannot be deployed in large clusters which severely limits their scalability. This level of regulation also varied widely across the region, where some more advanced countries such as Bahrain have no restrictions on deployments while others such as Pakistan, Jordan and Iraq require every small cell site to be permitted. Although towercos have made some progress deploying small cells as in-building solutions, outdoor small cells remain subject to additional licensing.
Another big hurdle for the industry to cross is the high cost of deploying small cells. One individual recalled their decision to use carbon fibre polls which were much faster to deploy and made the solution more scalable to MNOs growing demands, but at 3 times the cost of a conventional tower. While towercos appeared to be willing to pay this increased capex cost, many in the group questioned whether MNOs would be as keen to pay a premium on their rents. Due to the high cost of deploying whole small cell clusters, MNOs are sticking with the traditional macro tower solution.
The group called for more government support in the form of subsidies, as well as the need for all stakeholders to cooperate in order to drive costs down, or at least make it more manageable. One idea is that the cost is shared among all benefiting parties; towercos, MNOs, building owners and municipalities. What was clear was that towercos are the only players who can help facilitate these different stakeholders to make small cell network deployments work and must take an active role in building a workable business model.
A snapshot of the action: Meetup MENA's small cell working group
Towercos see value in fibre, but a new business model will be needed
Another highly synergistic infrastructure verticle is in fibre backhaul, an area some attending towercos, such as IHS Towers and American Tower, are already providing in some markets. Offering FTTT has big advantages for a towerco, making their towers a lot more attractive for MNOs who will want to either colocation on, or remain a tenant on, fiberized sites. Fibre is also an important prerequisite for 5G and a core part of MNO strategies to improve quality of service. With many MNOs across the region remaining on the fence about whether to divest their tower infrastructure to towercos, offering additional FTTT services helps make a towerco’s service offering that much more attractive to potential customers in existing and new markets, as well as help boost colocation rates which remain relatively low compared to more mature tower regions.
However, towercos will still need to expand their capabilities if they want to provide fibre, requiring new expertise as well as adopting new business models, particularly for fibre-to-the-home where digging up fibre lanes in urban or semi-urban areas and laying fibre home-by-home is vastly different to fiberising telecom towers. While one speaker on the digital infrastructure panel was certain of the potential for new revenue opportunities in fibre, there are several business models to approach this including owning, leasing or forming joint-ventures. But with upfront capex followed by long-term leases with escalators, fibre still sticks to the core principles of the tower infrastructure model, and stable long-term contracts remain key to the business model.
Despite the growth of low-latency applications, edge computing is not yet well understood
Edge computing has started to crop up at numerous TowerXchange events, including this year at Meetup MENA. But MNOs and neutral hosts don’t yet fully understand edge computing, both in what the trends in use-cases will be, the optimal way to deploy this infrastructure and who the big infrastructure providers in this new space will be. What is clear though is that edge computing is a critical component to next-generation technologies such as the metaverse.
We heard from one metaverse company about how the demand for high speed, low latency networks deisgned to run a consistent metaverse experience offers a great opportunity for towercos. With adoption levels from consumers currently quite low, now is the time for infrastructure providers to build the network prior to the large-scale adoption of the metaverse and capitalise on this opportunity early.
Nicolas Weber, Founder of DAC and MetaGameHub, shares what Metaverse companies will need from the network
The large data centre infrastructure market is already becoming dominated by the big hyperscalers who are making big progress in MENA and show no signs of divesting these assets to other players. Towercos don’t have the industry scale to compete directly with companies such as Amazon or Google, and our digital infrastructure panel speakers were not keen in competing with potential customers.
But unlike large data centres which can be deployed in many locations, low-latency applications such as smart manufacturing, robotics and machine learning will have to have edge data centres in close proximity to the end-user. With towercos already managing a much more localised network of infrastructure, including power, space and operations & maintenance, speakers recognised the strong position towercos are in.
Towercos will need MNO approval to become infraco's, or risk competing with their customers
While there are numerous opportunities for towercos to broaden the range of infrastructure services to become true infracos, towercos will need to take a more holistic approach towards the network to manage different digital infrastructure verticals as well as different partners and stakeholders. The customer base will remain largely MNOs but new smart city and government institution customers will have different demands and idea of how they want the network to be designed. Moving up the infrastructure value chain also means much more careful planning of the network from the fibre backhaul to the positioning of small cells and edge data centres on top of macro towers.
But the biggest barrier for towercos exploring opportunities in new digital infrastructure verticles is the danger of becoming direct competitors to their partners. MNOs may be in the process of divesting away from telecom tower assets, but this mindset has not permeated across all infrastructure asset classes. One individual in the small cell working group raised the example of the US market, where new federal government regulation allowing MNOs to deploy smal lcells on lampposts created a huge opportunity for MNOs to rall out their own small cell networks. This put Crown Castle, one of the US markets leading towercos and a pioneer in small cell rollout, in a position of direct competition to their MNO customers.
Finally, it is important to note that while there is huge future demand for digital infrastructure, a majority of MENAs towers still remain with MNOs. There is a lot of expansion opportunities for towercos to grow their core asset portfolios in the region and tower acquisitions will take priority over new infrastructure verticles where the business model is less clear.
