Mobile operators in Africa and Middle East could save a cumulative US$8bn (approx. R70bn) over the next five years.
Delta Partners, the largest telecoms advisory and investment firm across Africa and the Middle East, has released its latest white paper entitled ‘Tower Sharing in the Middle East and Africa: Collaborating in competition’
According to Delta Partners, telecom tower sharing could save mobile operators across the region a cumulative US$8bn (approx. R70bn) over the next five years in ongoing capital and operational expenditure.
“Telecom tower sharing is a relatively new concept across the African region. It entails operators collaborating to share either the active elements (i.e., the physical network) or the passive elements of their base stations – including the physical tower structure, security, power and diesel generators – in an effort to carve out the enormous capital and operational expenditures that infrastructure rollouts demand.” says Daniel Torras, a principal at Delta Partners’ Johannesburg office.
Torres explains that this concept goes further than basic tower swapping, which is when one operator allows another to piggyback off of its existing mobile towers on a like-for-like basis.
“It involves operators forming joint ventures or even separate ‘Towercos’ to handle the rollout and management of network infrastructure based on existing towers owned by the operators – essentially outsourcing this function in its entirety,” he adds.
The paper states there is a clear opportunity for mobile operators – particularly in Africa where many countries are experiencing saturation and hyper-competition at the top-end of the mobile market – to introduce relevant mobile products and services to the base of the pyramid.
“An effective way to accomplish this and remain profitable is to reduce the overall cost of infrastructure rollout in rural areas by spreading the cost across two or more operators,” explains Chris Datta, principal at Delta Partners and co-author of the paper.
“This also has the added effect of providing operators with a much quicker time-to-market. In the past, operators would have to spend years and hundreds of millions of dollars to establish their own networks.” continued Datta.
It is estimated by Delta Partners that there are already over 200,000 telecom towers across the Africa and Middle East region, a figure that is predicted to increase by as much as 50% over the next five years.
Delta Partners believes that this presents a very favourable opportunity for operators and even private organisations to invest in tower sharing ventures in the near future, and it forecasts that several tower sharing agreements are likely to be concluded across Africa, particularly in South Africa, in the next 12 to 24 months.
“Investment in a Towerco is attractive – even in the current financial climate – as it presents a unique opportunity to invest in a start-up with stable and guaranteed cash flow owing to the long-term leasing contracts signed by the operators that share the telecom towers,” says Datta.
“In fact, MTN and Vodacom are already engaged in limited site swapping, especially for remote areas. In addition, a recent announcement in March 2009 saw an agreement between MTN, Vodacom and Neotel to roll out a shared fiber optic network for backbone transmission. This shows that local operators are already finding ways to share infrastructure costs successfully,” Datta continues.
Other African countries listed in the paper with markets conducive to tower sharing include Cameroon, Kenya, Nigeria and Uganda. Delta Partners believes that this indicates that a tower sharing trend will soon be a widespread reality in Africa.
The paper makes a number of interesting Towerco recommendations:
· Towercos should bring in outside investors to ensure the impartiality of the joint venture and act as a broker between operators
· Both future and existing towers should be included in any tower sharing agreement
· In order to reduce operational risk, Towercos should aim for a minimum of two anchor tenants per tower
According to Torras, incumbent operators should not shy away from striking deals with new license winners.
“Sharing towers in no way gives away an operator’s strategic advantage – particularly since the network has become a commodity and products and services are the only mechanisms that can differentiate one operator from another. With many stakeholders pushing for the establishment of tower sharing agreements and Towercos, investment in this sector appears to be a no-brainer for operators and private equity holders alike,” he concludes.
