Tower deals – building Africa's communication capability

Published on 12 May 2015

By Chris Tredger

It is a good time to be in the telecommunications and connectivity services business in Africa.

Consumer demand for mobile and data is not only fuelling investment in communication

tower construction and management, but forcing network operators and service providers to

up their levels of service quality.

Countries like Zambia have embarked on aggressive plans to construct mobile

communication towers nationally, also paying specific attention to rural areas and

requirements. The phased project is already in place and seeks to ensure the construction of

over 200 towers.

Growth opportunity in this area of telecommunications in Africa has attracted interest from

global operators like mobile communications infrastructure services provider IHS Towers.

In 2014 the pan-African company made headlines after it raised $2.6 billion in equity

funding, and also cemented deals with established operators MTN and Etisalat.

READ MORE

Africa phone tower firm IHS raises $2.6 billion

‘Nigeria to reach 75% independent tower ownership’

MTN Nigeria in mega deal to sell 9,151 towers

Etisalat Nigeria sells 2,136 towers to IHS

In Nigeria, MTN sold 9,151 base stations to IHS and Etisalat, Nigeria's third largest mobile

operator, sold over 2 000.

MTN and IHS said in a joint statement at the time, "IHS will have full operational control of

the underlying business. The new towers company will market independent infrastructure

sharing services to other mobile operators and Internet Service Providers (ISPs) in Nigeria."

The West African country is IHS' biggest market, in terms of volume and the size of its

economy. However, the company has also established presence in Cameroon, Ivory Coast,

Rwanda and Zambia over its fifteen years in operation.

From its stronghold in Nigeria, the company continues to leverage its core value proposition:

tower infrastructure sharing and leasing.

Revenue is sourced from the acquisition and management of passive tower infrastructure

(excluding transmission equipment) from operators, as well as the construction of its own

towers and leasing this infrastructure to operators. This arrangement is designed to help

operators with expansion, to facilitate greater access to available power, and address logistic

issues.

The deals with Etisalat and MTN are examples, says Mohamad Darwish, deputy chief

executive officer of IHS Nigeria and one of the company's founding members.

He says the business has increased the overall number of telecommunication towers, both

managed and self-constructed, in its portfolio to 25,000 – fifteen thousand of which are

located in Nigeria.

It is a competitive and active market says Darwish, with just one of the business drivers being

the shift towards independent tower ownership. "The drive comes from two parts, number

one from the operators themselves...everybody wants to bring down costs, so cost reduction

is one and when it comes to tower sharing fits that profile perfectly."

In this scenario the operator outsources the management of tower infrastructure and all the

associated responsibilities, including power supply and sustainability, maintenance etc.

Anchoring the business

Other business drivers including service providers having to meet a growing consumer

demand for mobile access, connectivity, broadband and data, as well the growth of LTE

networks. This is pushing demand for mobile and connectivity access services, says Darwish.

"As an independent tower company, that's where we come in ... that is our bread and butter

business, so that the client can focus on their core business," he adds.

IHS Towers finds itself in an advantageous position within the market. Darwish says five

years ago it was tougher to pitch leasing as a business model because of sensitivity around

sharing infrastructure amongst competitors.

Today, the situation is different, and while regions differ in terms of willingness to share and

control resources, Darwish explains that generally there is a better understanding of the

practicalities behind tower asset sharing.

Looking ahead Darwish says the funds raised towards the end of last year, representing a

combination of equity funding and debt, is being used to support the acquisition of portfolios.

The company is also concentrating on driving down the cost of renewable power solutions to

reduce the consumption of diesel for example, which makes up approximately 70% of the

company's operating expenses, as well as on stabilising the business during the transition

from the operator to IHS on sites, as well as expansion into Africa.

"It is a capital intensive business... when it comes to acquiring portfolios, you have, in a way,

to follow the operators. We try as much as possible to make a case to operators to outsource...

but it actually has to come from them, they have to make a decision," says Darwish.

Despite relatively high barriers to entry, there are competitors in the market – but, according

to Darwish, few that operate on the same level in the regions and markets IHS covers.

For now the company will focus on its expansion plans and the smooth integration of new

towers and new portfolios into the company and its culture, whilst also ensuring access to a

high availability network.

Although the company cannot specify which markets it will target next, South Africa is

viewed as being strategic. When it comes to regions and potential business alliances, it is an

operator-driven process Darwish adds

- See more at: http://www.itwebafrica.com/telecommunications/335-africa/234609-tower-

deals-building-africas-communication-capability#sthash.tPyTj7d1.dpuf