Sam Darwish Discusses the Importance of Local Knowledge in Business Success

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IHS: Local knowledge is important in fulfilling towering ambitions By Xan Rice November 27, 2012 In 2001, when Nigeria was liberalising its telecoms market, many people were scrambling to acquire mobile licences. Sam Darwish, a Lebanese engineer working in Lagos, had loftier ambitions: 50m high, to be precise. To provide network coverage across a large, and in places densely populated country, Nigeria needed many thousands of mobile towers. The company Mr Darwish co-founded started by building base stations for mobile operators. Today IHS, which is listed on the Nigerian Stock Exchange, is one of the four main tower companies in Africa, with 5,700 sites under management, including 3,000 that it owns outright. Turnover for the year ended April 30 was $97.5m. Mr Darwish, the CEO, is still looking up. Within five years he wants IHS to own 20,000 sites by building more of its own and, especially, by buying them from mobile phone operators. The masts are leased back to the mobile operator and other service providers seeking to share infrastructure and costs. IHS’s story offers lessons for other businesses looking to set up in a country that offers large rewards, but has a difficult operating environment. Crucial to the company’s success, Mr Darwish says, is local knowledge. “In the US and Europe, you buy a piece of land and erect a tower,” Mr Darwish says. “There is a power grid, a clean environment and no big need to really secure the site. In Nigeria, it’s the other extreme. You may have to build access roads. The environment can be dirty, and the power grid is unreliable and non-existent in many places. Each tower requires a small specialised power plant to keep it running.” In IHS’s early years, when it was mostly only a tower builder, the mobile operators were responsible for the maintenance. The two generators at each tower site needed to be checked twice a month. Diesel had be delivered, and stored safely. Guards and cameras were, and still are, essential at most sites. But around 2006, with the mobile market expanding fast, service providers started realising that they should be concentrating more on selling their products than running a diesel logistics operation. So IHS began shifting from being a site building company to also managing towers for the likes of MTN and Airtel. By expanding its staff – the company now has nearly 1,000 personnel – IHS was able to cover much of the country, including areas of insecurity, such as the Niger Delta and, more recently, northeast Nigeria, home to an Islamist insurgency. Militants there recently attacked telecoms towers, including two belonging to IHS.

Transcript of Sam Darwish Discusses the Importance of Local Knowledge in Business Success

Page 1: Sam Darwish Discusses the Importance of Local Knowledge in Business Success

IHS: Local knowledge is important in fulfilling towering ambitions

By Xan Rice November 27, 2012

In 2001, when Nigeria was liberalising its telecoms market, many people were scrambling to acquire mobile licences. Sam Darwish, a Lebanese engineer working in Lagos, had loftier ambitions: 50m high, to be precise.

To provide network coverage across a large, and in places densely populated country, Nigeria needed many thousands of mobile towers.

The company Mr Darwish co-founded started by building base stations for mobile operators. Today IHS, which is listed on the Nigerian Stock Exchange, is one of the four main tower companies in Africa, with 5,700 sites under management, including 3,000 that it owns outright. Turnover for the year ended April 30 was $97.5m.

Mr Darwish, the CEO, is still looking up. Within five years he wants IHS to own 20,000 sites by building more of its own and, especially, by buying them from mobile phone operators. The masts are leased back to the mobile operator and other service providers seeking to share infrastructure and costs.

IHS’s story offers lessons for other businesses looking to set up in a country that offers large rewards, but has a difficult operating environment. Crucial to the company’s success, Mr Darwish says, is local knowledge.

“In the US and Europe, you buy a piece of land and erect a tower,” Mr Darwish says. “There is a power grid, a clean environment and no big need to really secure the site. In Nigeria, it’s the other extreme. You may have to build access roads. The environment can be dirty, and the power grid is unreliable and non-existent in many places. Each tower requires a small specialised power plant to keep it running.”

In IHS’s early years, when it was mostly only a tower builder, the mobile operators were responsible for the maintenance.

The two generators at each tower site needed to be checked twice a month. Diesel had be delivered, and stored safely. Guards and cameras were, and still are, essential at most sites.

But around 2006, with the mobile market expanding fast, service providers started realising that they should be concentrating more on selling their products than running a diesel logistics operation. So IHS began shifting from being a site building company to also managing towers for the likes of MTN and Airtel.

By expanding its staff – the company now has nearly 1,000 personnel – IHS was able to cover much of the country, including areas of insecurity, such as the Niger Delta and, more recently, northeast Nigeria, home to an Islamist insurgency. Militants there recently attacked telecoms towers, including two belonging to IHS.

Page 2: Sam Darwish Discusses the Importance of Local Knowledge in Business Success

“The thing with telecoms is that everyone wants to talk; the good guys and the bad guys. Of course we [as non-Nigerians] cannot go to some places any more because of the violence, but you have people from that area who work for you. We also have about 100 dedicated subcontractors,” Mr Darwish says.

With the business growing fast, IHS needed capital, so it listed on the stock exchange in 2008, raising $65m. It was not long before the business model shifted again. As mobile competition increased, prices fell, and operators were seeing a drop in revenues per user, even as their subscriber numbers – and need for more base stations – rose.

A single tower cost up to $250,000, and service providers were becoming capital constrained. The idea of operators sharing towers – and costs – with rival mobile service providers, internet companies and banks had already caught on elsewhere in the world.

IHS decided that co-location would be crucial to the company’s strategy. Since then, as its portfolio of towers has expanded within Nigeria, as well as in Ghana, Sudan and South Sudan, so has the need for new funding.

The crash at the NSE in 2008 had left investors wary, and the pool of money available for companies “too shallow” for IHS’s needs, Mr Darwish says.

So it looked to the global markets, selling equity to the International Finance Corporation, Investec, the Dutch development bank FMO, ECP Private Equity, European investment firm Wendel and Nigeria’s Skye Bank. In the 12 months to December 2012, IHS will have raised $269m in equity, and $480m in debt to fund its expansion.

In October, IHS paid $284m to MTN for 1,758 towers in Cameroon and Ivory Coast.

But Nigeria, which has more mobile subscribers than anywhere in Africa, remains the company’s biggest focus – and offers the richest prize. The country has 24,000 mobile towers and 10,000 more will be built in the next few years, IHS reckons.

Setting up a business so soon after the end of military rule in 1999, IHS has been able to capitalise on the years of solid growth that ensued. But Mr Darwish says there are still many prospects.

Asked for one piece of advice for potential investors, he says: “Put in a strong management team and work in the private sector. Don’t look to rely on government contracts.”

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