TX_Mega_Prospectus (Africa 2015)

Meetup Africa 20151-2 October, Sandton Convention Centre, Johannesburg

www.towerchange.com

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| TowerXchange Meetup Africa 2015, 1-2 October 2015, Sandton Convention Centre, Johannesburg | www.towerxchange.com/meetups/africa2

(Chairman) Daniel Lee Managing DirectorIntrepid Advisory Partners

Akhil GuptaChairmanBharti Infratel

Michel FaivreDirecteur Programme Partaged’Infrastructure AMEAOrange

Terry RhodesActing CEOEaton Towers

Marc GanziPresident, Digital Bridge &Mexico Tower Partners

Arun KapurExecutive ChairmanIrrawaddy Green Towers

James Maclaurinformerly CEOedotco

Areef KassamDirector of InfrastructureGSMA Mobile for Development

Ayman Al AdlDirector - TMTStandard Chartered Bank

Chris Gabrielformer CEO, Zain AfricaSenior Adviser, Macquarie Groupand Chairman, Clean Power Systems

Chuck GreenCEOHelios Towers Africa

Suresh SidhuCEOedotco

Hal HessEVP, International Operations andPresident, EMEA and Latin AmericaAmerican Tower

Nobel TanihahaPresident DirectorPT SOLUSI TUNAS PRATAMA (STP)

Umang DasChief MentorViom Networks

Maria ScottiCEOTorrecom

David MeganckFounder and COOAcsys

Gary StauntonCEOLikusasa Group

Laurentius HumanSenior Director Corporate FInanceJabil

Nina TriantisManaging Director, Global, Head of Telecoms & MediaStandard Bank

Kurt BagwellPresident InternationalSBA Communications

Jim EisensteinChairman & CEOGrupo TorreSur

Riana DonaldsonManager: International Network Operations SupportVodacom

Bimal DayalCOOIndus Towers

Inder BajajCEOHelios Towers Nigeria

Tunde TitilayoVice ChairmanSWAP International

Thorsten SchaeferCEOazeti Networks

Jeffrey EldredgePartnerVinson & Elkins

Enda HardimanManaging PartnerHardiman Telecommunications Ltd.

Adeel BajwaSenior GM of Legal Affairs and ContractsWarid Telecom

With special thanks to the TowerXchange “Inner Circle”About TowerXchange

TowerXchange is your independent community for operators, towercos, investors and suppliers interested in EMEA, CALA and Asian towers. We’re a community of practitioners formed to promote and accelerate infrastructure sharing. TowerXchange don’t build, operate or invest in towers; we’re a neutral community host and commentator on telecoms infrastructure.

The TowerXchange Journal is free to qualifying recipients. We also provide webinars and regular meetups. TowerXchange monetizes this community through hosting annual Meetups and the sale of advertising, without compromising editorial integrity.

TowerXchange was founded by Kieron Osmotherly, a TMT community host and events organizer with 16 years’ experience, and is governed with the support and advice of the TowerXchange “Inner Circle” – an informal network of advisors

Our informal network of advisers:

© 2015 Site Seven Media Ltd. All rights reserved. Neither the whole nor any substantial part of this publication may be re-produced, stored in a retrieval system, or transmitted by any means without the prior permission of Site Seven Media Ltd. Short extracts may be quoted if TowerXchange is cited as the source. TowerXchange is a trading name of Site Seven Media Ltd, registered in the UK. Company number 8293930.

Dear African tower industry leader,

I am delighted to introduce myself, my name is Frances Rose and I will be helping Kieron organise the TowerXchange Meetup Africa 2015 and working with the team to bring you an even bigger and better event this year.

I was lucky enough to have joined the TowerXchange team in time to join the TowerXchange Meetup in Johannesburg last year and found the two days of networking and information sharing highly informative. This year, in response to demand, we’re moving to a bigger venue, Johannesburg’s prestigious Sandton Convention Centre, and we’ll be inviting even more industry leaders to drive forward the discussion around the future of passive infrastructure in Africa.

Although a period of intensive deal activity means 29% of towers in Africa are now controlled by

towercos, there are still substantial pockets of activity taking place across the continent, from Egypt to South Africa. And for those regions where the bulk tower divestment has taken place, towercos face a new challenge: the effective deployment of capex and the continuing reduction of opex to ensure they offer a lean, efficient service in one of the most challenging markets on earth.

Towercos are telling us that now is the time for them to start consolidating their acquisitions, drive up tenancy ratios, improve efficiency and maximise their investments. With thousands of towers to bring up to standard, legacy agreements to honour and new procurement processes in place, not to mention scores of emails from potential suppliers landing in their inbox each day, you’re going to have to shout pretty loud to get heard. As Alex Leigh, Business Development Director at Helios Towers Africa, says later in this special enlarged prospectus: “The light

touch approach of ‘I have this and I want to meet with you’ or dropping us notes through LinkedIn gets lost. Events like the TowerXchange Meetup Africa are great because we can meet a lot of new people face to face and find out more about what’s in the market.”

At the TowerXchange Meetup 2015, we’ll be bringing together more decision makers from towercos than ever before, as well as leading experts from Africa’s MNOs and stakeholders keen to invest in the sector. With over 65% of the booths for the TowerXchange Meetup Africa 2015 already booked up, the industry knows that TowerXchange is the only platform which allows towercos, MNOs, investors and suppliers to meet in one place over two days. And with a heavy focus on interaction and networking, driven by our renowned round table breakouts, there’s nothing else which will give you the same exposure to the potential clients looking for suppliers across their portfolios.

If you need to get your product or service in front of Africa’s biggest tower owners in 2015, then you really need to be at the TowerXchange Meetup Africa 2015. Speak to our CCO, Annabelle Mayhew, or one of her team, about how you can get involved now, before the event sells out.

I look forward to welcoming you to the TowerXchange Meetup Africa 2015 on October 1 and 2 at the Sandton Convention Centre!

Frances RoseHead of EMEATowerXchange

www.towerxchange.com/meetups/africa | TowerXchange Meetup Africa 2015, 1-2 October, Sandton Convention Centre, Johannesburg | 3

Frances Rose, Head of EMEA, TowerXchange Kieron Osmotherly, Founder & CEO , TowerXchange


66% SOLD

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Fast access tomain Meetup room



Ensure your company receives RFPs from the African towercos

This year is a pivotal year for Africa’s towercos. Now that the ‘land grab’ is over, they’re focussed on making the most of the towers they have acquired by reducing opex, integrating new acquisitions, bringing towers up to standard and deploying capex in order to create long term efficiencies.

So how will the towercos’ decision makers find their suppliers?

It won’t be in their email inbox or at a huge congress where white noise drowns out the most interesting solutions.

The fact is, the procurement teams at Africa’s biggest towercos (and the smaller ones too) now rely on TowerXchange to pre-select the most interesting and relevant solutions in the market, and they use two days in October to identify, question and compare the suppliers they will use for partnerships across thousands of towers – can you afford not to be there?

The expo at this year’s expanded TowerXchange Meetup Africa is already over 65% booked and space is selling fast. If you want to get your message to the biggest buyers at the most critical time in their procurement process, this is your chance!

Call me on +44 (0)7423 512588 or email [email protected] to discuss how best to get involved.

Annabelle Mayhew Chief Commercial OfficerTowerXchange

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Tower XchangeOctober 1-2, Sandton Convention Centre, JohannesburgMeetup Africa 2015

Industry breakdown of Meetup Africa 2014

By invitation only: restricted to Director, VP and C-level attendees. Maximum of 2 delegate passes per company except for MNOs, towercos and sponsors

either either either

either

orororor

* Discounted rate available to Towercos, Government and Regulator representatives, 100% discount for qualifying Director - C-level execs from Operators

5www.towerxchange.com/meetups/africa | TowerXchange Meetup Africa 2015, 1-2 October, Sandton Convention Centre, Johannesburg |

Towerco

MNOs

Managed service provider

Energy equipment

RMS

Energy storage

Tower manufacturer

Investors

OEMs

Access control, H&S

Consultants and advisors

Others

20%

13%

13%

11%

9%

8%

6%

5%

5%

4%3%

2%

TowerXchange’s analysis of the independent tower market in AfricaAfrican towers 2015: deal flow slowing but some significant assets still to be acquired

2014 concluded with independent towercos owning close to 30% (or 47,600) of Africa’s towers. In 2015 the rate of asset transfer will slow but there are still some significant deals to be done across the continent. We anticipate that the balance of the Airtel assets (a further 2,000 towers) will be sold in early 2015. Our research suggests the transactions are pending regulatory approval only, with announcements imminent involving the transfer of Airtel’s towers in Gabon to Helios Towers Africa

Figure 1: Estimated number of towers owned or managed by towercos in Africa

and in Madagascar to Eaton Towers. Airtel are set to retain their towers in Sierra Leone.

In further deals, we anticipate the sale of MobiNil’s ~3,500 towers in Egypt to take place in H1 2015, with Eaton Towers believed to be the successful bidder in the process. Processes involving Sonotel’s assets in Senegal, Mali and the Guineas are also underway and expected to complete in Q4 2015-Q2 2016.Furthermore, Telkom’s RFP for the sale of ~6,000

shareable structures (including around 3,500 GBTs) in South Africa has sparked rumours that MTN’s assets in the country will also come to market in 2015, which could see a further ~10,000 towers, representing 60% of the tower stock in the South African market, transferring to towerco ownership in the next 12 months.

With these new sales, the Airtel deal triggering follow-on deals, and with towercos growing 10-15% per annum organically by building the majority of the continent’s new towers, we’re sticking to our forecast that towercos will own 46.9% of Africa’s towers by year end 2015. That will represent the vast majority of the towers owned by credit worthy anchor tenants – the addressable market for towercos in Africa may be 55-60%. The size of Africa’s tower industry doubled in two quarters, triggered by Airtel’s sale of towers in 16 of their 17 African countries (sales of 4,800 towers to American Tower, 3,500 to Eaton, 3,100 to Helios Towers Africa and 1,113 to IHS have been announced to date). The sale of Airtel’s Nigerian Towers, recently secured by American Tower, stimulated two other deals in Africa’s most lucrative mobile market, both of which were closed before the Airtel deal; Etisalat Nigeria sold 2,136 of their ~2,700 towers to IHS, while MTN sold all 9,151 of their Nigerian towers to the same counterparty, retaining a 51% stake in the joint venture.

Almost US$5bn of PE-backed towerco’s investors and American Tower’s money is now at work in the African tower sector, not including substantial

Source: TowerXchange

IHS Africa

5000 10000 15000 20000 25000

Helios Towers Africa

American Tower

Eaton Towers

SWAP Technologies

Helios Towers Nigeria

1900

1500

1400 1600

700

509

250

1300

170

800 500

400

500

500

500

4500

300

200

2038 1918 1256

2230

734

1648 38014222

4800

South Africa

Nigeria

Ghana

Burkina Faso

DRC

Cote d’Ivoire

Cameroon

Niger

Rwanda

Zambia

Congo B

Chad

Unknown Country

Uganda

Tanzania

Malawi


infrastructure sharing)< Square1 Infrastructure (Nigeria and South Africa)< TASC (targeting MENA)< TowerCo of Madagascar< Tower share (targeting MENA)

XX



equity stakes retained by MTN, Millicom and Vodacom. Sub-Saharan Africa has graduated to a new class of investor, and the price of participation in this maturing asset class is now likely well over US$100mn. Many commentators feel the three PE-backed members of Africa’s ‘Big Four’ towercos have now achieved the necessary diversification of country and counterparty risk to commence the final phase of integration and consolidation in the run up to trade sale or IPO.

While a glance at Africa’s tier one MNO’s remaining tower portfolios suggest a finite amount of investible assets remain operator-captive (see “What’s left?” In issue 11 of TowerXchange), TowerXchange forecast that the Airtel deal will trigger a handful of follow-on deals in 2015

Figure 1a: Count differentiating towers that are owned from those that are managed and marketed by towercos

Unfilled bars = Managed and marketed towers

Filled bars = Owned Towers

Figure 2: Africa's regional and prospective new entrant towercos TowerXchange are tracking several towercos who are active in or targeting Africa (there are a couple more, but we’re not at liberty to disclose them!):

< Atlas Towers (South Africa)

< BCTEK (Nigeria) < Communication Towers Nigeria< Frontier Tower Solutions (targeting Burundi)< Hotspot Network Limited (Nigeria)< Infratel (South Africa)< Pro High Site Communication (South Africa)< Shared Networks Tanzania (active

TowerXchange estimate that these towercos own or operate a total of around 2,000 African towers.

19000 2000

700

5000 10000 15000 20000 25000

700

759

800

700

7800

10012

4370

“ “

the three PE-backed members of Africa’s ‘Big Four’ towercos have now achieved the necessary diversification of country and counterparty risk to commence the final phase of integration and run up to trade sale or IPO


Jan-2010 Millicom / Tigo Ghana HTA 750 $54mn for 60% Joint venture$120k

$307k*$228k

Oct-2010

Feb-2010

Vodafone

Multilinks

Ghana

Nigeria

Eaton

HTN

750

400

Not applicable

Unknown

Manage with license to lease


Dec-2010 Cell C South Africa American 1,400* $430mn Sale and leaseback

Dec-2010 Starcomms Nigeria SWAP 407 $81m Sale and leaseback

Dec-2010 MTN Ghana American 1,876 $218.5mn for 51% Joint venture

Dec-2010

Dec-2010

Millicom / Tigo

Millicom / Tigo

Tanzania

DRC

HTA

HTA

1,020

729

$80m for 60%**

$45mn for 60%**

Joint venture

Joint venture$103k

$131k

Dec-2011

Aug-2010

MTN

Visafone

Uganda

Nigeria

American

IHS

1,000

800

$89m for 51%

$67mn

Joint venture

Sale and leaseback

$175k

$84k

Mar-2012 Orange Uganda Eaton 300 Unknown Sale and leaseback

Mar-2012

Apr-2013

Warid Telecom

Orange

Uganda

Cameroon & Cote d’Ivoire

Eaton

IHS Africa

400

2,000

Unknown

N/A

Sale and leaseback


Oct-2012 MTN Cameroon IHS Africa 827 $143m Sale and leaseback$173k

Oct-2012

Jul-2013Jun-2013

Jul-2014

Sep-2014

Dec-2014

May-2014

Aug-2014

Sep-2014Nov-2014

MTN

VodacomTelkom Kenya***

Airtel

MTN

Airtel

MTN

Etisalat

AirtelAirtel

Cote d’Ivoire

TanzaniaKenya

Tanzania, DRC, Congo B & Chad tbc

Nigeria

Zambia & Rwanda

Rwanda & Zambia

Nigeria

Ghana, Niger, Burkina Faso, Kenya, Uganda & Malawi tbc

Nigeria

IHS Africa

HTAEaton

HTA

IHS Africa

IHS

IHS

IHS

EatonAmerican

931

1,1491,000

3,100

9,151

1,113

2,136

3,5004,800

1,269

$141m

~$75mn for 75.5%N/A

~$400-500mn

$882mn for 49%

~US$181mn

Unknown

$470-500mn

~$525-700mn$1,050mn

Sale and leaseback$151k

Joint venture


$65k

Sale and leaseback$145k$227k

Joint Venture

Sale and leaseback

$197k

$163k

Sale and leaseback

Sale and leaseback

Sale and leasebackSale and leaseback

$175k$219k

*Cell C deal included 1,400 existing towers plus 1,800 towers to be constructed **Millicom/Tigo’s stake in Helios Towers Tanzania reduced to 24.5% after Helios acquired towers from Vodacom Tanzania in 2013 ***Telkom Kenya-Eaton deal subsequently cancelled

Figure 3: Africa’s biggest tower sharing transactions to date

Year Operator Country TowerCo Est. # of towers Publicly stated purchase price Deal structureCost per tower


$199k

Figure 4: African tower industry achieves launch velocityEnd of Year

Est total # of towers in Africa

Est # of African towers owned or operated by towercos

% of African towers owned by towercos

2009

120,000

100

0.001%

2010

125,000

6,000

4.7%

2011

130,000

9,000

6.9%

2012

140,000

16,661

11.9%

2013

150,000

*25,510

17%

2014

165,000

47,500

29%

2015(f)

180,000

84,500

46.9%



CameroonCote d’IvoireRwandaZambia

TanzaniaChadCongo BrazzavilleDRC Kenya

NigerBurkina FasoMalawi

South AfricaUganda

Ghana

Nigeria

IHS

American Tower


Eaton Towers

HTN & SWAP

Figure 5: Forecast African towerco footprints

Please feel free to contact the TowerXchange team

Kieron OsmotherlyFounder & CEOE: [email protected]: +44 7771 148001

For editorial & speaking enquiries regarding Americas:Arianna NeriHead of Americas & AsiaE: [email protected]: +39 338 111 2103

For editorial & speaking enquiries regarding Africa or Europe:Frances RoseHead of EMEAE: [email protected]: +44 7793 045718

For editorial & speaking enquiries regarding Asia: Ian FergusonHead of AsiaE: [email protected]: +44 (0)7908175087

For advertising opportunities & event participation:Annabelle mayhewChief Commercial OfficerE: [email protected]: +44 7423 512588

Toya SmithBusiness Development ManagerE: [email protected]: +44 7967 441110

For media partnerships & to request additional subscriptions:Harpreet SohanpalHead of MarketingE: [email protected]

For the designers of the TowerXchange Journal & brand:Jon WhittySenior Designer & Brand DevelopmentE: [email protected]

The TowerXchange Journal is published by Site Seven Media Ltd.

© 2014 Site Seven Media Ltd. All rights reserved. Neither the whole nor any substantial part of this publication may be re-produced, stored in a retrieval system, or transmitted by any means without the prior permission of Site Seven Media Ltd. Short extracts may be quoted if TowerXchange is cited as the source. TowerXchange is a trading name of Site Seven Media Ltd, registered in the UK. Company number 8293930.


TowerXchange’s state of the market: SSA tower industry growth 2014-15Majority of desirable towers now transferred; transactions to slow in 2015

State of the market The African tower industry’s 47,600 towers are divided between Africa’s ‘Big Four’ multi-country towercos (IHS has 22,000 towers, American Tower 9,936, Helios Towers Africa 7,800-8,300 and Eaton Towers just over 5,000), a couple of significant single country towercos (Helios Towers Nigeria with 1,300 and TowerCo of Madagasacar with ~200), plus a handful of ‘middle market towercos’, primarily in Nigeria and South Africa. For more data on the middle market towercos, see “TowerXchange’s analysis of the independent tower market in Africa.” With further transactions imminent in Gabon and Madagascar (sold by Airtel); Senegal, Mali, Guinea Bissau and Guinea Conakry (Sonatel / Orange), Egypt (MobiNil), and perhaps South Africa (Telkom) Africa’s ‘Big Four’ towercos will soon reach the 10,000 tower count widely recognised as representing ‘scale’, setting them on a new path focusing on the drive to profitability and eventual exit. We’ve reached the end of the parallel infrastructure era for much of SSA; the majority of tier one MNOs’ towers in priority markets have been transferred to towercos, most tier two and new entrant operators prefer co-location to new build, and the majority of build to suit programmes are being executed by towercos and co-ordinated to minimise proliferation of towers. Africa’s towercos expect organic growth in the range of 10-15% per annum.

Read this article to learn:< The state of the independent tower market in Africa today, and the unprecedented growth achieved in 2014< Four more African tower transactions in the pipeline for H1 2015< Proof of tenancy ratio and TCF growth, plus pipeline transparency, drives the investibility of SSA towers< Implications of the ‘end of the parallel infrastructure era’ for the supply chain

In the two years between the publication of the first edition of the TowerXchange Journal in December 2012 and December 2014, the number of towers owned and managed by independent towercos rose from 17,000 (12% of Africa’s towers) to 47,600 (29%). The SSA towerco market is dominated by the ‘Big Four’; private equity backed towercos Eaton Towers, Helios Towers Africa and IHS, plus publicly listed giant American Tower, joined by a handful of regional and ‘middle market’ towercos. In this article, we reflect on the state of the SSA tower market at the dawn of 2015.

Keywords: Editorial, Towercos, Market Forecasts, Bankability, ESCOs, Procurement, Sale & Leaseback, Private Equity, Masts & Towers, RMS, Site Management System, Africa, Gabon, Madagascar, South Africa, Egypt, Senegal, Mali, Guinea Bissau, Guinea Conakry, Eaton Towers, Helios Towers Africa, IHS, American Tower


Another sold out TowerXchange Meetup Africa

To acquire SSA’s most desirable towers, over US$5bn of capital has been deployed by Africa’s ‘Big Four’ towercos over the last four years, with many millions more invested in improvement capex programmes to upgrade tower structures and power systems for multiple tenants. That investment peaked last year; the African tower industry almost doubled in size in the second half of 2014, when 23,800 towers changed hands for an estimated US$3.6bn (excluding the value of the 51% stake in MTN Nigeria’s towers, retained by the MNO).


The current wave of tower transactions is coming to an end, with just the aforementioned four packages of towers in the near term pipeline for H1 2015. However, SSA will see further knock on transactions triggered in 2015 – the Airtel African tower sale has drawn Helios Towers Africa and Eaton Towers into several new markets, where the other credit worthy MNOs might consider divesting their towers before the finite number of tenancies is snapped up, leaving their passive infrastructure assets stranded on balance sheets. A more detailed analysis of potential knock-on transactions is

provided in TowerXchange’s “What’s left? The tower monetization strategies of SSA’s leading MNOs” special feature. With the pace of tower transactions slowing, the ‘Big Four’ towercos are refocusing on the evaluation and integration of newly acquired assets, staffing up new local opcos, novating leases, upgrading and co-locating new sites, and driving toward profitability. Tenancy ratios are approaching and, in a few cases, exceeding two, driven by incumbent MNO’s needs for cell site densification and next generation technology upgrades creating amendment revenue, supplemented by a couple of points contributed by Wi-Fi, urban 4G plays, broadcast and other non-traditional MNO tenants. Investibility The transparency of the pipeline of emerging market tower deals, not just in Africa but in Asia and LatAm, combined with increasing comfort in towercos’ ability to deliver the tenancy ratio and tower cash flow growth in their business plans, means existing investors have doubled down on many investments, and new investors are coming into the ecosystem capable of writing bigger cheques. African telecom towers is now a more proven asset class, and the three private equity backed members of Africa’s ‘Big Four’ towercos all have access to capital from existing and new investors. Nonetheless, opportunities for earlier stage venture capital and private equity funding can still be found among middle market towercos,

Network with a highly qualified audience of 238 decision makers


albeit with the caveat that there is more risk to be found at that layer of the ecosystem. For SSA’s handful of ‘middle market’ towercos, the name of the game remains creating a solid cash flow base through managed services and targeted deployment of macro sites, IBS, rooftop and special structures. The majority of SSA’s middle market towercos are build-to-suit centric plays. If they build robust towers in desirable but unique locations, such companies could soon become viable targets for trade acquisition by one of Africa’s ‘Big Four’ towercos. TowerXchange identify four opportunities for ‘middle market’ and

new entrant towercos in our “2015: the year of the middle market towerco” editorial. Implications for the supply chain We’ve said it time and time again; towercos are becoming the most important buyers of passive infrastructure equipment and services in emerging markets. Towercos are building the vast majority of new towers in the markets in which they are active. Even in markets where towercos are not yet active, MNOs have an eye on co-location and the potential

for future sale, so there are few single tenant structures going up. While the migration to the independent towerco model is important for static asset manufacturers, it’s even more important for managed service providers. The transition from a single tenant, MNO-driven world to a multi-tenant, towerco-driven world unlocks upgrade revenue and unleashes substantial O&M contracts that can provide invaluable cash flow for turnkey infrastructure firms. Towercos want to know what they’ve acquired, so replacing malfunctioning RMS with telco-grade solutions, backed up with site intelligence

“

“

Once again the opportunity to meet real decision makers in the industry. Receiving encouragement from these same experienced and specialised folk is incredibly valuable. Kieron himself also provided an introduction before the event that has since led to a series of meetings at TowerXchange and an invitation to formally present to a Tier 1 operator

Unique round table breakouts


The TowerXchange Meetup Africa 2015 relocates to the prestigious Sandton Convention Centre Ballroom on October 1 and 2 this year. We have twice the capacity for exhibit space, but half of our booths have already been sold before we start our promotional campaign! Every TowerXchange Meetup has sold out weeks before the event, so contact Annabelle Mayhew, TowerXchange’s Chief Commercial Officer, at [email protected] to secure your booth today!

TowerXchange Meetup Africa 2014 audience breakdown by industry

Towerco

MNOs

Managed service provider

Energy equipment

RMS

Energy storage

Tower manufacturer

Investors

OEMs

Access control, H&S

Consultants and advisors

Others

20%

13%

13%

11%

9%

8%

6%

5%

5%

4%3%

2%

platforms purpose built for towercos, remains a priority. TowerXchange is tracking over a dozen RMS vendors serving emerging market telecoms – there are dominant market leaders in China and India, but no preferred solution has arisen for Southern and Southeast Asia or SSA, where towercos have piloted multiple solutions and are still seeking one which ticks all their boxes. The emerging market cell site energy proposition is increasingly about what investments make sense under near-term improvement capex programmes, and what innovations are more cautiously piloted as part of efficiency programmes that may take longer to hit the bottom line for vendors. We still haven’t seen an ESCO or powerco of scale in Africa, although TowerXchange expect to hear from powercos managing 4-digit tower counts by the

TowerXchange Meetup Africa 2015. The attitude of Africa’s ‘Big Four’ towercos toward the ESCO proposition was surprisingly bullish at this year’s event but, in a requirement echoed across all supplier categories, the appeal was for solutions that are ‘fit for Africa.’

TowerXchange Meetup Africa 2014 attracts 238 top decision makers in African towers Now established as the must-attend event for the telecom tower industry in Africa, the audience at the TowerXchange Meetup Africa 2014 grew 36% year on year, and still maintained a decision maker level audience that was 83% Director to C-level. While TowerXchange is not the biggest event in African telecoms, it represents the most

concentrated gathering of passive infrastructure buying power you will find on the continent. Renowned for it’s unique small group, round table breakouts, the 2014 Meetup also featured an expanded, curated exhibition of 36 equipment and service providers, hand-picked as solutions ‘fit for Africa’ and proven in Africa

“ “This was no doubt the most useful show of the year to have attended. There is nothing I would change

Special feature:

Airtel’s African tower sale nears completion. MTN has monetised their most attractive sub-Saharan African towers, except those in South Africa. Etisalat has restructured with Maroc Telecom and sold most of their Nigerian towers. First movers Millicom have since been dormant, while Vodacom and Vodafone have sold relatively few towers. Orange’s infrastructure sharing programmes continues. In this special feature, TowerXchange reflect on the tower monetisation strategies of SSA’s top six MNOs; MTN, Airtel, Etisalat / Maroc Telecom, Orange, Vodacom and Vodafone. Towercos don’t want all the towers; many are in duplicate locations, others are owned by anchor tenants who are not credit worthy. For towercos the addressable market is not all 165,000 African towers, but perhaps a little over half. So what’s left in the pipeline?

What’s left?The tower monetisation strategies of SSA’s leading MNOs

In this special feature: 15 Lessons learned from the MNO panel at the TowerXchange Meetup Afrca19 Airtel’s African tower sale: who got what21 MTN’s passive infrastructure monetisation strategy25 What’s left? Etisalat, Orange, Vodacom and Vodafone’s tower strategies in SSA


Lessons learned from the MNO panel

session at the TowerXchange Meetup AfricaFive of Africa’s leading operators reveal the drivers and future of their tower strategies

How each operator introduced their tower strategy: Etisalat Etisalat is present in 19 countries, with a leadership position or strong challenger status in most markets. As such, they are considered a highly desirable counterparty in any tower transaction. During 2014, Etisalat’s West African business was restructured through the sale of the Atlantique Telecom / Moov assets in six countries to Maroc Telecom and Etisalat’s acquisition of a 53% stake in Maroc. Etisalat’s Head of M&A Tim Knowles revealed there was no group wide strategy toward towers. Indeed, Andrew Kemp CFO of Etisalat Nigeria, championed the sale of their Nigerian towers in 2014, a market in which Etisalat needed to raise funding and reduce opex, but also needed to bring their towers to market in a timely manner in to get best price, the Airtel and MTN processes having triggered a scramble to acquire Nigerian towers. Etisalat doesn’t see tower sales as the sole means of generating efficiencies; they have also outsourced managed services and created 3G joint ventures in selected markets. Airtel Airtel has a stated strategy to ensure their towers are managed in a focused manner – a large capital investment has been deployed, and they see

Read this article to learn:< The SSA tower strategies of Airtel, Etisalat, Orange, Smile and Vodacom

< Contrasting appetite for SLB (with or without retention of equity), MLL and joint venture towerco

deal structures

< Are MNOs concerned about towerco monopolies and oligopolies?

< How new towers get built

< Pros and cons of active infrastructure sharing

Prakash Ranjalkar has been fostering Airtel’s passive infrastructure assets in SSA until their imminent transfer to the towercos; he currently serves as CEO of Airtel’s Africa Towers entity. TowerXchange ‘Inner Circle’ advisory board member Michel Faivre has led Orange’s infrastructure sharing programme for several years. Tim Knowles represented both an M&A perspective and that of Etisalat, who of course recently sold 2,136 towers in Nigeria. Riana Donaldson was a key part of the team that outsourced towers to Eaton at Vodafone Ghana – she now serves as Manager: Network International for Vodacom. And Sudhir Chopra, Group CTO of Smile, represented the tenant’s point of view as the foremost of Africa’s many new entrant 4G plays. The panel was ably moderated by Gulfraz Qayyum, Managing Director of TMT Investment Banking at Citi.

Keywords: Who’s Who, MNOs, 4G, LTE, EBITDA, Capex, Deal Structure, Lease Rates, Network Rollout, QoS, Build-to-Suit, First Mover Advantage, Tenant’s Perspective, Active Infrasharing, SLA, MLA, Anchor Tenant, KPIs, Operator-Led JV, Sale & Leaseback, Manage With License To Lease, Stakeholder Buy-In, Infrastructure Sharing, Africa, Nigeria, Mozambique, Cameroon, Cote d’Ivoire, Uganda, Tanzania, Airtel, Etisalat, Orange, Smile, Vodacom


TowerXchange MNO Panel, Africa 2014

passive infrastructure as critical to operations.The sheer number of towers and the complexity of operations in India prompted the creation of Bharti Infrastructure, within which Bharti manages their own Indian towerco Bharti Infratel and their stake in joint venture towerco Indus Towers. Airtel’s tower strategy has played out successfully in India, reducing costs and enabling expansion while driving tenancy ratios over two. From 2010 it was Bharti Airtel’s intention to share towers in Africa but, given the smaller individual tower portfolios across such a diverse SSA footprint, they found they couldn’t replicate the carve out towerco model they used in India. Nor did efforts to attract partners in MNO joint venture towercos achieve much traction in SSA. With the growing wave of tower transactions in SSA, Airtel felt it was better to consolidate and bring their African towers into the hands of expert independent towercos. Thus 15 months ago Airtel commenced an Africa wide tower sale process, described (in October 2014) as 70% complete, and anticipating that by Q1-2 2015 their partners will have been selected in each of Airtel’s SSA countries. By offering up Airtel’s “entire platter” of African towers, whilst being prepared to carving up the portfolio and allow towercos to mix and match to select the countries which best matched their investment thesis, Airtel has been able to offload towers in their smaller perhaps less attractive markets, bundled with the assets that more obviously met towercos’ criteria.


Vodacom The drivers of Vodacom’s tower strategy are the stabilisation of cost and optimisation of QoS. Vodacom’s only tower transaction to date has been in Tanzania, where they had previously outsourced the management of passive infrastructure to Nokia. They see the Mozambique market somewhat driven by coverage, creating a specific niche opportunity for a more rurally focused tower venture that could focus on supporting coverage objectives. Vodacom undertakes substantial bi-lateral tower sharing in DRC, but retains their passive infrastructure assets in the country. Orange Orange’s strategy is to share the network as much as possible to improve QoS and optimise rollout capex, particularly in the context of the difficulty securing authorisation to permit new sites. Orange adopts a different tower strategy model from one market to the next, according to market need. Orange has agreed managed services deals with IHS in Cameroon and Cote d’Ivoire, and had sold towers to Eaton Towers in Uganda prior to the sale of their license to Africell. Smile Smile considers outsourcing and infrastructure sharing as two pillars of their strategy – they believe they can achieve better performance,

better KPIs at a lower cost by sharing towers. Smile has evolved to focus on mobile broadband internet using 4G LTE technology – they launched Africa’s first 4G LTE service in Tanzania, in March 2012, and now also provide 4G LTE services in several cities in Uganda and Nigeria. Sudhir noted that as recently as three years ago there was hardly any sharing in Nigeria, yet today over two thirds of towers are shared. What is the right deal structure, MNO joint venture, sale and leaseback or manage with license to lease? “We’ve tried sale and leasebacks, we’ve tried to create MNO joint ventures to which we then add a towerco partner – the right deal structure depends on local market requirements,” said one operator. Tower strategy isn’t just about the management of existing towers, it’s also about getting new towers built. Build to suit programmes are typically bundled with tower divestitures. Tower strategy is also a larger corporate finance consideration. Few African opcos are 100% owned by their parent companies, and if local shareholders aren’t prepared to contribute further capital, monetising passive infrastructure is an attractive alternate way to raise capital. Every shareholder has their own view of the potential conflicts of interest between MNO and towerco, which is why stakeholder engagement is critical and can affect how empowered the local management team is to manage balance sheet considerations such as divesting their tower portfolio. Sometimes it is


simply not possible to sell the towers. Orange’s Michel Faivre called attention to the many efficient joint venture infrastructure sharing business models working very effectively in Europe, particularly in fiercely competitive mobile markets, and to the potential for such models to be implemented in Africa. Orange favours an outsourcing model with managed services – very similar to sale and leaseback, but the only difference is that Orange retains ownership of the towers. They still have an SLA to leverage QoS improvements, they can realise good prices as the towerco can still create extra cash flow through co-location sales. Orange typically bundle a build to suit programme, and the towerco still takes over power. While there are exceptions, generally Orange prefer to retain towers. Retention of equity and transaction pricing The question of whether to retain equity in joint venture towercos was raised, although in fairness it should be noted that two of operators that seemed most inclined to retain equity, MTN and Millicom, once again declined to participate in this year’s debate. Vodacom indicated a preference to retain a little equity and thus retain a bit of operational control, for example control over quality of towers. The other MNOs didn’t seem to feel retaining equity was necessary as some sort of hedge against mispricing of deals. Their feeling was that the independence of the towerco was key – that

an anchor tenant’s representative on a towerco board could have minimal influence on capital deployment, opex reduction priorities or on third party pricing without restricting the towerco. Such considerations certainly factored into Airtel’s thinking when they resolved to sell 100% equity in their African towers – with portfolios of 500-2,000 towers in most countries except Nigeria, Airtel didn’t have an appetite to participate in 15 or 16 joint venture towercos. Of course pricing is a risk – it’s a trade off of cash released and reduced monthly opex bills against the leaseback rate agreed. Ultimately, tower transactions are hugely complicated – sometimes expediency prevails, an attitude of “we’ve got we need to get it done and move on”. Tower transactions shift capex to opex, which materially affects the EBITDA reported to stakeholders. EBITDA targets have to shift and other KPIs need to be adjusted accordingly, for example benchmarking exercises must take the new structure of the tower-outsourced opco into consideration. Such performance measures aren’t always as aligned as they should be! Are MNOs concerned about creating towerco oligopolies and monopolies, especially as towercos rationalise in the future? Opinions differed in response to this question. One MNO was not concerned about oligopolistic behavior in the near term, but felt any consolidation among Africa’s ‘Big Four’ towercos would have to be

monitored closely. Another operator had a nearer term concern that a dominant towerco may have a temptation to use their position to keep prices high, and may have less incentive to optimise services. The term of towerco contracts extends beyond several generations of technology, which itself may have implications for the operating costs for towercos and therefore for the lease rates charged to tenants. A third operator felt that under a regime of passive infrastructure management by towercos, costs had already been proved to come down, with MNOs and towercos striking partnerships where is one was successful the other would share in that success. Fear of loss of control, quality degradation, and loss of pricing power had all been overcome, he felt. The tenant’s perspective The growth of independent towercos has improved the business case for newer operators like Smile Telecom, who originally felt they’d have to build a significant portion of their own towers, but find that 100% of their current towers are shared. Even though Smile was not an anchor tenant, they didn’t feel there was any overt favoritism, and they were particularly impressed that even in cases where the towers they wanted were idle, the towerco invested to deliver QoS at the right price.

A note of caution was shared by one operator, who expressed concern about the difficulties getting rural sites (often destined to become


single tenant towers) built in a market where one towerco was dominant. The same operator also expressed reservations about fair pricing of towers to be transferred to a dominant towerco after the majority of towers in a given market had been transferred. Build to suit – how to ensure network expansion goals are met When seeking to extend coverage or improve capacity in a given location, MNOs will always check whether there is an existing tower nearby that they can share first. Failing that, a new tower may be “built to suit”. Co-location on an existing tower can take as little as a month, a tower built to suit may take around 120 days, depending how long it takes to secure a permit. Build to suit (BTS) is still quicker to market than waiting for towercos to acquire and integrate towers. Airtel have retained flexibility in their BTS strategy through the divestiture of their African towers, ensuring that if the prevailing lease rate doesn’t match their requirements, they can build their own or ask other companies to build towers for them. Despite the sale of towers, strong network planning and project management capabilities still exist within Airtel – those competencies will not be fully transferred to their towerco partners – Airtel’s tower operating company still exists and will be responsible for SLA management and governance. The reality is that today most of the rollout work for MNOs in SSA is done by third parties – turnkey contractors – so while MNOs that divest passive

infrastructure to towercos may end up with a few stray BTS towers which towercos refuse to build, the ecosystem is big enough that an alternate service provider can readily be secured. Diversification of the passive infrastructure sharing business model There were mixed views on active infrastructure sharing both within the panel and within the represented MNOs’ board rooms! Whilst in Europe infrastructure sharing has included both passive and active infrastructure, opinion was divided about the timeline and benefits of active infrastructure sharing in SSA. While some were wary of the potential implications active infrastructure sharing may have in terms of restricting future consolidation, others felt active infrastructure sharing was critical to the implementation of new technologies. Master Lease Agreements between anchor tenant and towerco are increasingly drafted with multiple future scenarios in mind. The implications of shared antenna for lease pricing may be covered alongside clauses defining the specific space available made available on a tower and the kWh of power included in the service. So if the MNO tenant increases capacity, whether space or power, there are provisions built into the contract but it still provides enough flexibility for the opco to manage their capacity.

Several members of the panel called on towercos to consider providing shared solutions for the last

mile. One panelist suggested towercos would be unlikely to diversify beyond “hard infrastructure” (fibre, backhaul, IBS and DAS) unless the model changes from a terrestrial to a completely different model. The start of the shared infrastructure era in SSA In most SSA markets, coverage is no longer a differentiator. QoS, products and services and the Customer Experience differentiate MNOs – the customer doesn’t care whose tower they get their signal from, they just care about tariffs, they care that the call doesn’t drop, and they’re starting to care about mobile broadband services. If the era of parallel infrastructure in SSA is coming to an end, 2015 has demonstrated that there is first mover advantage in bringing towers to market before the competition, securing the best pricing and preferred terms as anchor tenant

“ “In most SSA markets, coverage is no longer a differentiator. QoS, products and services and the Customer Experience differentiate MNOs – the customer doesn’t care whose tower they get their signal from, they just care about tariffs, they care that the call doesn’t drop, and they’re starting to care about mobile broadband services

Airtel’s African tower sale: who got whatHow Airtel’s 15,000+ African towers will be divided among Africa’s “Big Four” towercos

TowerXchange understand that Helios Towers Africa has added 3,100 of Airtel’s towers to their existing assets, including all of Airtel’s towers in Tanzania and DRC, where Helios Towers Africa is the sole towerco and is marketing significantly more than half of each country’s towers. We believe Helios Towers Africa will enter new markets in Chad, Congo Brazzaville, with Gabon perhaps to follow soon. We think the 3,500 Airtel towers acquired by Eaton and announced recently includes the towers in existing markets Ghana, Uganda and Kenya, plus new markets Niger, Burkina Faso and Malawi, with Madagascar likely to follow. Paying approximately US$181mn for 1,113 towers, IHS has added Airtel’s towers in Rwanda and Zambia to those they acquired from MTN, making IHS the only towerco in both markets, owning significantly more than half each country’s towers. IHS also owns 56% of Nigeria’s towers, having acquired assets from MTN and Etisalat, although the Airtel Nigeria towers will be sold to American Tower for a little over US$1bn. TowerXchange understand that Airtel will retain their towers in Sierra Leone, where their enthusiasm that Africell not co-locate on their towers made a tower sale untenable. The Airtel tower sale could trigger further tower transactions as the other operators in affected countries realise that their towers are at risk of becoming stranded assets – if they’re ever going to

Read this article to learn:< The structure of the Airtel African tower sale and how much capital has been raised

< Which towerco is acquiring Airtel’s towers in each country

< The potential knock-on effect for other tower transactions in affected countries

Keywords: Who’s Who, MNOs, Towercos, Editorial, Deal Structure, Market Entry, First Mover Advantage, Sale & Leaseback, Africa, Tanzania, DRC, Chad, Congo Brazzaville, Gabon, Ghana, Uganda, Kenya, Niger, Burkina Faso, Malawi, Madagascar, Rwanda, Zambia, Sierra Leone, American Tower, Helios Towers Africa, Eaton Towers, IHS, Airtel


Airtel’s tower sale has driven African towercos to the tipping point; achieving scale and diversification of country and counterparty risk. TowerXchange expect the last of the Airtel African towers to be sold by the end of Q2 2015, raising ~$2.5bn. All the towers have been sold on a pure sale and leaseback basis, with the respective towercos acquiring 100% equity in Airtel’s African towers. Here’s how TowerXchange understand the Airtel towers are going to be divided among the towercos, in the process drawing Helios Towers Africa, Eaton Towers and American Tower into several new countries.

sell, they need to sooner rather than later.

It may be noteworthy that Airtel’s Q3 2014 report stated that the company had 17,935 sites across Africa (491 more than the same time last year), of which 8,104 had a 3G antenna (up 1,867 YOY). TowerXchange has written extensively about Airtel’s African tower sale. We forecasted which assets would be transferred to which towerco, and provided a snapshot of each tower market – for detailed analyses see “TowerXchange’s forecast for how the Airtel towers will be distributed among Africa’s ‘Big Four’ towercos” on pages 13-21 of issue 10 of the TowerXchange Journal.

Here is the updated map of the Airtel African tower sale. Note that specific details of which country’s towers have been sold to which towerco is not yet in the public domain, however TowerXchange sources strongly intimate that this will be “the lay of the land” when the dust settles on the deal



Eaton Towers

IHS

American Tower

Airtel will retain their towers in Sierra LeoneSource: TowerXchange

“ “The Airtel tower sale could trigger further tower transactions as the other operators in affected countries realise that their towers are at risk of becoming stranded assets – if they’re ever going to sell, they need to sooner rather than later

MTN’s passive infrastructure monetisation strategyMTN has raised ~US2.5bn to date, retaining equity in selected markets. With assets transferred to towercos in seven MTN countries to date, what’s left?

MTN has disposed of the majority of their most attractive tower assets, raising an estimated US$2.5bn+ whilst retaining equity stakes in joint venture towercos in selected markets. MTN’s passive infrastructure monetisation strategy made headlines in the global telecom press with the recent sale of equity in their Nigerian towers to IHS, although most reports didn’t pick up on the fact that MTN retained a “non-controlling interest of 51% with protective rights in the new entity” (quoting MTN H1 2014 interim results). The Nigeria transaction followed previous sale and leasebacks of 100% of the equity in MTN’s towers in Cameroon, Côte d’Ivoire, Rwanda and Zambia, again with IHS as the counterparty. MTN commenced their passive infrastructure monetisation strategy in 2010-11 with the formation of joint venture towercos with American Tower in Ghana and Uganda, in which MTN retained 49% equity. So, with MTN’s towers in five of their top eight countries, plus probably the most attractive assets in the “small opco cluster”, already transferred to towercos, is there still a pipeline of potential tower deals to come from MTN? What’s left? MTN South Africa MTN’s ~9,000 South African towers seemed to be on the brink of sale to American Tower in 2013 before MTN stepped back from the deal. The towers remain operator captive.

Read this article to learn:< Summary of MTN’s tower transactions to date< The prospects of an MTN tower deal in South Africa< The adverse effect of country risk and the BOT agreement on the prospects for tower deals in Syria and Sudan< The adverse effect of International sanctions on the prospects for a tower deal in Iran< Tower deal possibilities within MTN’s small opco cluster, particularly Congo B, the Guineas and Afghanistan

MTN has monetised their towers in seven sub-Saharan African countries – representing the majority of the most attractive portfolios to towercos. While Airtel concluded a portfolio asset sale, albeit to multiple counterparts, MTN has proceeded one country at a time – raising a similar amount to Airtel, albeit with MTN’s prized tower assets in South Africa as yet retained. In this article, TowerXchange summarises MTN’s tower transactions to date, and once again asks “what’s left?”

Keywords: Who’s Who, MNOs, Towercos, Acquisition, Deal Structure, Market Forecasts, Novation of Leases, Sale & Leaseback, Infrastructure Sharing, Africa, Nigeria, Cameroon, Cote d’Ivoire, Rwanda, Zambia, Ghana, Uganda, South Africa, Guinea Conakry, Guinea Bissau, Congo Brazzaville, Iran, Sudan, Syria, Afghanistan, Yemen, Benin, Botswana, Liberia, Swaziland, Cyprus, American Tower, IHS, Telkom, Irancell, MTN


Although intensifying competition in South Africa resulted in MTN’s market share declining by 2.7% over H1 2014, with revenue down 7% and EBITDA down 1.5%, negative subscriber growth has been reversed and MTN remains in a robust position with 31.9% market share. So robust is MTN’s competitive position that they lack motivation to divest their South African towers. The Group still sees their network as a source of competitive differentiation in South Africa, where Cell C and Telkom have labored to capture market share from leaders Vodacom and MTN. The extent of bi-lateral infrastructure sharing, in particular with Vodacom, means that any MTN tower transaction would face a complicated path to convert so many swaps into commercial leases – on the plus side, it also means tenancy ratios would likely start nearer two than one, which significantly increases the valuation that could potentially be realised. With the South African tower market considered by most as one of the two most appealing in SSA (alongside Nigeria, which is finalising its own process of migrating to a towerco-driven business model), it will be interesting to see if Telkom’s recently initiated process to seek buyers of their passive infrastructure might precipitate a re-evaluation of MTN’s preference to retain their South African towers. Telkom is believed to have issued an RFP in December 2014 seeking bids for a portfolio of assets which could include as many as 6,000 shareable structures (including perhaps 3-4,000 macro towers). Airtel’s African tower sale triggered MTN to bring


123456

Towers retained by MTN

100% of equity in towers sold to IHS

49% of equity in towers sold to IHS, 51% non-

controlling interest retained by MTN

51% of equity in towers sold to American Tower,

49% non-controlling interest retained by MTN

Figure 2: Mapping MTN’s passive infrastructure monetisation strategy to date



their Nigerian towers to market – it remains to be seen whether the Group will re-evaluate their approach to get to market first in the event of a process being commenced by a competitor in South Africa. MTN Syria and Sudan The only other countries from MTN’s “large opco cluster” where MTN retains 100% ownership of passive infrastructure are Syria and Sudan. Security is obviously of paramount concern in Syria at the moment, creating challenging conditions for the operation of any infrastructure in the country, towers included.

Any tower deal in Syria would have been held up by the “Build Operate and Transfer” (BOT) agreement which, until the end of 2014, existed between MTN Syria and the Syrian Telecommunications Establishment (STE). Under a BOT framework, MTN Syria would have been required to handover their network to STE at the end of their licence period. However, the BOT agreement was converted into a 20-year operating license, taking effect on 1 January, 2015. International sanctions against Syria and Sudan are indicative of elevated country risk in both countries, which in turn makes investment in infrastructure and the repatriation of funds difficult. This would

seem to preclude the participation of any US publicly listed towerco in any auction of towers from those regions, while similarly limiting the pool of prospective private equity with an appetite for investing in opportunities in these countries, thus leaving several PE-backed towercos similarly hamstrung. Nonetheless, the potential for towerco activity in these markets is greater than zero as TowerXchange are tracking several entrepreneurial, risk-tolerant tower companies with an appetite for opportunities in Syria and, in particular, Sudan. However, MTN has a preference to work with proven towercos of scale, so the operator is likely to remain reluctant to enter into transactional relationships with what they would consider “unproven” counterparts until they have reached scale. Thus, TowerXchange forecast that tower opportunities in Syria and Sudan will remain restricted to build to suit and managed services deals. Whilst the resolution of the BOT agreement in Syria is a positive step, until country risk recedes and sanctions are eased, MTN’s passive infrastructure assets in Syria and Sudan will probably remain on their balance sheet for the foreseeable future. MTN Iran Iran is MTN’s third most commercially attractive market, outside of Nigeria and South Africa. MTN’s joint venture Irancell, which serves 42.7mn subscribers in Iran, acquired spectrum to upgrade their license to include 3G / 4G in August 2014 with intent to commence rollout imminently. Reports

*MTN’s “Small OpCo Cluster” includes Yemen, Afghanistan, Benin, Congo-Brazzaville,

Zambia, Guinea, Rwanda, Cyprus, Liberia, Botswana, Guinea-Bissau and Swaziland


Figure 3: MTN Group EBITDA by country (in Rm, as per MTN H1 2014 interim results)

South Africa

Nigeria

Ghana

Cameroon

Ivory Coast

Uganda

Syria

Sudan

“Small OpCoCluster”*

5,000 10,000 15,000 20,000

6,382

16,280

1,486

1,291

1,213

967

4,173

338

435

| TowerXchange Meetup Africa 2015, 1-2 October | www.towerxchange.com/meetups/africa24

suggest MTN has rolled out 2,146 towers in Iran in anticipation of the launch of mobile broadband services. However, International sanctions mean it remains unlikely that an independent tower company could acquire infrastructure in the country. Quoting Analysys Mason: “Iran’s telecoms market is known for its unpredictability. Would-be foreign investors, including Etisalat, Türk Telekom and Zain, have all come close to launching mobile operations in the country since its telecoms market was liberalised in 2004, but have been prevented from doing so following reported failures to adhere to their licence commitments. MTN has succeeded in establishing Irancell as the second national mobile operator in Iran, but has faced costly legal battles because of alleged improprieties when it acquired its licence, in addition to Western pressures to pull out of Iran.” TowerXchange thus forecast that MTN’s Iranian

towers will also remain on their balance sheet for the foreseeable future. MTN’s Small OpCo Cluster With the towers in Rwanda and Zambia, perhaps the most investible towers from MTN’s Small OpCo Cluster, already sold, MTN retains their towers in Afghanistan, Yemen, Benin, Guinea Conakry, Congo Brazzaville, Botswana, Liberia, Swaziland, South Sudan, Guinea Bissau and Cyprus. Of MTN’s Small OpCo cluster, three stand out as being ripe for tower transactions. The recent Airtel African tower sale, with assets believed to be in the process of being transferred to Helios Towers Africa, will kick start an independent tower market in Congo Brazzaville. Until Airtel’s acquisition of #3 operator Warid, MTN had been the market leader in Congo Brazzaville. With the market supporting only one additional operator, Bintel’s Azur, there are a finite amount of tenancies up for grabs, which means towers residing on balance sheets are effectively declining in value. It would thus seem logical for MTN to at least explore the possibility of selling their towers in Congo Brazzaville, with Helios Towers Africa being the most likely counterpart. In Guinea Bissau and Guinea Conakry Orange will soon commence a process to seek a towerco partner for a ‘manage with licence to lease’ deal. While no partnership has yet been consummated, a window may be opening for MTN to bring their Guinean towers to market first, albeit the small scale of

these markets does not appear to make them a priority for towercos in the absence of a bundled transaction. This may explain why Orange are believed to be bundling the Guineas with their more attractive Senegal and Mali towers. MTN and Etisalat explored the possibility of selling their towers in Afghanistan to IHS, but it was rumoured that IHS’s backers had finite appetite for opportunities in a market so removed from their West African core territories, and with such obvious country risk. It’s notable that Afghan Wireless spun off their towers to Frontier Tower Solutions several years ago, so there is a precedent for independent towerco operations in Afghanistan. Depending on the success of the handover of peacekeeping to local authorities, we may not have heard the last of potential tower transactions in Afghanistan. Conclusion MTN has completed the lion’s share of their prospective tower transactions in Africa. One highly attractive portfolio remains on MTN’s balance sheet, South Africa, where the traction achieved by the Telkom process may prompt a re-evaluation of MTN’s appetite to sell. MTN’s tower assets in North Africa and the Middle East remain affected by varying levels of country risk, making transactions unlikely in the short to medium term. Perhaps the most likely next MTN tower sales are in Guinea Bissau and Conakry, if triggered by an Orange ‘manage with license to lease’ deal, in Congo Brazzaville where Airtel’s towers will be sold to Helios Towers Africa, and potentially Afghanistan

“ “The Group continues to improve operational and cost effectiveness with initiatives including the monetisation of passive infrastructure through tower deals across a number of key markets (MTN H1 2014 interim results)

What’s left? Etisalat, Orange, Vodacom and Vodafone’s tower strategies in SSA…Plus a look at the attractiveness of towers owned by Africa’s other MNOs

One of the main reasons the land grab is coming to an end, although not yet complete, is that the investibility of emerging market towercos is somewhat dependent on the credit worthiness of the anchor tenant. Thus the ‘Big Four’ towercos don’t want all SSA’s towers – especially as many are in overlapping locations. Independent towercos currently own 47,600, around 29% of Africa’s towers. The addressable market may be a little under 100,000 towers, perhaps 55% of the current tower count. Airtel and MTN in brief As we’ve seen in the two previous analyses, the tower monetisation strategies of Africa’s two largest MNOs is almost complete – Airtel will have no towers left to sell by H2 2015; MTN has sold towers in five of it’s top six markets, with only its coveted South African towers and a few high risk countries from MTN’s small opco cluster remaining operator captive. Vodacom, Vodafone and Safaricom Apart from an early ‘manage with license to lease’ (MLL) deal in Ghana and the sale of 1,149 towers to Helios Towers Africa in 2013, Vodacom, Vodafone and Safaricom seem to consider their tower assets too strategic to divest. Nonetheless, the recent second tower transaction in DRC (Airtel’s towers following Millicom/Tigo’s in being sold to Helios Towers Africa) and the imminent MobiNil deal in Egypt might prompt re-evaluation of potential tower deals in either market.

Read this article to learn:< Towercos’ addressable market in Africa< Summaries of Airtel and MTN towpassive infrastructure monetisation strategies< Analyses of the tower strategies of Vodacom, Vodafone, Safaricom, Orange, Etisalat / Maroc Telecom and Millicom-Tigo< Potential tower transactions from outside Africa’s tier one, multi-country MNOs< TowerXchange’s view of the pipeline of African tower transactions in 2015

2014 was the year the SSA independent tower industry reached scale. Africa’s ‘Big Four’ towercos each have tower counts over or approaching 10,000 assets. Having diversified country and counterparty risk and grown portfolios to the point where best practices can be shared and economies of scale realised, the prevailing opinion at the Q4 2014 TowerXchange Meetup Africa seemed to be that Africa’s ‘Big Four’ towercos were moving from land-grab to a period of integration of assets, driving toward profitability and prospective IPO / trade sale in 18-36 months time.

Keywords: Editorial, MNOs, Towercos, Acquisition, Deal Structure, Market Forecasts, First Mover Advantage, Bankability, Carve Out, Sale & Leaseback, Manage With License To Lease, Africa, Kenya, Egypt, DRC, South Africa, Mozambique, Senegal, Mali, Guinea Bissau, Guinea Conakry, Niger, Madagascar, Cote d’Ivoire, Gabon, Nigheria, Tanzania, Chad, Rwanda, Angola, Zimbabwe, Congo Brazzaville, Airtel, MTN, Vodacom, Vodafone, Safaricom, Orange, Etisalat, Maroc Telecom, Millicom, Tigo, MobiNil, Zantel, Telkom South Africa, Africell, Econet, Globacom, Unitel, Viettel, Smart East Africa, Helios Towers Africa, Eaton Towers, IHS


By Kieron Osmotherly, CEO, TowerXchange

Rumors that Safaricom might participate in a JV towerco with Airtel in Kenya have long since been forgotten – the latest rumors that Safaricom is considering starting their own towerco sound similarly incredible, although their market dominance and the relative strength of their network means a Safaricom towerco could be a lucrative venture. However, on balance TowerXchange feel status quo is the most likely future of Safaricom’s towers in the near term. Meanwhile in Mozambique, the turbulence caused by Viettel’s aggressive network rollout and launch, coupled with the Vietnam-owned operator’s reluctance to participate in bi-lateral tower sharing, makes a Vodacom tower sale unlikely. It seems more likely that Vodacom would seek an infrastructure partner more specialised in rural connectivity in Mozambique. While the recently commenced Telkom passive infrastructure sale RFP might stimulate a re-evaluation of Vodacom’s appetite to divest towers in South Africa, TowerXchange feel that the strength of Vodacom’s position in the market means they may be content to be late movers, if they move at all in terms of divesting towers in their South African heartland. While Vodacom, Vodafone and Safaricom are obviously distinct entities, with Vodafone as a common shareholder, there is no imperative to raise capital. While these companies play their cards close to their chest when it comes to tower deals, don’t hold your breath for much tower transaction activity in SSA from Vodacom, Vodafone and Safaricom in 2015.


Vodacom, Vodafone and Safaricom consider most towers too strategic to sell

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Towers retained Vodacom

Towers retained by Vodafone Egypt

Towers retained by Safaricom

75.5% of equity in towers sold to Helios Towers Africa, 24.5% non-controlling interest retained by Vodacom

Towers outsourced to Eaton on a manage with licence to lease-type deal


Orange

Orange has seemingly preferred MLL deals to date, as agreed in Cameroon and Cote d’Ivoire with IHS, and in Kenya with Eaton Towers before the contract was cancelled amid rumors of Orange’s impending exit from the market. Orange has sold towers to Eaton Towers in Uganda, where Orange has since sold their operator license to Africell, while the sale of ~3,500 MobiNil towers in Egypt may close around the end of H1 2015. Orange / Sonatel is also about to commence a process to seek a partner towerco in Senegal, Mali, Guinea Bissau and Guinea Conakry. Orange retains tower assets in several markets where towercos are increasingly active, including Niger, where Eaton are believed to be acquiring Airtel’s towers, and Madagascar, where Eaton’s potential acquisition of Airtel’s towers would place them alongside TowerCo of Madagascar, formed from the spin-out of an initial 50 Telma towers, but since grown to a tower count of over 200. While the transactions in Niger and Madagascar could accelerate any MLL or sale and leaseback (SLB) opportunity Orange considers bringing to market from those countries, we understand Orange has looked at a tower deal in DRC and feel a managed services deal structure is the most viable option. In conclusion, Orange’s passive infrastructure sharing programme has transferred towers in several of their most attractive SSA markets, but they still retain plenty of desirable assets. Perhaps

Orange prefers manage with licence to lease deals

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Towers retained by Orange

Towers transferred to IHS under MLL deal

Towers believed to be coming to market

Towers sold to Eaton, operation subsequently sold to Africell


the biggest question is whether the towercos have any appetite for MLL deals now that they own 90% of their towers in SSA (up from 69% at the end of 2013)? Or whether Orange has any appetite to consider SLB deal structures in remaining markets? Etisalat / Maroc Telecom We have to overlay an Etisalat and a Maroc Telecom map to track assets that changed hands when the Atlantique Telecom business was recently sold, Maroc Telecom acquiring assets in six countries for US$650mn. In parallel, Etisalat acquired Vivendi’s 53% controlling stake in Maroc Telecom for US$5.3bn. While the dust is still settling on the restructuring at corporate level, it is notable that Maroc Telecom now operates in several markets where independent towercos are active, including Ivory Coast, where IHS owns or markets the majority of sites; Niger, where Eaton is currently setting up shop having acquired Airtel’s towers; and Gabon, where we understand Helios Towers Africa are in pole position to acquire Airtel’s towers. In addition, if and when the Orange / Sonatel process concludes, it may bring a towerco into Maroc Telecom’s Mali market. So, while Maroc Telecom has made no suggestions that they are considering tower sales, TowerXchange note that they may have opportunity to do so in 2015. Etisalat closed their first tower deal in November 2014, selling ~80% of their Nigerian towers to IHS. Etisalat retains their towers in Sudan, Egypt and

Etisalat sells selected towers to IHS, operations to Maroc Telecom

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Towers and operation retained by Etisalat

Etisalat / Moov operation sold to Maroc Telecom

Original Maroc Telecom territory

Maroc Telecom acquired operation from Etisalat / Moov in addition to existing operation in Gabon

80% of towers sold to IHS (Etisalat retains ~600/2750)



Tanzania – the towers in the latter two markets being perhaps the next most attractive to towercos. The aforementioned imminent MobiNil tower sale could inaugurate a wave of passive infrastructure consolidation in Egypt, which could provide an opportunity for Etisalat Misr to monetize their towers. However, the situation in Tanzania is less clear, where #4 ranked operator Zantel’s Zanzibar-centric tower portfolio remain the only significant operator-captive assets in a market otherwise led by Helios Towers Tanzania, which has acquired the towers from the operators ranked #1-3. While a Zantel tower sale remains a possibility, rumors continue that Etisalat might prefer to exit Tanzania altogether. In conclusion, there are several potential SSA tower deals within the Etisalat-Maroc Telecom axis, but TowerXchange don’t think any are imminent. Millicom / Tigo Millicom / Tigo undertook the first pioneering tower transactions with Helios Towers Africa in Ghana, DRC and Tanzania from 2010-11, but the group hasn’t done a SSA tower deal since. Could the entrance of Millicom’s previous towerco counterparty, Helios Towers Africa, into Chad persuade Millicom to divest their towers in the country? As recently as May 2014, TMT Finance initiated rumors that Helios Towers Africa were in discussions to acquire Millicom’s ~800 towers in Chad. Blending the Millicom towers with Airtel’s would give Helios Towers Africa a strong market position in Chad, and create economies of scale.

Could Millicom / Tigo return to the negotiating table?

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Towers retained by MIC

Joint venture towerco with Helios Towers Africa


With IHS acquiring #1 and #2 ranked operators MTN and Airtel’s towers in Rwanda, if Millicom is ever going to part with their Rwandan towers, it’s going to be sooner rather than later. Similarly, could the current Sonatel / Orange process in Senegal trigger a follow up tower sale by Millicom in Senegal? With the exception of their assets in Gambia, Millicom now has an obvious and closing window to divest towers in their remaining SSA territories. While it has been rumored that Helios Towers Africa has a Right Of First Refusal agreement on all Millicom’s SSA towers, it would be surprising to see Chuck Green’s team roll into the IHS stronghold that is Rwanda – but if such an ROFR did exist, it could be leveraged in Senegal and incentivise Helios Towers Africa to take a close look at those Sonatel / Orange assets – particularly if they were available on a sale and leaseback basis. In conclusion, we don’t think Millicom are done selling towers in SSA. A deal in Chad with Helios Towers Africa makes sense for both parties, Senegal has potential, while the question remains whether IHS would even want a third portfolio of towers in Rwanda, where IHS already have a very strong market position. Beyond the usual suspects It’s oversimplifying matters to say that there are no credit worthy anchor tenants beyond Africa’s six “tier one” MNOs. Cell C were able to consummate the first major SSA tower deal as long ago as 2010 – Telkom will be hoping that has set a precedent for

their current passive infrastructure RFP. Companies like Africell are doing very well in some markets, but their low-cost, rapid rollout strategies makes them more likely co-location tenants than anchor tenants – for example Africell has not built a single tower in DRC but has captured 20% market share by co-locating on 180 Helios towers. There are interesting regional players like Econet, whose strong position in Zimbabwe means they could consider creating their own towerco. Globacom’s reluctance to part with their towers probably means they’ve missed the optimum window on a sale in Nigeria or Ghana – figure those assets to remain operator-captive indefinitely. Unitel’s passive infrastructure assets could attract a good premium if a third licence was issued in Angola – Vodacom, Airtel and MTN have all been linked with the market. Perhaps the most aggressive new market entrant into SSA is Viettel, whose preference remains to build their own low-cost, often single tenant sites, but who seem to be warming to the principle of co-location, from their home market in Vietnam to Cameroon and, potentially, Tanzania. But again, they’re building not selling, so count Viettel as prospective co-location tenants not anchor tenants in a sale. The same applies to Smart East Africa, a subsidiary of the Aga Khan Fund for Economic Development, which is rolling out in Burundi, Tanzania and Uganda. Dig a little deeper into the market share statistics in almost any SSA country and you’ll find a layer of “non-traditional MNOs” such as urban TD-LTE plays and WiMAX operators.

Such entities can contribute as much as 0.3 to prospective tenancy ratios, albeit often on shorter, discounted leases as their equipment often requires less space and less power. So what’s still on tower companies shopping lists? While the unprecedented SSA tower deal flow we saw in H2 2014 will doubtless slow in 2015, there are several ongoing processes which may yield further transactions in 2015. < MobiNil’s SLB in Egypt is expected to close in H1 2015< The Sonatel / Orange process will soon commence for their towers in Senegal, Mali and the Guineas< Telkom’s RFP to sell their passive infrastructure could re-ignite the SLB market in South Africa The next wave? Airtel and Orange tower deals could trigger knock-on transactions in Burkina Faso, Chad, Congo Brazzaville, DRC, Egypt, Gabon, Mali, Niger, Rwanda and Senegal. Could we see towercos piling into the same market as their competitors? Probably not in SSA; in what Eaton Towers’ Terry Rhodes described an “outbreak of rationality”, there has been a decreasing amount of overlap between towercos. The independent towerco business model is a natural monopoly; it works best with half as many towercos as profitable operators, suggesting most African markets can support 1-1.5 towercos, with perhaps only Nigeria and South Africa able to support two

African towercos’ strategiesto date and plans for the futureInsights gleaned from the keynote towerco CXO panel session at the TowerXchange Meetup Africa, held in Q4 2014

The dominoes have fallen in the sub-Saharan African tower industry; over the last four years independent towercos’ ownership of SSA towers has risen from 0% to 29%. Given that the towerco business model depends on the credit worthiness of the anchor tenants, and towercos have little appetite to acquire towers with overlapping coverage, Africa’s towercos do not want to acquire all the towers; 55% penetration might represent market saturation. If Africa’s largest towercos have indeed acquired over half of the towers they targeted, that was reflected in the comments of the panelists. “We’re in five or six markets now, operating 7,800-8,300 towers in SSA – I hope we’re at least halfway!” Commented Chuck Green. How much growth is left in the African tower industry? “We’ve got a long way to go,” said American Tower’s Pieter Nel. “We’re looking at every country and environment in terms of the competitive nature of operators, maturity of sharing and existing barter agreements, which informs our view of the lifecycle. The infrastructure sharing and towerco concept is so well established and embraced on the African continent that it bodes well for tenancy ratio growth potential and for organic growth. With lots of holes appearing in the network, there are lots of opportunities for build to fill and build to suit. For example, in Ghana we’re seeing 12-15% organic growth,” concluded American Tower’s African CEO.

Read this article to learn:< How much growth is left in the African tower industry?

< Comparing business models and lease packages in SSA with the US

< The structure of the SSA tower market: SLB vs MLL, and what is the number of towercos per market?

< Towerco CXO priorities when investing to reduce energy opex, and their appetite for ESCO business models

< What is the one thing the SSA tower industry needs?

This article summarises talking points from the keynote towerco CXO panel session at the TowerXchange Meetup Africa 2014, featuring Chuck Green, CEO of Helios Towers Africa; Terry Rhodes, then Co-founder and Director of Eaton Towers (now interim CEO); American Tower’s Africa CEO Pieter Nel; and Abhulime Ehiagwina, CFO of Helios Towers Nigeria. The panel was moderated by Marco Cardoni of Analysys Mason.

Keywords: Towercos, Deal Structure, Opex Reduction, Batteries, Tenancy Ratios, Co-locations, Exit Strategy, Energy Efficiency, Pass-Through, Fixed Price, Densification, Active Infrasharing, SLA, Tax, Uptime, Off-Grid, Unreliable Grid, ROI, ESCOs, Renewables, DG Runtime, Procurement, Skilled Workforces, IBS, DAS, Small Cells, Sale & Leaseback, Manage With License To Lease, C-Level Perspective, Infrastructure Sharing, Africa, Nigeria, Tanzania, Ghana, Airtel, MTN, IHS, American Tower, Eaton Towers, Helios Towers Nigeria, Helios Towers Africa


Abhulime Ehiagwina, HTN, Chuck Green, HTA and Pieter Nel, AMT

There will be ongoing M&A, felt the panel, both from MNOs divesting towers and trade acquisitions. “If you look across a broad horizon at the African telecoms industry,” commented Chuck Green. “Multiple SIMs exaggerates reported penetration – there is hidden growth potential. Unique subscriber penetration rates are still relatively low but rising rapidly. There is need for coverage expansion, while regulators are increasingly concerned about QoS. African mobile networks are operating with 4,000-10,000 subscribers per site compared to less than 1,000 in the US and Europe. So there is growth potential in both coverage and capacity. As disposable incomes increase, as smart phones get cheaper and more widely rolled out, growth in SSA will be on the same track as developed markets.” “Africa’s towercos have established footprints strategically across the continent – the Airtel transaction has helped a lot in that respect. The


liquidity events to which we’re all building, either strategic sales or IPOs, should attract multiples which will reflect the rate of growth,” concluded Green. Eaton Towers’ Terry Rhodes added: “Penetration is already over 120% here in South Africa. Even with American Tower already here, Eaton saw a market opportunity to build towers in areas like Gauteng where we felt the networks could do with improvement. So we built towers focusing on capacity and infill, generating tenancy ratios of more than two. If we can achieve that in the richest region of the continent, we’re confident of the need for capacity and coverage elsewhere in SSA.”

Comparing the independent towerco model in the US with SSA “There are more similarities than differences between the SSA and US tower markets,” said Helios

Towers Africa CEO Chuck Green. “The fundamental model is the same: robust tower sharing, long term recurring cash flows, high leverage – the same as in the US. The primary differences are that operations and maintenance is a commodity for developed markets, whereas in SSA there’s more exposure to power and security, and more forex exposure. It’s about becoming more efficient – doing everything we can to reduce reliance on DG runtime; converting from AC to DC power so we have more control over power systems. So whereas in the US operating leverage is limited to putting co-locations on towers, in Africa we also have opportunity to increase efficiency at an opex level.”American Tower’s Pieter Nel added: “it’s a very simple concept: lease up the towers and everyone is happy – we get scale, the MNOs get efficiencies, savings can be passed to the consumer. American Tower are in 12 countries on five continents. In other markets such as the US and Latin America, many costs are passed through to the tenant – energy, ground rent, maintenance. The business model is more complex in Africa, but at least we own it and control it.” “We see the same growth in consumer demand in Africa as anywhere else in the world,” added Eaton’s Terry Rhodes. “Give an African consumer a smart phone she’ll use it. The penetration curve may be behind, but we still see a big wave of data growth – operators are going need every bit of help we can give them.” Abhulime Ehiagwina, CFO of Helios Towers Nigeria added: “infrastructure is not as mature in Africa, so

The MENA market remains a relatively fallow field for towercos, although Zain recently admitted they are currently reviewing their tower strategy. The imminent Egyptian tower sale will be a bellwether for the tower industry and their prospective MNO counterparts across the region. However, the structure of any tower market in MENA is likely to be different from SSA, consisting as the region does of quasi-rural developing markets and prosperous developed markets in which leveraged buyouts might be a more common deal structure than sale and leaseback. In the near-term, the PE-backed towercos don’t see as many opportunities in MENA with the promise to deliver returns comparable to those they see in SSA. “Ask us again next year and we’ll let you know!” Said one of the panelists, whose towerco is rumored to be in pole position to secure MobiNil’s Egyptian towers.

The Middle East and North Africa


you have to devote time to look at innovative power solutions. You have to ensure backups are up to date. You have to follow through your contracts. You have to ensure the sites are always up.” Are African leases reflective of a bundled approach whereas in the US every component is priced? Tower companies’ well-informed counterparts at African MNOs have learned a lot from how the tower business works overseas, so in Africa standard equipment configurations are usually bigger than in the US, giving the towerco less flexibility. A menu pricing formula is typically used, with the addition of 3G and 4G antenna often accounted for. Once the anchor tenant’s requirement is outside that standard equipment “bucket”, the towerco has a similar opportunity for growth. And of course there is the same opportunity to lease extra space to other tenants. Towercos still get significant additional revenue from additional equipment in SSA, and they don’t count that in their tenancy ratios, but it does of course contribute to Tower Cash Flow, which is a more inclusive metric to measure towerco performance. Comparing Manage with License to Lease (MLL) with Sale and Leaseback (SLB) business models in terms of the generation of shareholder value When their process started, apparently Airtel considered keeping 26% equity in each market, but so far African towercos have confirmed 100% ownership of Airtel towers in 13 markets. “If it’s

a good business, we want to own it, and make the independence as clear as possible,” said Terry Rhodes. The other panelists shared the view that SLB is the preferred model. Under a SLB agreement, a minority interest can be retained by MNOs. As long as that remains below 49% and is a passive investment to protect the independence notion of this model, investors are comfortable. Anchor tenants retaining more than 50% equity can impact the perceived value to investors, as there is a risk that the model loses it’s notion of independence, making other operators reluctant to share. So there should be a significant discount for that kind of deal structure. In fairness it should be noted that IHS, who recently announced a tower transaction in which 51% of the equity was retained by anchor tenant MTN Nigeria, had to withdraw from this panel at the last minute, and thus were not present to make the case for their innovative deal structure – doubtless they would have asserted that the independence of the towerco was enshrined in the terms of the agreement. American Tower tends to stay away from MLL deals unless there’s a good strategic reason, feeling they create unnecessary complexity. Initial concerns were swiftly assuaged about how market would react to their joint venture deal structures in Ghana and Uganda – the market understood that their MNO counterparty was a passive investor. African towercos’ appetites for managed services are declining – MLL and managed services

represented 31% of African towerco’s portfolios at the end of 2013, that had reduced to 10% by the end of 2015 as a function of the acquisition of thousands of managed towers, the cancellation of MLL and Managed Services contracts in Kenya and South Sudan respectively, and the dilution of the MLL share of market in a year where all the new deals were SLBs. One participant outlined their reservations about Managed Services and MLL deal structures. He felt Managed Services was not seen as a great business relative to the towerco model – margins are relatively skinny, early termination provisions often have to be made flexible, which further reduces the value perception by the market. If the MNO can buy back the customers it also degrades value. In summary, the valuation of a Managed Services or MLL deal depends on the term, the termination provision, who owns the co-locations, who is responsible for investing capex, and the pricing of the deal. Another towerco defended the MLL deal structure, explaining that it was critical to help investors understand what could happen after the term of the agreement. Tower Cash Flow is what delivers the value, and excellent TCF growth can still be created under an MLL deal, suggested the same panellist. Nigeria The TowerXchange Meetup Africa 2014 took place after the announcement of IHS’s acquisition of 9,151 and 2,136 Nigerian towers from MTN and Etisalat

respectively, but shortly before American Tower announced their acquisition of 4,800 towers from Airtel Nigeria. Understandably, American Tower weren’t at liberty to contribute to this section of the discussion. Abhulime Ehiagwina, CFO of Helios Towers Nigeria, said “what we’re looking at in terms of demand for capacity now in Nigeria is tip of iceberg. There is congestion at base stations across networks. It’s almost impossible to stream a YouTube video on a smartphone in Nigeria during peak traffic hours, and with smartphones for under US$100 coming onto the market, the number of subscribers who can afford mobile broadband is increasing. Nigeria currently has a little over 24,000 towers, yet the Ministry of Communications believe we should have at least 60,000.”The panel seemed to agree that with four substantial MNOs in Nigeria, there was room for two large towercos and a handful of niche players – although there was speculation that a lot of smaller towercos would get picked up. What is the optimum number of towercos per market? “I don’t think there’s a one size fits all concept – there are quite a few of us in Ghana, for example,” said one of our panelists. “Being second to market is workable, but if you’re the third to arrive and you don’t have unique locations, you’re in trouble.” “There was something of a mad rush in Ghana where the first three operators to outsource ended


up with three different towercos,” said another. “However, in Ghana we’re on a tenancy ratio right where we expected to be in our acquisition economics. We were realistic about the fact that there’s some overlap. Ghana should probably have no more than two towercos. Countries with 30-40mn population can tolerate two towercos, but with the exception of negative FX performance, Ghana has been fine.” “Ghana was first market to liberalise, and there were six MNOs, plus 4G new entrants,” said another panellist. “Would we all go in again now? Probably not, but there’s just so much more opportunity now. Our business is also doing well in Ghana, although the currency has had more impact than the competition. The only competition is where towercos have overlapping locations, and that’s in 20-40% of cases at the most. Whether it’s Ghana or another market in SSA, if we can meet service level agreements at a price better than it costs MNOs to build towers themselves, then the model works. It’s that simple.”

Improvement capex “For us it’s all about optimum return on capital invested (ROCI) – making selective decisions on capex to get optimum value for ourselves and our customers,” added American Tower’s Pieter Nel. “After a deal closes, there follows a natural cascade of capex priorities,” said Chuck Green. “First we shore up towers that are already overloaded, and make improvements on to comply with our Health and Safety standards. Then we look at strengthening towers for co-location and investing in opex reduction. In reality this all happens concurrently.” “When you acquire a portfolio, some of it’s older, some of it is newer and in better condition,” added Eaton’s Terry Rhodes. “After you’ve made sure everything is safe, after that it’s about individual tower profitability. If we can improve cash flow by spending capex, we’ll do it. If capex improves EBITDA it looks good to the outside world, just like in any industry.”

“ “

Being second to market is workable, but if you’re the third to arrive and you don’t have unique locations, you’re in trouble


Of course, it takes a while for a towerco to close a deal then get their hands around the state of the portfolio before it’s brought up to the operating performance they’d like to achieve.“In Nigeria one of our principal challenges is that we get only four hours per day of usable grid power,” added Abhulime Ehiagwina. “The government has privatised the grid, so looking ahead, our improvement capex budgets will depend on how quickly power reforms improve uptime from the grid. If we’ve moved from four to 18 hours of good grid, capex will decline, and we’ll focus more on upgrades for co-locations.” Reducing energy opex Q&A is when the panel sessions at the TowerXchange Meetup really come alive, and this one was no exception. The first question came from Mecc Alte, who wanted to advice on how to proposition towercos with innovations to reduce energy opex. “All the tower companies are interested in schemes that improve efficiency and reduce costs. We see a lot of good looking proposals – but we need to see a proof of concept,” said Abhulime Ehiagwe of HTN. “Pilot it at your own cost to prove it works and delivers value. Successful pilot schemes are easier to ramp up to scale.” Helios Towers Africa’s Chuck Green added: “As this industry has emerged from the aggressive land grab phase to where we are now integrating towers, we’re now more open to innovations. Our natural

question are: is it fit for Africa? Will it work in the field? Can it be maintained easily enough?”

“The lifecycle of any innovation is going to be important,” added Terry Rhodes. “We’ve recruited experienced tower people from India – our COO comes from American Tower in India – what he wants to see is a solution that works well there and comes at an Indian cost base, then we’re interested.” Pieter Nel echoed the same sentiment: “As our operations reach maturity, there is more time to spend running and improving networks. Come with a reference site and/or proof of concept. Reducing carbon footprints is absolutely a priority,” continued Pieter, “but this can be complicated such that every site needs it’s own design.”

“The consideration of renewables is on the same path as the economic and security situation in terms of reducing DG runtime,” added Chuck. “When we’re looking at alternatives to DG – CDC batteries, solar, wind et cetera - it’s driven by economic reality than by being green per se. We have framework for finding situations where it makes economic sense.”

“Reducing energy opex has an important administrative / security aspect to combat shrinkage – it’s more about controls than technology,” added Terry Rhodes. “We’re interested in capex models as long as the African technician on the ground is capable of making it working. We’ve seen too many complex solutions – it’s got be simple, robust and

economical.” With regard to the potential of ESCO or powerco business models, the towerco business leaders seemed more enthusiastic than at the TowerXchange Meetup 2013. However Pieter Nel voiced their primary continuing concern “it’s not about the technology used to deliver power as a service – it’s all about operational execution. It’s so important that you understand what it’s going to take to successfully execute.” Chuck Green continued the perspective: “Helios Towers Africa have considered ESCO type models,” said Chuck. “We have a direct responsibility to our tenants for uptime, governed by strict SLAs and penalties apply. So far we’ve not been comfortable with counterparty credit and capacity such that we’re not prepared to delegate the heartbeat of the service we provide to our customers. It doesn’t matter if the party we’re outsourcing to takes on penalties, what matters is that SLAs are met.”

The separation of power and non-power costs, and packages inclusive of fixed energy prices per site are commonplace now in SSA, but an evolution to towercos buying and selling energy by the kWh may be on the horizon.

However, towercos’ first line of offence in the battle against energy opex is always going to be to connect sites to the grid, where it makes economic sense. That’s tough in Nigeria with its four hours of usable grid power, but it’s a more attractive option in a market like Tanzania where cell sites on the grid

get perhaps 19-20 usable hours. Towercos back off from that grid connection preference, looking next at CDC batteries, then solar and other renewable sources according to local resource availability to reduce DG runtime.

American Tower embraces DC power “There’s a misconception that American Tower are not responsible for power equipment in SSA,” said Pieter Nel. “Many African MNOs expect service at DC level. We’re providing DC service level in Uganda, and migrating to a DC service level in Ghana. In South Africa, energy remains a pass through cost. We’re embracing owning and delivering power, and have achieved some great successes. For example, in Uganda we’ve been able to reduce fuel consumed per site by >30% in 24 months. Power is now a core competency of American Tower in Africa.” During later round table discussions, we learned that American Tower typically invests US$10-30,000 per site to migrate to DC service provision. Potential extensions of the passive infrastructure sharing business model: small cells, IBS and active equipment “Growth has to come with ancillary extensions along the value chain from where we are now as passive equipment providers for largely 2G operators,” said Chuck Green. “We are in the early stages of rolling out IBS in developed residential and commercial locations in Ghana and Tanzania,


a precursor to small cells. As broadband take up increases, DAS and IBS will become increasingly important in Africa’s major city centres.” While active infrastructure sharing is more in the interests of MNOs than towercos, a lot of regulators don’t allow it, and it tends to become an option for more mature telecoms markets than SSA. The current levels of congestion across Africa’s networks means the opportunity for and economics of active infrastructure sharing remain quite limited.

While in early towerco contracts, addressing potential future active infrastructure sharing was too challenging, Africa’s leading towercos now have preliminary pricing in the event of active sharing built into contracts. In that sense it’s not that different from sharing the benefits of energy reduction. While the towerco CXOs don’t see active infrastructure sharing as a near-term issue in Africa, they are anticipating it becoming a factor

over the ten-plus year lifecycle of contracts.

While the towerco leaders were obviously aware of satellite providers seeking to compete with land based cellular, and Google trying to get into the business using balloons, the prevailing view was that such approaches could change the economics of rural coverage, “but right now we’re happy being in tower business rather than the balloon business!” Concluded one of the towerco executives. What is the one thing the SSA tower industry needs? Pieter Nel, American Tower: “As much as providing energy is a core competency of American Tower and other African towercos, there is significant opportunity for suppliers to come up with a model for selling power as a service. If we get a credible consortium or partner offering a complete service with SLAs enabling us to focus on our core business of leasing up our towers, we’ll be interested.”

“ “There are 400-500mn Africans without communications. We must help to address that gap, improve penetration and extend networks to where it never made sense for one company to go alone


Abhulime Ehiagwina: “Governments need to harmonise the different layers of taxes under a unified tax scheme. MNOs have robust regulatory teams, the tower industry needs to build up to those levels.”

Chuck Green: “Until and unless there is universally reliable grid we all have to deal with power and security issues. We’re all searching for a silver bullet giving us reliable, easy to maintain, fit for Africa solutions so we can monitor in real time what’s going on at our sites…. And talent development is a huge issue across the continent from the top management team to the field level staff we employ.” Terry Rhodes: “There are 400-500mn Africans without communications. We must help to address that gap, improve penetration and extend networks to where it never made sense for one company to go alone.”

Projecting IHS’s future plans

IHS smashed through their five year target to acquire 20,000 towers in SSA in just 30 months. With the company’s recent addition of the Airtel towers to those already acquired from MTN in Rwanda and Zambia, as well as IHS’s acquisitions from MTN and Etisalat in Nigeria, where IHS now owns 14,222 or 56% of Nigeria’s towers, IHS has reaffirmed their position as Africa’s largest independent towerco, with over 21,000 towers.

IHS has always been a Nigeria-centric West African

tower play, with country risk diversification provided by their acquisitions in Cameroon, Cote d’Ivoire, Rwanda and Zambia. With ~80% of Nigeria’s towers now transferred from operator-captive to independent towercos, and IHS’s initial growth plan achieved, IHS may be refocusing on driving toward profitability and a future IPO. That’s not to say IHS wouldn’t look at further opportunities that meet their investment criteria. IHS’s original wish list of targeted countries included several countries in North, East, Central and Southern Africa, and they’re believed to have looked at opportunities as distant as Afghanistan.

The current Sonatel process in Senegal, Mali, Guinea Bissau and Guinea Conakry may be of interest to IHS as an extension of their West African footprint and relationship with Orange. If and when the North African tower market opens, we’d expect IHS to be bidders. And it would be interesting to see whether they would go toe-to-toe with American Tower should an opportunity of scale come to market in South Africa – whether the current Telkom process triggers such a showdown remains to be seen. However, elsewhere in SSA, IHS are not believed to have bid for the Airtel towers acquired by Helios Towers Africa, which reinforced their strongholds in Central and East Africa, nor for the Airtel towers which added to Eaton Towers’ footprint in both East and West Africa. With the towerco business model best suited to a ‘natural monopoly’, IHS may be disincentivised and disinclined to enter previously

targeted markets where competitors are now active, unless they have an appetite to try to acquire one of the other PE-backed members of Africa’s ‘Big Four’ towercos. IHS has raised record-breaking capital; over US$4.5bn since 2012, the largest equity raise in Africa since 2007. In seven tower transactions to date, IHS has deployed ~US$2bn, with initial acquisition expenditure phasing into improvement capex programmes and efficiency programmes in their more mature markets. IHS has funds for more acquisitions, and their enthusiastic backers, led by French family fund Wendel Group, have been only too happy to re-invest and to help add new members to the IHS’s growing tribe of PE and sovereign wealth fund backers. In terms of procurement strategy, IHS are believed to be considering moving from a conventional capex programme to an opex-oriented procurement strategy in which they simply pay for energy by the kWh – a move which may be mirrored by other African towercos, as hinted at the TowerXchange Meetup Africa 2014. In conclusion, IHS has achieved scale in SSA. After adding almost 13,000 towers and almost trebling the size of the company in 2014, we think IHS’s acquisitive growth may slow as the pipeline of transactions slows in SSA, refocusing their existing opcos on organic growth and driving TCF. But IHS will doubtless remain active and aggressive bidders for any further opportunities that meet their investment criteria

How and whatHelios Towers Africa buysFind out how one of Africa’s ‘Big Four’ towercos is structuring procurement, both for services and sites

TowerXchange: How is your procurement structured now?

Alex Leigh, Business Development Director, Helios Towers Africa: We have functional heads across the business who report to the COO, Kevin Koch. Rob Salbego is our technical specialist who looks at solutions and makes evaluations together with Jean-Marc du Buisson, our structural engineer for tower solutions. John Welsh looks at O&M solutions and how this can fit into his overall strategy of delivering optimal processes. They look at the specifications and then they review with help from the commercial team.

TowerXchange: How do you vet new suppliers?

Alex Leigh, Business Development Director, Helios Towers Africa: In terms of becoming a supplier to Helios Towers Africa it’s going through that KYS procedure. We sometimes work with the Vodafone Procurement Company team and some of our large capital items are sourced with their assistance, such as towers, generators, power cubes and batteries. If you’ve been through their procedure you don’t need to go through it again with us. For other projects, such as remote monitoring systems and IT projects we run a detailed procurement process and often begin projects with a smaller scale test phase. Admittedly, the level of detail and the robustness of the process has created hurdles and stretched timelines. But our experience has been that you need to take your time and properly vet suppliers and their products, because what might work in the lab and what will provide results in Africa in the

Read this article to learn:< How suppliers are added to the HTA supply chain< Helios Towers Africa procurement structures and centralised vs local decision making< How to pitch to Helios Towers Africa< Methods employed by HTA to minimise corruption while still fostering innovation

As African towercos mature and the ‘landgrab’ phase of the market settles down, there’s increasing pressure to not only bring sites up to scratch to meet Service Level Agreements (SLAs) and support new co-locations, but also to make increasing efficiency savings. At the TowerXchange Meetup Africa 2014 Alex Leigh, Business Development Director at Helios Towers Africa, hosted a round table to talk us through how these shifts are being reflected in the Helios Towers Africa procurement management and process structure and what that means for their suppliers.

Keywords: Interview, Towercos, Africa, Helios Towers Africa, Deal Structure, Acquisition, Valuation, Investment, EBITDA, Capex, Deal Structure, Lease Rates, Valuation, Transfer, Assets, Due Diligence, Opex Reduction, Capacity Enhancements, Fuel Security, Risk, Energy Efficiency, Operational Excellence, SLA, Anchor Tenant, Change Management, Sale & Leaseback


field might be two different things.. TowerXchange: How much autonomy do your local operations have to make purchasing decisions? Alex Leigh, Business Development Director, Helios Towers Africa: In terms of interactions with the local operations, they will usually choose from items which have been approved by our functional heads but they also have the ability to bring up things they come across that are interesting. We have a standard approval process, the same you would see in any multinational, approvals that require different levels of approval ranging depending on materiality that range from local CEO to the HTA board. Services and smaller value items are generally sourced locally, whereas the purchasing of large CAPEX items generally has more engagement from Head office. TowerXchange: If a supplier had their product agreed and budgeted by the MNO prior to divestment of their sites, will you honour the deal? Alex Leigh, Business Development Director, Helios Towers Africa: If it’s a contract that is being transferred as part of the deal then yes, but we evaluate each contract on a case by case as all our deals are structured as asset deals. Generally, we find that operators are not usually asking us to take on responsibility for in-process inventory as they usually cease sourcing products in the time between signing and completion of the sale and leaseback transaction.

TowerXchange: If you’re approved by Helios Towers Africa does it apply to Helios Towers Nigeria as well?

Alex Leigh, Business Development Director, Helios Towers Africa: No, Helios Towers Africa and Helios Towers Nigeria are separate companies.

TowerXchange: How important is standardisation across Helios Towers Africa’s portfolio?

Alex Leigh, Business Development Director, Helios Towers Africa: It is important to evolve to standardisation. We are working to standardise our processes as HTA is a tower platform built not only to manage multiple towers but to manage multiple markets. This does not mean all equipment must be the same but the process to manage them should be as consistent as possible. For the acquired sites

we necessarily inherit mixed equipment and mixed needs but as we replace aging power equipment we try to reduce unnecessary variation.

TowerXchange: If a supplier has a solution which they feel clearly answers your needs, how can they get to the point of pitching it to your team? Alex Leigh, Business Development Director, Helios Towers Africa: A lot of people who want to engage with us, whether it’s power, commercial or technical solutions; a lot of people want to get in. The light touch approach of ‘I have this and I want to meet with you’ or dropping us notes through LinkedIn gets lost. We need evidence of what your product does and bringing it to the right person is key. Do it in a way which gives it context and clear agendas. Make it clear what value we can get out of the discussion from the beginning.


“ “The light touch approach of ‘I have this and I want to meet with you’ or dropping us notes through LinkedIn gets lost. We need evidence of what your product does and bringing it to the right person is key

TowerXchange: How do you get hold of the right person? Alex Leigh, Business Development Director, Helios Towers Africa: Events like the TowerXchange Meetup Africa are great because we can meet a lot of new people face to face and find out more about what’s in the market. If you can’t meet us face to face then I suggest a clear email.

We have taken over networks that need the level of focus we bring to the table, and have had to deal with lots of reactive maintenance tickets initially rather than having time to invest in preventative maintenance. This means that a lot of what we’ve been buying has just been focussing on SLA delivery and only in the last 6-12 months have we been able to focus on optimisation. What we’ve done may not be the most efficient as we were breaking new ground but as a customer facing business the SLA

always needs to come first. Now we’re really starting to focus on new solutions that have a track record of performance. TowerXchange: How do you ensure Helios Towers Africa is open to innovation? Alex Leigh, Business Development Director, Helios Towers Africa: We try to embrace innovation as part of a structured process. If you’ve got the buy-in of our functional leads that will filter down very well and any timing delays of a structured process is a small price to pay to prevent corruption in the system. TowerXchange: Do you involve operations in selecting products? Alex Leigh, Business Development Director, Helios Towers Africa: There’s pretty open dialogue on a day to day basis between operations and functional heads. Project teams build sites and operations teams deal with them on an ongoing basis so there’ll usually be a handover. As we systemise our cashflow we can see on a site level what equipment is there and how it is performing, which feeds back into the technical forums and inputs into why we should be buying certain solutions. TowerXchange: How do you ensure the solutions you select are ‘fit for Africa’? Alex Leigh, Business Development Director, Helios Towers Africa: We’ve looked at solutions which look good in the lab or European settings but which don’t

work in Africa. You need to understand and plan for it because some turnkey products just don’t deliver in Africa. You also need to have confidence in your suppliers; SLAs don’t work if the company has gone bankrupt. We ask questions like: How do you train field maintenance supervisors to use the product properly? That partnership from group to operational level is important. You have to be very open about how to use a product and how a supplier delivers it is very important. Where you have advanced electronics or line conditioning it means you need a different level of electrical engineer in the country – how do suppliers deliver this? You should defend the maintenance of your product or it will fail and everyone loses. TowerXchange: What if suppliers want to deal with Helios Towers Africa directly? Alex Leigh, Business Development Director, Helios Towers Africa: Sometimes people want to engage more directly and there should be some benefit. When you get into the specialist end of procurement we need to evaluate if it’s working as well as it could. However, the VPC way is what we’re doing at the moment. For products that are not managed via the VPC route (such as hybrid solutions and RMS) then HTA will deal directly and if there’s a good reason not to go through VPC we do so. If a local supplier can deliver it quicker we’ll buy it if timing is an issue. It’s the main way we buy, but not the only way we buy. Because people are more familiar with it they’re more comfortable with it


“ “Events like the TowerXchange Meetup Africa are great because we can meet a lot of new people face to face and find out more about what’s in the market


In terms of qualifying acquisition opportunities in the market, opinions are taken from multiple sources, suggested Alex Leigh from Helios Towers Africa. Many of those are direct discussions with the market as bankers are consulted less and less frequently. Bilateral deals were judged the best way to structure an acquisition due to the bespoke nature of the product and difficulties in getting a balance between low lease rates and high consideration. Airtel started with one structure for their deals which evolved over time and developed into a bilateral discussion where buyers were allocated markets. Two of the biggest considerations for a towerco are location and opex. With low grid availability and hybrid hours in many networks, evaluating energy consumption is critical. Due diligence for location and energy consumption is therefore one of the first important steps in the acquisition process, followed by structural analysis. In terms of structural due diligence, Helios Towers Africa survey 10% of the towers to evaluate the structure of the towers and efficiency of power systems. Alex Leigh of HTA estimates that 90% of the work is done in-house, through the commercial team with access to internal functional heads, meaning that they are able to move very quickly on preliminary numbers, to the point of being able to make an offer within weeks. When selecting markets in which to make acquisitions, there are two main approaches – either they have long-term strategic importance for the towerco or there has been an event in a market which means there’s a

reason for the MNO to sell. Roundtable participants discussed how the scale of the towerco also affects their decision-making processes, with centralised functions reducing SG&A (Sales and General Administration) costs in a market by over 50% in some cases. The role of operational gearing was something which the round table discussed, with DRC given as an example of a market in which high fuel costs make cost efficiencies possible when measured against a market like Senegal, where the opportunities are less given low reliance on non-grid power. The round table also discussed how a deal could take as little as four weeks to sign in theory, but agreed that often the barriers to signing sooner involve reaching agreements with operators in terms of what they want out of the contract. However the single biggest barrier identified in the discussion is permitting, ownership and right to occupy issues associated with the land. Alex Leigh mentioned that Helios Towers Africa often overcome this barrier with this by closing the deal once they reach a critical proportion of towers, then having subsequent phases of closing, which can make waiting very frustrating. Permitting requirements can also change or slow the process. This is one of the reasons why the details of many recent deals haven’t been announced. Finally, participants discussed the concept of an MNO/towerco partnership as a ‘marriage’ – how getting an easy win in the short term may subsequently make the relationship very difficult. Towercos and operators spend a lot of time discussing the what if’s to ensure that there are no divorces in the life of the contract

How Helios Towers Africa acquires new portfolios

Why Helios Towers Africa has made Tanzania the anchor of their portfolioInsights gleaned from the Tanzania round table hosted by Helios Towers Africa CEO Chuck Green at the TowerXchange Meetup Africa 2014

The growth of the Tanzanian tower market and of Helios Towers Tanzania Helios Towers Africa first entered the Tanzanian market in 2011 in a transaction to acquire 1,020 towers from Millicom Tigo, bundled with Helios Towers Africa’s acquisition of Tigo’s assets in DRC. The subsequent integration of 1,149 Vodacom towers, which commenced in February 2014, is almost complete. When Helios Towers Africa’s acquisition of around 1,400 Airtel’s towers in Tanzania closes, subject to Conditions Precedent and fair competition clearance, Helios Towers Tanzania (HTT) will own 4,500 of an estimated 5,500 towers in the country, representing more than half of Helios Towers Africa’s 8,000 asset portfolio across the continent. While HTT’s tenancy ratio is not in the public domain, Chuck revealed that they were projecting the tenancy ratio to exceed 2.0 within five years. Tanzania’s changing MNO market; Viettel in, Zantel out? Helios Towers Tanzania is currently servicing significant build to suit rollout and co-location programmes from both Millicom and Vodacom, and they’ve already taken on the co-ordinates of Airtel sites to plan for additional tenants. Tanzania’s top three operators are building aggressively in anticipation of the planned market entry and rollout by Viettel, which recently

Read this article to learn:< A breakdown of the towers acquired and to be acquired in Tanzania, and forecast tenancy ratio

< The implications of Viettel’s imminent entry into the market

< Helios Towers Tanzania’s operational and energy efficiency priorities

< How Helios Towers Tanzania partners with maintenance subcontractors to optimise performance

< The potential for towercos to diversify into fibre sharing

When the Airtel tower transaction closes, Helios Towers Africa will own around 4,500 towers in Tanzania, representing 82% of the country’s towers, and almost half their pan-African portfolio, making Tanzania the anchor of Helios Towers Africa’s portfolio. Helios Towers Africa has invested, invested and invested again in Tanzania for good reason: Tanzania is a stable, growing economy with four credit worthy tier one MNOs seeking to extend coverage into new regions, joined by an aggressive new market entrant and several niche players. Helios Towers Africa’s CEO Chuck Green was joined by Head of Projects, Innocent Mushi, in hosting a revealing round table on Tanzania at the recent TowerXchange Meetup Africa; here are some of the main talking points.

Keywords: Towercos, Managed Services, O&M, Opex Reduction, Batteries, Tenancy Ratios, Build-to-Suit, Energy Efficiency, Operational Excellence, New Market Entrant, SLA, ROI, Hybrid Power, Solar, DG Runtime, KPIs, Site Visits, Skilled Workforces, IBS, DAS, Small Cells, C-Level Perspective, RMS, Stakeholder Buy-In, Infrastructure Sharing, Africa, Tanzania, TCRA, Airtel, Millicom, Vodacom, Viettel, Camusat, MER Group, NEWL, Pivotech, QTE, Sagemcom, Helios Towers Africa


Chuck Green, CEO, Helios Towers Africa

acquired a license from My Cell. Viettel had a notably disruptive influence on the Mozambique market, where their aggressive rollout of 1,600 low cost towers (spending as little as US$40,000 on some sites!) in 18 months enabled the Vietnamese-owned operator to grab significant market share from incumbent operators. The fact that 82% of Tanzania’s towers will be independently owned and marketed will doubtless accelerate any new market entrant. After initial resistance to utilising independent towers, Viettel has signed a co-location agreement with IHS in Cameroon as a means of accelerating their delayed 3G launch, so there is a precedent for Viettel leveraging shared sites. The potential impact of Viettel’s entry into Tanzania can be illustrated in comparison with another disruptive, aggressive new market entrant. Africell leveraged co-locations on 180 Helios Towers Africa sites in DRC to grab 20% market share in 12-18 months. The market entry of either Africell or Viettel tend to engender a new world order – driving down tariffs and ARPU – indeed, Viettel is talking about rolling out as many as 8,000 sites in two years in Tanzania, a great opportunity for HTT. Further market restructuring may follow in Tanzania, with Zantel believed to be for sale. Particularly strong in Zanzibar, the Etisalat-majority owned operator could be a ripe target for in-market consolidation. Tanzania remains an ideal market for the


independent towerco model. With a population of 40mn spread across a land mass the size of France, four strong operators and a fifth entering, none of which has dominant market share, and each with distinct regional biases, Tanzania still has relatively low penetration, so there is a lot of growth potential. Helios Towers Africa describe the regulatory environment created by Tanzania’s TCRA as “super-supportive” to infrastructure sharing – indeed the regulator’s concern about the proliferation of towers may draw Viettel into closer co-operation with HTT. The attractiveness of Tanzania to towercos is illustrated by the fact that Tigo’s initial auction

in 2011 attracted three just bidders, whereas the Vodacom process in 2013 attracted twelve.

Helios Towers Tanzania’s operational priorities While HTT boasts a strong and motivated team, they are always seeking ways to be smarter, better and faster operationally. The company is no longer in the aggressive land-grab cycle of the business (not that they’ve necessarily finished buying assets), but is instead rebalancing their time, effort and energy into improving operations to deliver against SLAs and KPIs. Ensuring projects come in on time, on budget, and getting maintenance contractors performing as they should be are near-

Estimated tower ownership in Tanzania

Helios Towers Tanzania, 2011 vintage

(acquired from Tigo)


(acquired from Vodacom)


(to be acquired from Airtel)

Helios Towers Tanzania BTS towers

Remaining Zantel towers

Miscellaneous small operator and

independent towers


1,020

1,149

1,400

~931

711

~289


term priorities. As Chuck Green put it, “a dollar saved in opex or freed GLA (Gross Leasable Area) is just as valuable as a dollar of incremental tenant lease revenue.” Green went on to describe HTT’s operational priorities as “blocking and tackling;” conducting an intelligent audit of all their own operational, mapping them, and ensuring best practices are followed. Energy efficiency HTT’s DC load per site peaks at 2.5-3kW per tenant, with the actual load around 1.5kW per tenant. Tanzania’s electricity grid is one of the more reliable in Africa, with an average of 20 hours of availability, and over 70% of cell sites connected to the grid. Where feasible, connecting off-grid sites to the grid delivers better RoI than any other power investment. HTT’s objective remains to deliver a lower cost structure, for example by leveraging energy saving solutions that make economic sense, that are “fit for Africa”, and that can be managed and maintained by the existing team in the field. HTT is looking for the easiest way to reduce DG runtime, for example by migrating from standard batteries to CDC batteries. HTT uses a systematic process to drive down DG runtime with different solutions to meet the needs of different sites; while four strings of batteries are right for some, others

might need two or six. Battery theft remains a challenge; HTT have tried welding a bar across four strings of batteries as a deterrent, and they’ve taken out insurance to mitigate the risk of battery theft, but it’s not cheap! Opportunistic and administrative theft of batteries and fuel cannot be eliminated entirely, but towercos feel they can improve upon the levels of pilferage affecting MNOs. It comes down to visibility and proper procedures, processes and controls. People have to be appropriately motivated – employees in the refueling supply chain have to be paid a salary to compete with the temptation to take money from thieves. HTT have some solar sites; half a dozen acquired from Vodacom, plus two or three more from Tigo. As PV prices come down, and innovations reduce the space requirement, HTT have an open mind about renewables. Chuck Green suggested: “I’m not wedded to any technology – I just want solutions that work in Africa.” One of the challenges for hybrid energy is that there is no way to optimise hybrid power without visibility; visibility into the impact of the number of battery strings, the quality of grid, the number of tenants et cetera. Towercos need first line data from RMS to optimise hybrid energy, and the search for a reliable remote monitoring capability is ongoing, with multiple different solutions being piloted by Helios Towers Africa. Many challenges have been encountered

by all the African towercos, each of which is seeking to make RMS work; from connectivity and communications, reporting and reliability, to the difficulty of maintaining and updating systems. Many RMS are found not fit for purpose as the skill levels in the field are not on a par with the technology adopted, while the challenges of enforcing new systems and processes if any party finds RMS undesirable have been noted previously. “We’re crawling before we can walk,” concluded Green, “if we can knock three or four hours of DG runtime out, we’re almost free of generators – then there’s no fuel to steal.” Motivating tenants to upgrade to low power, outdoor solutions Gain sharing used to be a naughty word, but it was incorporated into Helios Towers Africa’s Vodacom Tanzania transaction. In this case, the operator doesn’t share in any reduction in opex that comes from HTT’s investment, but they do benefit from their own investments. HTT currently charge a lease rate inclusive of power, with the utility meter rate averaged across tenants. RMS may provide an opportunity to meter each tenant separately. How HTT partners with maintenance subcontractors to drive performance improvements With senior representatives of six of HTT’s

principle subcontractors participating in the round table (Camusat, MER Group, NEWL, Pivotech, QTE and Sagemcom), it was possible to have a fruitful discussion about skills development across the Tanzanian telecoms/engineering talent pool, and about maintenance best practices. While several contractors revealed details of their training and qualification programmes, we also learned how HTT’s CEO Norman Moyo had created a Maintenance Forum, consisting of all


HTT’s maintenance subcontractors, to discuss how to minimise staff turnover, how to handle troublesome technicians (“weeding out bad apples to ensure they can’t move from one company to the next”), and to share best practices to optimise alarm response performance, enabling a transition to preventative maintenance. In Chuck Green’s words, “this is where the rubber meets the road at a company that outsources O&M. Maintenance contractors have to train people well,

and understand the contractual requirements we have under SLAs. It’s not just about achieving 99.95% uptime for class A sites, it’s about fire suppressions systems, certification of equipment, and a multitude of other details. There’s a way for us to work together so that field engineers visiting a site to complete a preventative maintenance task simply take a couple of pictures, and work through a tick list of other checks. I need maintenance partners who will follow the culture and processes of what we’re trying to achieve here.” Diversification into fibre, small cells and DAS? At every TowerXchange Meetup, the towercos are asked if they foresee the diversification of their business model from towers into fibre, and the answer is usually the same; never say never, but we have a lot on our plate at the moment and remain focused on squeezing as much value from towers as possible. In theory, towercos are interested in anything shareable in the value chain. But most towercos worldwide don’t own or share transmission and backhaul. The reality is that, while microwave backhaul remains a bottleneck, many MNOs remain protective about shared transmission. Some towercos have spoken to fibrecos about potential joint ventures, but it hasn’t progressed beyond initial dialogues. However, many towercos are getting into small cells and DAS – HTT have around 20 in-building solutions

The Tanzania round table at the TowerXchange Meetup Africa 2014

Exhibition opportunitiesAt each of our Meetups, TowerXchange features a curated exhibition of telecoms infrastructure equipment and service providers proven in their ability to add value to the tower industry. From O&M contractors and tower manufacturers, to RMS, DG, energy storage and hybrid energy systems, even DAS and small cells, we offer our towerco and MNO attendees a pre-qualified who's who of the suppliers they need to support their efficiency programmes and network rollouts. That's why procurement teams rely on TowerXchange.

To request a bespoke package tailored to meet your business development objectives and budget, please contact Annabelle Mayhew at +44 (0) 7423 512588 or email [email protected].

Here is a list of the 31 different suppliers already sponsoring or exhibiting at this year’s TowerXchange Meetup Africa:

Silver Sponsors:

GoldSponsor:

Bronze Sponsors:

DIAMOND SPONSOR:

Helios Towers Africa (HTA) is the leading independent telecom towers company in Africa.

HTA builds and manages shared telecom infrastructure, delivering improved efficiency and reduced costs for operators and their customers. Helios Towers Nigeria, an affiliate of HTA that was launched in 2005, was the first independent tower company in Africa.

In 2010, HTA pioneered Africa’s first sale/leaseback transaction with the acquisition of Millicom’s network of tower sites in Ghana. HTA currently owns and manages 3,500 towers and has operations in Ghana, Tanzania, the Democratic Republic of Congo and a sister company in Nigeria, with new operations under development in several other African markets.

www.heliostowers.com

Exhibitors:AbloyCamusatChina ShotoClean Power Systems, A Cambridge Clean Energy CompanyEnatel EnergyEnerSysEmerson Network PowerFlexenclosureGS YuasaHeliocentrisHMS Industrial Networksi engineeringImergy Power SystemsInala TechnologiesInfozechKaramLeadcomLikusasaMetalogalvaNorthStarSagemcomTelemisisTKM Maestro


The unique experience of a TowerXchange Meetup

< Africa market forecasts< Q&A with the CEOs< Round tables add insight< Structured introductions< Select your own agenda< Local market knowledge

< Market transformation< Next sale & leasebacks< BTS opportunities< Site upgrades< Energy opex reduction< Country specific round tables

Insights

Infrastructure focused

Personal development

Connections

Experience

Learning

< Top 300+ decision makers< Towerco CXOs< MNO tower strategists< Investors< Strategic advisors< Proven suppliers

< Networking< Selective audience< Curated exhibition< Relax and enjoy< Professionally hosted

< Undiluted focus on passive infrastructure< Real estate< Power< Construction< Monitoring< O&M

< Learn from 300+ peers, the leaders of the African tower industry< Align your role and strategy with the needs of the ecosystem

For more information visit www.towerxchange.com/meetups/africa

TX_Mega_Prospectus (Africa 2015)

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