With special thanks to the TowerXchange “Inner Circle” · With special thanks to the...

| TowerXchange Issue 1 | www.towerxchange.com2

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

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

The TowerXchange Journal is free to qualifying recipients. We also provide webinars and regular meetups. TowerXchange monetizes this community through the sale of advertising and sponsored content, 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:

Alan HarperCEOEaton Towers

Michel FaivreDirecteur Programme Partaged’Infrastructure AMEAFrance Telecom-Orange

Nina TriantisManaging Director, GlobalHead of Telecoms & MediaStandard Bank

Jeffrey EldredgePartnerVinson & Elkins

Torsten EsbjørnRegional Director, AfricaRamboll

Zouhair KhaliqConsultant, Executive DirectorWarid Telecom, Former CEO,Orascom Int’l Investment

Chuck GreenCEOHelios Towers Africa

Riana DonaldsonManager: International NetworkOperations SupportVodacom

Chris Gabrielformer CEO, Zain AfricaSenior Adviser, Macquarie GroupChairman, Clean Power Systems

Natasha GoodPartnerFreshfields

Ayman Al AdlAssociate Director – TMTStandard Chartered Bank

Adeel BajwaSenior GM of Legal Affairs andContractsWarid Telecom

Tunde TitilayoCEOSWAP Technologies & Telecomms

Fazal HussainManaging Partner, Deka Globalformer CEOHelios Towers Nigeria

Andrew DoyleManaging DirectorTech & Comms PracticeMott MacDonald

Johan SmithHead – Africa Telecoms GroupKPMG

Rajat MalhotraCEO, Middle East & AfricaHayat Communications

Ahjeeth JaiJaiConsultantInvestec

© 2012 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.

Contents Departments

5 AnalysisEstimated number of towers owned or managed by independent towercos in Africa

7 News< IHS acquires 1758 towers from MTN< Cameroon and Cote d’Ivoire market views< Orange selling 600 towers in Kenya

13 EditorialWelcome to TowerXchange

47 Your letters and emailsComing soon!Join the TowerXchange Group on LinkedIn!

14 30

4027

Are three towercos in Ghana too many?

How to guide:Shareability

Special feature:Uganda case study

Introduction to infrastructure sharing

15 Is infrastructure sharing working in Ghana?16 BuddeComm Perspective on Ghana17 Interview with Chuck Green, CEO, Helios24 Best of Both Worlds? With Tony Dolton of Vodafone

31 $value on telecom infrastructure assets32 The cost of multi-tenant towers34 Design for shareability37 What are my towers worth?

41 How Orange leverage infrastructure sharing43 An interview with the UCC45 How Eaton hit the ground running: An interview with Alan Harper, CEO

28 Why share Africa’s towers?48 How to structure a deal 50 The criticality of tenancy ratios52 When is the right time to share towers?

Coming in the next issue of TowerXchange

Anatomy of an infrastructure sharing transaction< Who’s who: lawyers with direct experience of advising on African tower transactions< A checklist of the data you need to buy and sell towers< How to accelerate transactions< A closer look at SPAs and MLAs

What you need to know about the financing & track record of the companies bidding for Africa’s towers< Who’s who: the towercos bidding for African assets< Are towercos paying a premium for first mover advantage in Africa?< Do the ‘Big 4’ towercos have the digestive capacity to acquire all the towers that are coming to market in Africa?

www.towerxchange.com | TowerXchange Issue 1 | 3

[email protected] [email protected]

WWW.MOTTMAC.COM

Mott MacDonaldInfrastructure sharing – strategic consultancy and transaction adviceWe combine commercial and technical knowledge of telecoms markets with a pragmatic understanding of the economic drivers behind infrastructure sharing. We’ve worked internationally with operators, towercos, regulators and investors on network strategy, asset disposals and tower sales. Our insight underpins our services, which enable us to help you at any point in your infrastructure journey. We can assist with the following:

■ Evaluating site portfolios in the local market context, set against international benchmarks

■ Undertaking complex subscriber modelling to assess infrastructure demand

■ Assessing technology, regulatory and planning risks ■ Undertaking detailed cost modelling, assessing

capex and opex versus benchmarks ■ Understanding operator strategies for

infrastructure sharing

The current state of theAfrican infrastructure sharing market

Please take this analysis as guidance, not as gospel

As many readers will know, accurate tower counts are very difficult to attain and even more difficult to ensure consistency.

TowerXchange have collated publically available data on the number of towers acquired or managed by independent tower companies in each African country. Where the data was accessible, we’ve also included towers built by independent towercos. We’ve verified the figures by checking Quarterly Reports, Analyst Call transcripts and simply by asking the CEOs of each towerco for their counts, but not everyone counts towers in the same way.

Understandably different stakeholders want to use different definitions to make their company compare favourably. Are towercos counting just active towers or ‘works in progress’? Do they include legacy sites with capacity currently for only for single tenants? We’ve asked for counts including only active towers, but some towercos will only share estimated counts. However all the estimates included here were updated to late November 2012.

An appeal for data

TowerXchange welcomes any corrections and additions to our tower counts, and will happily publish links to any site lists in the public domain. Please send any corrections or comments to [email protected]

Estimated number of towers owned or managed by towercos in AfricaSource: TowerXchange research, quarterly filings, site lists


Helios TN

SWAPEaton

Helios TA

American

IHS Africa

1,000+

1,211

1,500+2,800+

5,610

4,540

MTN

Cell C, MTN

Starcomms Nigeria, GhanaGhana, South Africa, Uganda

Nigeria, Cote d’Ivoire, Cameroon, Ghanga, Sudan, South Sudan

Ghana, South Africa, UgandaGhana, DRC, Tanzania

Vodafone, Orange, Warid

Millicom

N/A Nigeria

Accelerate your sales cycle and close your next major deal in AfricaAdvertise in the TowerXchange Journal, circulated to a highly targeted community of the 628 most influential tower decision makers

C-level

VP, Exec Director,

Partner

Director-level/Dept Head

Senior Manager/Managing Exec

Middle & Junior

Manager

46%

14%

27%

12%

2%

Operators

TowerCos

EquipmentSuppliers

Advisers

Investors

Others

34%

20%16%

13%

12%

5%

52%

11%

24%

7%5%

1%

Sub-SaharanAfrica

MENA

Europe

Asia

Americas

Australasia

To book your advertisement, contact: Kieron Osmotherly | [email protected] | M. +44 (0) 7771 148001

News in the migration of assets and novation of leases, here’s some quotes from IHS Africa’s press release about the deal, just in case you haven’t seen them.

“The benefits to MTN of monetising our non-core assets and outsourcing passive infrastructure to experienced independent companies such as IHS are considerable,” said Sifiso Dabengwa, Group President and CEO of MTN Group. “With a continued commitment to improving the service to our customers, a reduction of our capital expenditure requirements allows us to concentrate on investing in our customer base and implementing additional services to meet the demand for innovative products and data.”

“We are delighted to build on our successful partnership with MTN for whom we have previously built and maintained sites in Nigeria and Sudan. Our strong technical capabilities and operational expertise reinforce MTN’s performance-oriented approach and high standards of service,” said Issam Darwish, CEO of IHS Africa. “This transaction is the next step in our strategy for expansion across Africa; we continue to invest in countries with attractive economic and demographic profiles. This transaction firmly positions IHS as a leading mobile tower infrastructure company in sub-Saharan Africa with resources for continued expansion and technological innovation.”

Congratulations to IHS Africa on their acquisition of 1,758 towers from MTN in Cote d’Ivoire and Cameroon. The cost per tower is US$151.5k in Cote d’Ivoire (US$141m purchase price) and US$173k in Cameroon (US$143m). While one needs to know the lease rate to evaluate the deal properly, industry commentators agree that MTN realized a good price, while IHS Africa have paid a justifiable premium to cement their place among the most credible independent tower companies in Africa. Indeed, this deal makes IHS Africa the largest independent tower company in West Africa with a presence in the four largest economies in the region; Nigeria, Ghana, Cameroon and Cote d’Ivoire.

Unlike MTN’s previous joint venture deals with American Tower in Ghana and Uganda, in which they retained a substantial equity stake, MTN has parted with 100% of the equity in Cote d’Ivoire and Cameroon. As usual, MTN becomes an anchor tenant. IHS Africa has made build-to-suit commitments. The initial term is 10 years. Citibank served as MTN’s advisers on the deal. The transactions are expected to close during the first quarter of 2013, subject to the usual closing conditions.

TowerXchange have requested an interview with Issam Darwish, CEO of IHS Africa, but whilst he and his team are currently doubtless deeply embedded

IHS Africa acquires towers from MTN in Cote d’Ivoire & Cameroon

“

“

This deal makes IHS Africa the largest independent tower company in West Africa


“In Cameroon and Cote d'Ivoire there hasn't been as much of a push for infrastructure sharing from the regulatory side as in the other countries,” says Paul Budde, CEO of leading analysts BuddeComm. “But Cote d'Ivoire with its 7 mobile networks is certainly a market that is ripe for it.”

There are currently five active mobile operators in Cote d’Ivoire. The market is led by MTN, who have a 40% market share, and Orange. Moov (Etisalat), KoZ (Comium) and Oricel Green Network (Lap Green Networks) also operate live networks. Further licenses are held by Warid and World Café (Aircomm), but spectrum allocation problems have delayed launch. The benefits of such a fiercely competitive market include soaring penetration, which has risen from less than 10% in 2004 to over 80% today. The first 3G licence in Cote d’Ivoire was issued to MTN in March 2012.

Eaton Towers’ Keith Boyd on Cote d’Ivoire: “Towercos need to move fast in the Ivory Coast – most operators are believed to be considering tower plays, and those late to market will be worth the least as there are only so many tenancies up for grabs.”

While a similar market in size, Cameroon is a very different market in terms of competitive dynamics. With only two competing networks, MTN and Orange, mobile penetration in Cameroon lags many other African countries at 49%. The Ministry for Posts and Telecommunication called for expressions of interest in a 3G license in May 2012, and the market is poised to take off. Qualifying bids for the license are understood to have been received from Airtel, Viettel (from Vietnam), Maroc Telecom (Vivendi Group) and Technologie et Systeme d’information/Korea Telecom.

Keith Boyd of Eaton Towers commented: “Cameroon has two established operators, but with as many as three or four new licensees potentially coming to market, it could be a very interesting market. However, with new entrant OpCo funding and launch dates unknown, it’s impossible to forecast prospective tenancies.”

The investment banking arm of the pan-African bank- Ecobank Capital, recently announced the successfully raising of a $202m syndicated credit facility on behalf of IHS Africa, $102m of which is for projects in Cameroon, and $100m for Cote d’Ivoire

A closer look at the Cameroon and Cote d’Ivoire markets

Operator Market Share, Cameroon

MTN

Orange

Cameroon market overview

Population: 20mMobile subscribers: 10.5mMobile penetration: 52.4%GDP per capita (PPP current USD): $2,383Internet users per 100: 5(Source: World Bank, 2011)

Population coverage: 85% ARPU: MTN reports US$6.2(Sources: MTN and Orange Quarterly reports, Spring 2012)

Cote d’Ivoire market overview

Population: 20.2mMobile subscribers: 15.6mMobile penetration: 86.4%GDP per capita (PPP current USD): $1,803Internet users per 100: 2.2(Source: World Bank, 2011)

MTN in Cote d’Ivoire

Market share: 37-40%Subscribers: 6,305,000ARPU: US$6.1(Sources: MTN Quarterly report, Spring 2012)


Eaton secures $60m debt financing to invest in new and existing towers in Uganda

Eaton Towers has secured $60m in debt financing to fund their acquisition of just under 400 towers from Warid Telecoms in Uganda, enabling them to upgrade existing sites and fund up to 80 new builds. Eaton also acquired 300 towers from Orange, giving them national coverage in Uganda.

This issue of TowerXchange features an exclusive interview with Eaton CEO Alan Harper on page 45, in which he discusses how Eaton will invest to reduce opex, extend the network and enhance capacity.

Eaton’s latest capital injection consists of a $30m tranche from Standard Bank Group, acting through Stanbic Uganda, for a six-year term, plus a $30m tranche with an 8.5 year maturity from IFC. The investment in Eaton is IFC’s second foray into African towers, having made a $25m equity investment in Helios Towers Africa in January 2011.

"This latest round of debt funding is a further validation of the Eaton Towers business model and management team, and a clear demonstration of our ability to efficiently leverage our assets across Africa”, said Eaton’s CFO Peter Lewis. “Eaton Towers is now a leading tower company in Uganda and this funding facility will allow us to further consolidate our position there."

Eaton Towers has recently established offices in Kenya

In order to finance their deals in Cameroon and Cote d’Ivoire, and development in Nigeria, IHS Africa has announced the sale of 25% equity for $125m to European investment firm Wendel and its subsidiary Oranje-Nassau. This continues IHS’s efforts to raise US$400m to finance their ongoing African business development.Wendel becomes IHS Africa’s largest shareholder. Other shareholders include infrastructure services company UBC, the founder and main promoter of IHS, and existing first tier shareholders IFC, Investec AM, FMO, ECP and Skye Bank. Management currently hold 10% of the equity in IHS

IHS Africa overview< Operations in Nigeria, Ghana, Sudan and South Sudan< Services across full tower value chain: managed services, deployment and site ownership< 99.9% uptime on IHS co-location sites< FY2012 turnover was US$97m, of which US$38m came from co-location< FY2012 EBITDA was US$11m, of which US$10m came from co-location< Reported tenancy ratio: 1.67x(Source: Wendel Investment in IHS analyst call)

(Source: Wendel Investment in IHS analyst call)

IHS Africa valued at fourteen times EBITDA, according to latest equity finance deal

IHS Africa: analysis of towers

Owned sites

Managed sites

0 1000 2000 3000 4000 5000 6000

1242

697

720

931

827

2659 2951

1193Nigeria

Ghana

Sudan

Cote d’Ivoire

Cameroon

Total


A request for expressions of interest has been circulated, and 500 new builds would apparently also be involved.

Orange currently owns or rents more than 900 sites in Kenya, with just over 40% of them running 3G as well as 2G technologies. Over 30% of sites are already shared, the majority being shared with Safaricom.In June 2011, Telkom Kenya and Safaricom had announced that they were exploring the viability of an Indus-style, independently managed tower sharing firm to manage a pool of 4,000+ towers. Those talks were believed to have been deprioritised as

tariff wars took hold in Kenya, but it now seems that Telkom Kenya (Orange) are once again considering substantial infrastructure sharing.

In December 2007, France Telecom acquired a 51% stake in Kenya’s incumbent operator, Telkom Kenya, through its holding company Orange East Africa, launching 3G services in 2011

Orange examining infrastructure sharing scenarios in Kenya

Safaricom

Airtel

Orange

Essar

Others

Safaricom

Airtel

Kenyan Mobile Subscribers (in millions)Source: Commission of Kenya, June 2012

Kenyan Mobile Data/Internet Subscribers (in millions)Source: Commission of Kenya, June 2012

Orange

Essar

Orange is considering selling 600 towers in Kenya. A senior executive at the operator admitted Orange had “launched a process looking at different scenarios to optimise costs in Kenya.”

Kenya market overview

Mobile subscribers: 29.7mMobile penetration: 75.4%Internet / data subscribers: 7.7m(of which 98.9% mobile, 9.4% broadband)(Source: CCK, June 2012)Cell sites: 5,565, of which 4,988 on-grid (GSMA)Coverage: 89.1% (GSMA)

American Tower adds a further 236 towers in South Africa

American Tower’s September 2012 Q3 report revealed the addition of a further 236 towers in South Africa, taking their portfolio in the country to over 1,600 towers. The report also revealed that international rental and management segment revenue increased 22% to $217.2 million, representing 31% of American Tower’s total revenue, while international rental and management segment pass-through revenues increased 6.5% to $57.2 million. International rental and management segment Operating Profit increased 20.9% to $110.7 million.

In Q2 American Tower’s international segment had generated higher commenced new business than their domestic segment for the first time in their history

Smile 4G network plan becomes clearer

Smile Telecoms’ extended partnership with Alcatel-Lucent to build and operate their data-centric LTE networks revealed that Smile will expand their networks to 120 towers each in Tanzania and Uganda, focusing on Dar es Salaam and Kampala, by February 2013. Smile intends to have thirty 4G base stations operational in the DRC capital, Kinshasa, by Q3 2013.

Smile became the first network in Africa to provide 4G LTE service for hi-speed mobile broadband access in the 800 MHz frequency band in June 2012 when they launched in Tanzania, and they are investing $100m to rollout in at least three African countries over the next two and a half years


Operator Market Share, Nigeria (subscribers in million)(Source: Nigerian Communications Commission, September 2012)

MTN

45.6

21.1

0.3

14.4

22.3

3.2

EMTS (Etisalat)

MTEL

Airtel

Globacom

4 CDMAoperators

The grapevine is buzzing that the next infrastructure sharing transactions could take place in the massive and fiercely competitive South African and Nigerian markets.

According to September 2012 figures from the NCC, Nigeria has over 107m active mobile subscribers, with teledensity of 76.7%. Networks have become so congested in Nigeria that the NCC recently issued a ban on promotions and lotteries.

Meanwhile, South African publication Tech Central ran a quote from MTN’s Managing Director Karel Pienaar in August 2012, saying: “The reality is, if you

look at the infrastructure on the ground, it’s not our core focus, so we don’t leverage it to the extent that perhaps we could. If you put it into an entity that can leverage it, then you have improved efficiencies.” Meanwhile, Vodacom has increased the number of LTE-enabled base stations on its network from less than 70 at launch in October 2012, to over 200 in Johannesburg.

Amid rumors that Egypt could add a fourth license in Q1 2013, check out the interview with Tony Dolton, CTO of Vodafone Egypt on page 24 for hints of intent to form a carve-out joint venture towerco in this high penetration country

Will Nigeria, South Africa and Egypt be the next markets for infrastructure sharing deals?

Etisalat investing $400m in network expansion in Nigeria

Steve Evans, Chief Executive Officer of Etisalat Nigeria, said that the company would be investing more in 2G networks in rural areas and in 3G networks in urban centres in 2013. With about 3,500 base stations across Nigeria, Etisalat is targeting 20 million active subscribers by the end of 2013. According to NCC figures, Etisalat had 14.4m subscribers in September 2012. In an interview with local newspaper The Guardian, Evans also pointed out the challenges posed by interruptions in power supply, suggesting that powering base stations in Nigeria cost 15-20% more than in countries where there was more stable grid power. Evans also spoke about the NCC ban on promos and lotteries, saying: “The main promotion, which was the root cause of the ban was the one where customers receive five times daily expenditure on on-net calls and which must be exhausted before midnight. To us that promo, from the outset was clearly going to lead to catastrophe, reason why Etisalat didn’t join the foray. The network capacity became congested because it wasn’t capable any longer to carry the traffic.” Evans continued: “NCC needs to reconsider this decision. They should only base a ban on promotions from networks having quality of service and congestion challenges. We feel very bad about the ban. It is unfair, reduces competition and sort of takes the benefit away from the customers. I am sure that if you ran a referendum on Etisalat customers they will tell you they have no congestion issues on the network. So, the criteria used by the regulator needs to be revisited.”


The Postal and Telecommunications Regulatory Authority of Zimbabwe (POTRAZ) plans to install 54 mobile phone base stations in under-served and remote areas across the country over the next two years.

POTRAZ has already erected 11 sites for the stations, and deputy director-general Mr Alfred Marisa said in an interview in local newspaper The Herald: “the first phase (of the) project had eight terminal sites

and three repeater sites while the second phase is targeting a total of 43 sites. Our target is to reach all under-served areas in Zimbabwe. The areas targeted and prioritised are remote rural areas.”

“Construction of towers at the 43 sites is likely to span over two years since the Universal Services Fund cannot fund all of them in one year, given that the USF is also funding other projects such as the Schools Connectivity project and some deserving

postal projects,” said Mr Marisa.

“As at the end of September 2012, the teledensity figure was 89.8 percent (active sim cards and fixed lines without factoring in multiple line ownership). Given the current growth trends, we expect teledensity to reach 100 percent by next year as mobile services are extended to more under-served rural areas,” added Marisa.

The regulator has also strongly advocated the sharing of infrastructure: “operators are already sharing infrastructure. Sharing infrastructure has been hampered by old designs (especially towers) which were originally not designed to carry more than one operator and, in some cases, inadequate backhaul infrastructure,” concluded Mr Marisa. Previously, Zimbabwe’s leading operator Econet had called for the Universal Services Fund, a 2% levy on all operator’s annual revenue, to be scrapped due to a lack of meaningful development of telecoms in underserved areas from the fund

Zimbabwe regulator to install 54 base stations in underserved and remote areas

“ “Sharing infrastructure has been hampered by old designs (especially towers) which were not designed to carry more than one operator


on how to structure, negotiate, close and leverage infrastructure sharing transactions. The most popular TowerXchange Journal articles will become live webinars giving you the chance to ask YOUR questions.

TowerXchange will recognize the achievements of pioneers both in our annual “Tower Power 50” list, and an annual awards ceremony, inaugurated at TowerXchange Live, part of Africa’s new annual telecoms infrastructure conference and exhibition. We’ll also have regular meetups rotating between different African regions and occasionally coming to Europe and the US to connect with the international investment community. TowerXchange respects the competitive sensitivity of infrastructure sharing, and our events combine practical “how to” briefings with private 1 to 1 meetings between qualified decision makers.

I’ll leave you with an appeal to engage in the TowerXchange community! Please share YOUR expertise and experience – we’re always on the look out for new case studies, interviews and columnists! Join our linkedin group at www.linkedin.com/groups/TowerXchange-4536974 and email or call me directly to share your opinions on the articles and interviews in this Journal…

All the best,

Kieron OsmotherlyFounder, TowerXchange

M. +44 (0) 7771 [email protected]

This is the bi-monthly publication of TowerXchange – your new, independent community for operators, towercos, investors, advisers and suppliers interested in infrastructure sharing in Africa.

We’ve launched TowerXchange because we believe the volume of infrastructure sharing transactions in Africa will continue to increase in the coming months.

We’ve launched TowerXchange because we feel we can help there is an information gap between

those who know how the tower sharing business model works, and how it can be tailored to achieve different objectives in different African markets, and those on the front lines of infrastructure sharing – whether they’re gathering data on their towers for an RFP, or leading post-deal efforts to reduce opex and improve tenancy ratios.

And we’ve launched TowerXchange because we passionately believe infrastructure sharing is great news for Africa – creating a new class of ‘InfraCo’ specializing in creating and managing next generation networks while driving down opex, enhancing the economics of universal access, releasing capital and creating new shareholder value.

TowerXchange has a laser-beam focus on infrastructure sharing in Africa. It’s a small world of people who have “gotten their hands dirty” leading Africa’s pioneering infrastructure sharing deals, and we’re grateful that many of those pioneers have joined TowerXchange’s “inner circle” informal advisory board.

TowerXchange provides several services to support infrastructure sharing in Africa. This bi-monthly Journal taps the expertise of leading practitioners, keeps your ears to the ground for news of future infrastructure sharing transactions, celebrates the successes of deals that have closed, and “lifts the lid”

EditorialWelcome to the first edition of the TowerXchange Journal!

Kieron Osmotherly, TowerXchange Founder


Special Feature:

With three major tower transactions to date and five active independent towercos, Ghana could be a glimpse into a future for African telecoms infrastructure that involves a migration from operator-captive towers to an independent tower company-centric model.

Are three towercos in Ghana too many?

In this feature:15 Is infrastructure sharing working in Ghana?16 BuddeComm perspective on Ghana17 Interview with Chuck Green, Helios24 Interview with Tony Dolton, Vodafone


The Ghanaian market has become the perfect test bed for tower sharing. Ghana is a favorite of international investors due to low political risk, so it’s no surprise that the country has attracted tens of millions of dollars of investment in infracos.

With Globacom recently joining the existing five nationwide carriers serving a population of 25m, high cost of new builds, ARPU falling below $5 forcing a reduction of opex, and a regulator strongly in favour of sharing, network planners often have no option but to co-locate. But infrastructure sharing is not a necessary evil in Ghana – it’s been a successful investment for incumbents and new market entrants alike.

“As a shareholder we’re happy with our investment,” says Khumo Shuenyane, Group Chief Strategy Mergers and Acquisitions Officer at MTN. “As a tenant we’re happy with the management of the towers. And we’re happy with the build to suits.”

Vodafone Ghana seem similarly pleased with their operational lease deal. Tony Dolton, CTO at the time,

recalls “the deal meant a lump sum cash payment was invested to upgrade the legacy towers, and for us an immediate opex reduction of over 30%.” You can read an in-depth interview with Dolton on page xx.

Meanwhile, from the new market entrant’s perspective infrastructure sharing is working well – Airtel are rumored to have doubled their network in a year thanks to co-location.

Is it working for the towercos? American Tower have acquired over 2,000 towers in Ghana and are believed to have placed over 400 co-located tenants from the likes of Airtel, Vodafone and Tigo on those towers. And Helios’ Chuck Green is happy to go on record to say “to date our business in Ghana has performed at or above our expectations at the time we executed the deal.” Chuck’s views on the Ghanaian market are explored in the interview on page 17.

3G mobile broadband customers constitute the majority of Ghana’s internet users. TowerXchange will revisit Ghana next year to examine the impact of growing capacity demands, and the role of towercos in densifying the network. For now, and as Africa’s most mature market for independently owned and managed towers, the signs are good that infrastructure sharing is working in Ghana

““

As a shareholder we’re happy with our investment. As a tenant we’re happy with the management of the towers – Khumo Shuenyane, MTNGhana’s infrastructure sharing market was

pioneered by Millicom’s deal with Helios Towers Africa, in which Helios invested $54m for a 60% stake in the joint venture. Vodafone soon closed an operational lease deal with Eaton Towers, to be followed by another joint venture, this time American Tower investing $218.5m for a 51% stake in a joint venture with MTN. SWAP Technologies, with 500 towers, and IHS Africa, with 697 sites, are also active in Ghana.

Test case:Is infrastructure sharing working in Ghana?Tower sharing arrived in Ghana in a big way in 2010


Leading analysts BuddeComm say difficulties obtaining permits for new sites is driving infrastructure sharing in Ghana.

With permits to construct new base-station sites taking a minimum of six months, Ghanaian network operators are warming up to the idea of infrastructure sharing. Separate permits are required from the Environmental Protection Agency (EPA), the Ghana Civil Aviation Authority (GCAA), the Ghana National Fire Service, as well as District, Metropolitan and Municipal Assemblies. These agencies are overwhelmed by the number of applications, with the operators rolling out hundreds of new sites every year.

By March 2009, there were about 3,000 telecom masts across the country, comprising 1,650 for MTN, 700 for Tigo, 380 for Vodafone, 250 for Zain and 110 for Kasapa.

MTN has provided a list of all its existing and proposed future cell sites to its competitors, but some have not reciprocated the gesture. Ghana’s largest mobile operator is interested in co-location deals that go beyond the sharing of cell sites and may include the sharing of fibre routes as well.

In January 2010 Millicom Ghana agreed to sell 750 towers to Helios Towers Ghana (HTG), a subsidiary of Helios Towers Africa. At the same time, Millicom Ghana and HTG entered into a long-term leasing agreement under which HTG will provide Millicom with access to towers, including a build-to-suit agreement. As part of the deal, Millicom will also gain a minority interest in HTG. The transaction is expected to create savings in both capital and operating expenditure for Millicom. HTG is seeking similar agreements with other operators in Ghana.

The NCA is planning to license additional companies to install telecom infrastructure for co-location. The Millicom-Helios deal came just before the need

for tower sharing gained additional momentum in February 2010 when the Ministry of Environment, Science and Technology (MEST) banned the erection of telecommunications masts in the country until further notice. According to the Environmental Protection Agency (EPA), about half of all telecommunications masts in Ghana were erected without the required permits. There has been public outcry against the location of some masts, accidents, land disputes and alleged health implications. MTN sold 1,856 of its towers to America Tower Corporation (ATC) in 2011

For more on BuddeComm’s excellent market research, visit www.budde.com.au

Mobile Voice Market Share(Source: National Communications Authority, Ghana, August 2012)

MTN

Vodafone

Tigo

Airtel

Glo

Expresso

45%

1%

12%

7%

20%

15%

Ghana market overview

Population: 25m

Mobile subscribers: 21.2m

Mobile penetration: 84.8%

GDP per capita (PPP current USD): $1,884

Internet users per 100: 14

(Source: World Bank, 2011)

Column

The BuddeComm Perspective: Ghana


Proof of ConceptHow infrastructure sharing is creating shareholder value for both operators AND towercos in Ghana

Chuck Green, CEO, Helios Towers Africa

TowerXchange: Thanks Chuck for generously giving up your time to share some insights with TowerXchange readers. Let me start by asking what characteristics of the Ghanaian telecoms market meant it leant itself to infrastructure sharing?

Chuck Green, CEO, Helios Towers Africa: As ever, the opportunity in Ghana came about as a result of decisions made by a specific operator– the initial impetus to share infrastructure is not only driven by the attractiveness of the market in every case. One or more operators have to take the initiative.

Ghana represented a clear opportunity for us in Africa. The country represents a big, relatively sophisticated market with mobile penetration at less than 60% (probably 40-45% adjusted for multiple SIM cards) and rising when we first assessed the opportunity in 2009-10. With five operators, reasonably high GDP per capita and personal disposable income, market conditions were favourable for infrastructure sharing. While there were, and are, other markets with similar characteristics on the continent, the first sale and leaseback in Africa took place in Ghana because Millicom took a decision to outsource tower assets to create shareholder value.

Millicom initiated a competitive process in 2009, and we signed the deal in January 2010 making Helios the first licensed independent tower company in the market. As is often the case, other operators quickly followed suit. MTN quickly entered into a marketing agreement with American

Read this article to learn:< How Millicom created over $400m of value by structuring a JV deal with Helios

< How towercos bid for assets based on a balance of up front cash, rental rates and equity

< How to manage the integration and transfer of assets, including novation of leases

< How towercos buy from subcontractors, and how they invest to reduce opex

< The impact of five competing towercos all operating in Ghana

Chuck Green needs no introduction. The former Crown Castle CFO and now CEO of Helios Towers Africa was the pioneer behind the first sale and leaseback deal in Africa between Helios and Millicom in Ghana. Chuck looks back on the deal, shares valuable lessons learned, and gives his verdict on whether three towercos is too many for one market.

Keywords: Structuring a JV, Rental Rates, Market

Evaluation, Towerco Valuations, Transfer of Assets,

Due Diligence, Cost Reduction, Power, Maintenance,

Deep Cycle Batteries, RMS, Urban vs Rural, 3G, 4G,

Tenancy Ratios, Build vs Collocate, Infrastructure

Sharing, Africa, Helios, Millicom, American Towers,

MTN, Eaton Towers, Vodafone Ghana


Tower, as we aggressively leased up Millicom’s towers, and subsequently entered into a sale and leaseback deal with American Tower. Vodafone ran a lengthy process first looking at sale and leaseback, then a managed service deal structure. Ultimately, Vodafone Ghana agreed a managed service deal with Eaton Towers, who market and lease theirportfolio (see the interview with the then CTO ofVodafone Ghana, Tony Dolton on page 24).

TowerXchange: What are you able to tell us about the final terms of the deal in Ghana?

Chuck Green, CEO, Helios Towers Africa: We announced the acquisition of 750 towers in Ghana for $54m. Across three transactions with Millicom, with whom we subsequently did deals in Tanzania and DRC, we acquired just under two thirds of their towers, a total of 2,500. Millicom announced that the three deals created $400m of value for the group, inclusive of the $180m in cash we paid them, plus the value of their retained 40% stake in the venture.

TowerXchange: Can you help readers who are new to infrastructure sharing transactions understand a little about what they can and can’t tell from the details of these transactions?

Chuck Green, CEO, Helios Towers Africa: You can calculate the headline price per tower – such as $72,000 per tower in the Helios/Millicom Ghana transaction and $235,000 per tower paid by American Tower for 2,000 of MTN’s towers in Ghana. However, TowerXchange readers should be wary of over-reliance on price per tower data

which is meaningless without knowing the term of agreement and rental rate, which is commercially sensitive information. There should be a direct relationship between price per tower and rental rate, and you need to know if is it’s a conventional 10-12 year anchor lease tenure; any changes here also affect valuation.

American Towers’ price per tower suggests a higher anchor tenant rental rate, while ours reflects Millicom’s preference for achieving a lower cost structure over the release of stranded capital.

TowerXchange: What were Helios’ objectives in Ghana and to what extent have they been realized?

Chuck Green, CEO, Helios Towers Africa: Ghana was our first step in a diversified strategy for building an independent tower company for Africa. Helios Investment Partners and I established the first independent tower company in Africa with the

formation of our sister company, Helios Towers Nigeria in 2005. By the time we started working with Millicom in Ghana, we had almost five years experience building, operating and growing an independent tower company in what was at times a hostile commercial and operating environment in Nigeria. We wanted to maintain the first mover advantage and Ghana was an attractive market for the aforementioned reasons. To date our business in Ghana has performed at or above our expectations at the time we executed the deal.

TowerXchange: What were Millicom’s objectives during negotiations?

Chuck Green, CEO, Helios Towers Africa: Millicom prioritized driving down and stabilizing operating expenditure, with some monetization of stranded capital. Furthermore, they were concerned with continuing to own a residual stake, a priority important enough that they were prepared to make compromises on up the front fee and rental rate.

There are five potential operator priorities motivating any prospective infrastructure sharing deal.

• Up front cash• Minimization of operating expenditure• Retention of stake• Capital preservation• Focus on core business

Each operator will rate each of those priorities differently. For example MTN took a minority stake

“ “Millicom prioritized driving down and stabilizing operating expenditure, with some monetization of stranded capital. Furthermore, they were concerned with continuing to own a residual stake


in Ghana, paid a higher rental rate, and took more money out upfront. Millicom did the opposite. As buyers, we’re mostly indifferent to the balance of price per tower paid versus the rental rate and we’ll agree a deal anywhere along a “curve of indifference.”

Millicom understood the shareholder value they could create by sharing infrastructure in Africa. They wanted to be owner of a diversified tower company and exploit the favourable relative multiple arbitrage that can see tower company valuations at fifteen times EBITDA.

On the other hand, some operators resist minority stakes. Some are less motivated by long term monetization than by the need for cash to fund immediate rollouts.

TowerXchange: So if there’s a curve of indifference at the balance between price per tower and rental rate, is there a threshold of equity stake Helios Towers Africa are comfortable for operators to retain?

Chuck Green, CEO, Helios Towers Africa: The integrity of the independent tower business model relies on an operator’s retained interests being less than 50%. The operator shareholder has minority shareholder rights with no access to competitor information. Operators are fiercely competitive and only share as a matter of necessity, so the independence of the tower company is sacrosanct.

If you look at the tower swaps operators do, they are usually just one-for-one barter exchanges, where they often don’t even share power and have no Service Level Agreements (SLAs) – they’re very cautious. Understandably, operators don’t want competitors having control over their network.

The Service Level Agreements between independent tower companies and their customers are tough. We’re required to deliver better quality of service, and that is our core business.

TowerXchange: As pioneers leading the way into Africa’s first sale and leaseback transaction, what were the key lessons learned you took from the experience in Ghana, particularly in terms of the transfer of assets post-deal close?

Chuck Green, CEO, Helios Towers Africa: My experience in tower acquisitions around the

world gave us a clear plan for the integration and transition of tower assets.

There are two key challenges to be overcome in the integration and migration of assets. The first is ensuring major conditions precedent are resolved expeditiously, the most important of which requires going to every landlord to negotiate the assignment of ground leases – the novation of financeable, sub-leasable terms. We had already put in place controls over the financial impact of those negotiations on the transaction. And of course we had to confirm building, environmental and civil aviation permits, which is always a condition of purchase for Helios.

The second challenge concerns due diligence and assessing the quality of what we’re buying. During due diligence we are given access to a sample of sites to determine the quality of assets, but inevitably there is a certain amount of risk that you can only quantify once you own all the sites and can complete engineering site surveys. We can then remediate sites to be structurally sound and stand up to our Health & Safety requirements, to meet the requirements of the SLA, and to be ready for co-locations. All those investments have to be built into the capital economics of transition.

While the towers we acquired in Ghana were a pretty good portfolio and had been well maintained, they weren’t all in the condition we would need to run for multiple operators.

The transition of assets we’re talking about here accounts for the period between the announcement

Pri

ce p

er t

ower

Rental rate

Chuck Green’s ‘Curve of indifference’


of signing and the actual initial close. In Ghana, we closed more than the contractual minimum number of sites at initial closing, novating leases over the subsequent 12-18 months, to complete the seamless transition of ownership from Millicom to Helios Towers Africa.

TowerXchange: Interesting – so thinking back to before the deal closed, or indeed before any infrastructure sharing deal closes, how do the buyers and sellers agree on who carries the risk revealed during transition?

Chuck Green, CEO, Helios Towers Africa: Competitive tension generally determines the risk sharing dynamics of any transaction.

A lot of the asset risk depends on the sample of towers we evaluate. We often take bigger samples than proposed by the seller, evaluating 10% or more of the sites. We try to pick the sites and cover a variety of different regions, but sellers offer few reps and warranties so due diligence is key to

mitigating, or at least taking calculated, risks.

Ultimately, the seller expects a fairly standard set of terms to be agreed, relatively few of which are subject to significant negotiation. The auction process gets prospective buyers to compete and improve upon negotiable terms.

I feel the biggest risk is not in the tower portfolio itself, but in potential deviation in transaction terms from the proven independent tower company business model that creates value for all parties. Some of our competitors are more relaxed about

certain terms than Helios. For example, overly generous termination clauses destroy value; a 90-day cancellation clause turns it from a 10-12 year deal into a three month deal, which kills the value for the tower company, even if there are penalties involved. There are better steps operators can take to retain flexibility and control.

TowerXchange: How reliable and extensive is grid power in Ghana?

Chuck Green, CEO, Helios Towers Africa: Grid power is available for 18 to 20 hours per day on average across Ghana, and is of variable quality.

“ “I feel the biggest risk is not in the tower portfolio itself, but in potential deviation in transaction terms from the proven independent tower company business model that creates value for all parties

“In 2010, we made significant progress in the area of asset optimization and network efficiency, having come to the conclusion that owning passive infrastructure no longer confers a competitive advantage and that it makes sense, where possible to share tower networks with other operators with similar coverage to ours.

In 2010 we signed tower deals with Helios Towers Africa in Ghana, Tanzania and DRC through which we have committed to sell the majority of our towers to a Helios subsidiary company in each of these countries. We now have almost 2,500 or two thirds of our towers in Africa committed to be outsourced which enables us to focus our efforts on areas of real differentiation from our competitors, namely: sales, marketing, branding, distribution, service innovation and customer care.

We believe that the value created from these deals exceeds $400 million througha combination of more than $180 million of cash to be received for the sale of the towers, the 40% stake that we have in each tower company, expected future cost savings and significantly reduced capex for towers in the three countries. In 2011 we expect that these transactions will produce an additional percentage point of EBITDA in Africa, which could be reinvested in sales and marketing.”

Flashback - How Mikael Grahne, CEO of Millicom International Cellular SA, described the value created through infrastructure sharing in their 2010 annual report


This of course can have a huge impact on network availability (uptime) unless you have adequate reserves in terms of backup generators and batteries.

TowerXchange: Is the involvement of a towerco good news or bad news for energy service companies and equipment manufacturers? Infrastructure sharing deals may result in an incentive, or indeed a requirement, to invest in generator and battery upgrades et cetera, but towercos are canny buyers with a reputation for driving a tough deal…

Chuck Green, CEO, Helios Towers Africa: For energy service companies and equipment manufacturers, this is an opportunity. There is often deferred maintenance leading up to an asset transfer, but it’s mainly an opportunity because operators had been running sites for a single power user, whilst tower companies are designed to load more tenants. That means generators need to be enhanced, resized and upgraded. We’ve also invested in technologies such as deep cycle batteries that reduce generator run time and associated fuel costs.

Our SLAs are very strict; we can afford little downtime and few faults that require material time to deal with, yet we need to drive down opex. As such, I have to agree that tower companies must be canny buyers. We’ll tender maintenance contracts annually or bi-annually to be sure we’re getting a competitive cost structure, and of course we’re able to order in bulk. At Helios we have a centralised procurement process, and a Procurement

Committee that includes members of the Board. It’s a disciplined process with lots of internal controls, and that drives a highly competitive spirit in negotiations with suppliers.

TowerXchange: Does the involvement of a towerco necessarily mean a consolidation of suppliers?

Chuck Green, CEO, Helios Towers Africa: Not always. We want multiple suppliers, sometimes regionally focused, driven to operate sites economically. Ultimately it’s important that we don’t squeeze our suppliers so hard they can’t stay in business! We’re simply looking for business partners who can help us achieve those strict SLAs at a competitive cost.

TowerXchange: Can you share any success stories in terms of the opex savings Millicom realized in Ghana?

Chuck Green, CEO, Helios Towers Africa: In each of the transactions with Millicom the anchor

tenant rental rate agreed was below Millicom’s all-in opex cost so they secured an immediate improvement in cost structure. They also reduced uncertainty about their future tower operating cost structure, don’t have to worry about the vagaries of fuel theft and maintenance costs, and can focus on their core business. Helios is incentivized to invest in the reduction of power consumption, for example by installing Remote Monitoring Systems and using deep cycle batteries, and solar in some instances, as alternatives to diesel power. We’re also reducing the carbon footprint, so there is a positive environmental impact.

Currently, we are making a $40-50m investment in Remote Monitoring Systems and deep cycle batteries across our three existing markets. We install remote monitoring systems to track site conditions, such as access, fuel delivery, generator run time, utility availability, etc. This generates efficiencies in controlling the fuel supply chain. We’re replacing station batteries with deep cycle batteries so we can get more hours of battery support, reduce generator run time and reduce the risk of downtime. Such a strategy makes sense only where we are managing DC power, so that is an important consideration for tower companies and sellers to agree.

TowerXchange: Is Ghana an urban fill-in driven play, or a rural network extension focused market?

Chuck Green, CEO, Helios Towers Africa: Ghana follows a fairly usual pattern: there are still deficiencies in 2G voice coverage, and there has

“ “In each of the transactions with Millicom the anchor tenant rental rate agreed was below Millicom’s all-in opex cost so they secured an immediate improvement in cost structure


been an initial deployment of 3G in urban centres. There has been activity to extend rural coverage, albeit modest to date.

General coverage is still a big issue in Ghana. There were lots of co-locations after the tower companies entered the market in 2010-11, but few builds. The network planning priorities were largely motivated by coverage, with some 3G rollouts.

TowerXchange: To what extent is capacity a concern?

Chuck Green, CEO, Helios Towers Africa: Operators’ concerns about capacity are accentuated when regulators and ministers complain about quality of service! With capacity for data, and even for 2G voice, restricted, regulators are increasingly applying quality of service assessments across Africa. There will always be pressure from regulators to push forward with the expanded

“ “The larger markets can probably tolerate two tower companies but three is not ideal. Having said that… we have the market share we targeted and we’ve already had a reasonably decent lease up experience but we never expected to be the only player in Ghana

companies have played to benefit of sellers. But we’re happy with our investments in Africa, and we’re achieving our objectives.

The proliferation of tower companies may not be sustainable over time. There are only so many tower companies can operate in any given market.

TowerXchange: Based on your experiences in Ghana, would it be difficult for many individual markets to sustain more than two towercos?

Chuck Green, CEO, Helios Towers Africa: The larger markets can probably tolerate two tower companies but three is not ideal.

coverage requirements within operators’ licences, and to improve quality of service generally, which means operators will need more in-fill sites for 2G, let alone 3G and, eventually, 4G LTE.

The continuing growth of voice and data traffic puts a strain on networks, which needs to be improved and expanded. Towercos are there to preserve capital, expand networks and satisfy quality of service requirements without burdening the balance sheets of operators.

TowerXchange: Are towercos paying a premium for first mover advantage in Africa?Chuck Green, CEO, Helios Towers Africa: The strategic interests of four competing tower

Estimated number of towers owned and managed by independent tower companies in Ghana

ATC Ghana

Helios Towers Ghana

Eaton Towers Ghana

IHS Africa

SWAP Technologies

1,908

750

700

697

500


Having said that, demand in Ghana has been significant enough to spread among three towercos with different footprints. We have the market share we targeted and we’ve already had a reasonably decent lease up experience but we never expected to be the only player in Ghana.

The independent tower company model lends itself to a common set of terms and pricing assumptions. We don’t have that much flexibility on price, and we haven’t experienced predatory pricing despite three towercos being in Ghana. There’s only a 30-40% overlap in footprints at outset, so direct competition

only occurs when an operator wants to locate on a site right next to another tower company’s tower. Operators have a specific rollout plan, and generally whoever has the optimum site they need gets the tenancy.

Rollout demand from Airtel, Vodafone and to a certain extent MTN has been almost entirely satisfied to date by sharing with tower companies in Ghana. Over the last 30 months or so there have been very few builds, apart from Glo. Operators will generally favour the sharing or co-location option before they build – furthermore, the market has

a self-adjusting governance: if independent tower companies charge too much for the co-location lease rate, operators would build rather than co-locating.

TowerXchange: So having three towercos active in Ghana slightly moderates upside, lowering the glass ceiling on the achievable tenancy ratio?

Chuck Green, CEO, Helios Towers Africa: The achievable tenancy ratio might be 0.1-0.2 lower, but it’s not of a huge magnitude, especially given the required densification needed by the data demand associated with 3G, and subsequently LTE

Elmina, Ghana


Best of both worlds?How Vodafone Ghana secured investment in their legacy infrastructure, reduced opex AND kept their towers through an operational lease deal

Tony Dalton, CTO, Vodafone Egypt (CTO Ghana 2008-11)

TowerXchange: Thanks for taking the time to speak to us Tony. First of all, please could you tell us a little about your background and the how your experiences at Vodafone Ghana motivated you to agree this landmark tower sharing deal?

Tony Dolton, Vodafone: I’ve been involved in tower sharing on both the buy-side and sell-side for many years. I was first involved when I was Director for EMEA Managed Services at Motorola, where we were trying to buy towers and get involved in tower sharing. I was subsequently involved in putting together the Orange-Vodafone towerco in 2007, which was probably a case of too much too early. We completed the deal with Eaton Towers in Ghana, and are considering how a tower deal in Egypt might work. So I have a reasonable view on the expectations and objectives of tower sharing from both the vendor and operator perspective, and on both counts I consider Ghana a success.

Vodafone bought Ghana Telecom in 2008, and there was very limited tower sharing at that time. Vodafone’s priority was to expand and clean up a poor quality network – it needed investment and we needed to reduce costs. A limited tower sharing deal with MTN was agreed pretty quickly that helped with rapid network expansion but did not address the legacy costs issue. We needed to reduce cost of both network delivery and operations, so we issued an RFQ to several Tower Companies including American Tower, Helios and Venture Towers (later acquired by Eaton). None of the initial bids met our objectives – at the time the TowerCo business cases were focused on build or buy, with a 10-15

Read this article to learn:< How infrastructure sharing secures investment in legacy towers

< Why Vodafone Ghana decided on an operational lease deal structure

< How to transfer risk to an independent tower company

< How Vodafone Ghana and Eaton reduced opex by using more efficient generators and improving

fuel security

< Potential infrastructure sharing strategies for Egypt

TowerXchange had an opportunity to interview Tony Dolton, CTO of Vodafone Egypt, who was CTO of Vodafone Ghana from Vodafone’s acquisition of the Ghana Telecom in 2008 through July 2011. Vodafone Ghana’s operational lease deal with Eaton Towers was Tony’s brainchild.

Keywords: Structuring an Operational Lease,

Legacy Towers, Rental Rates, Transfer of Assets,

Cost Reduction, Fuel Security, Risk, Infrastructure

Sharing, Africa, Ghana, Egypt, Vodafone, Eaton

Towers, Helios, American Tower, MTN


year payback and I felt the opex levels being offered were unacceptable to our long term business in Ghana.

Our legacy towers were generally in poor condition and very expensive to run. We knew that opex could be reduced by making the sites more efficient, through using more efficient generators and by tightening up on fuel security. So we wanted to create a model where a TowerCo would invest to make the sites more efficient and thus reduce the operational cost of running the site whilst at the same time make the sites more attractive to other operators to share with us – creating a revenue stream, which effectively could be seen as a further cost reduction in operating the site. So we came up with a different deal structure: an operational lease with the “right to use” the towers for a period of time; a requirement to invest to generate efficiencies; and by selling space to other tenants, creating the revenue stream.

We ended up agreeing a deal with Eaton Towers, although the final selection was very close. The deal meant a lump sum cash payment was invested to upgrade the legacy towers, and for us an immediate opex reduction of over 30%. The TowerCo made money by firstly reducing the operation cost of running the site and secondly by selling the space on the site.

TowerXchange: What were the advantages of the operational lease model you chose?

Tony Dolton, Vodafone: We kept the asset which

took a huge amount of complexity out of the deal, (site valuations etc were removed) and opex was secured. At that time our focus was infrastructure efficiency and reducing our operating costs. Of course the option to sell the towers at a later date is still available if circumstances change.

I believe it was a good deal for the tower company as well since whilst they did not own the asset they did have a long right to use contract, and they didn’t have to fund the cost of acquiring the towers, so they weren’t saddled with that debt. They got the contract, which is a valuable asset in it’s own right.

TowerXchange: Structuring tower sharing contracts isn’t just about financials, but is also about transfer of risk – tell us who had responsibility for what.

Tony Dolton, Vodafone: We had to do something about opex – among other things we had a problem with diesel theft. Working with the TowerCo, we only pay for diesel actually consumed, so passing on responsibility and risk to the TowerCo for the site monitoring and security.

The TowerCo also has responsibility to upgrade the passive elements such as DC and AC power, battery and generator replacements through the life of the contract. We included suitable break clauses in contract in the event of new technology that would make a significant reduction in opex; in addition we had contract break points where the fees would be benchmarked across Africa and adjusted downward in the case where fees were reducing, according to a

formula.

The TowerCo invested to make towers more efficient, and were motivated and better positioned to increase the third party tenant rate – in fact, we structured the deal such that we believed the TowerCo could only make a profit if they achieved efficiencies and co-locations.

The deal took a long time to agree as Tower Companies were used to realizing value by buying towers. It took time to understand each other’s needs, and to agree various safeguards suitable for both sides.

TowerXchange: Why did an operational lease suit Vodafone Ghana’s objectives better than say a sale and leaseback or Indus-style joint venture

Tony Dolton, Vodafone: Every tower deal is different, depending on what is motivating the deal. Sale and leaseback deals do not always end

Eaton’s verdict on their operational lease deal with Vodafone Ghana

“A deal structure which allows the operator to retain ownership of their towers, gets around many complexities that a tower sale deal presents, and is the best way for operators to reduce opex significantly and immediately, as well as escape the capex requirements for site refurbishment, and new roll out” – Keith Boyd, Business Development Director, Eaton Towers


up in a reduction of opex as the TowerCos have got to pay back the cost of borrowing to make the acquisition. I would rather they used their cash to invest and make the network more efficient. From the TowerCo’s point of view, the sale and leaseback business case is based on borrowing money to buy towers for which they control recurring revenue. The way TowerCos create value is in selling the space and reducing operating costs.

I feel that if you want cash then a high priced sale and leaseback deal is effectively a financial deal. Your opex doesn’t go down, and once the assets are sold you may find yourself in a weaker negotiating position.

The operational lease deal structure worked well for us in the circumstances we were in and I would certainly consider it again if it was the right thing to do for the business.

TowerXchange: To what extent was it part of your motivation in working with the TowerCo to secure specialist skills and people to look after passive infrastructure?

Tony Dolton, Vodafone: A CTO has many areas to manage whereas a TowerCo’s entire focus is on delivering a cost effective site, so I believe there are good synergies and benefits for OpCos to work with Tower Companies. The TowerCos still use local skills and suppliers to deliver their product, and often the Operator will outsource the local team to the Tower Company. There was a lack of expertise initially Ghana, but with the right focus and training

the local team can perform very well.

TowerXchange: Tell us a bit about the transfer of assets to the TowerCo.

Tony Dolton, Vodafone: The greatest challenge in any Tower deal is the transfer of sites – ensuring you’re giving them what you say you’re giving them. In Ghana, we did a snapshot audit, which was easier since we owned the sites. We handed over about 100 sites per month, and had built another 1,000 sites by the time the deal was done, a mixture of brand new and original very old fixed network sites. It was important to have a good governance process, controlled through regular meetings.

TowerXchange: Is infrastructure sharing working in Ghana? Is it a good or a bad thing that the three leading operators each worked with different TowerCos?

Tony Dolton, Vodafone: On the whole competing operators don’t work well together, so I’m not greatly surprised that three of the OpCos’s ended up working with different TowerCos. I am surprised however that there are three incumbent TowerCos in Ghana chasing six operators, two of which are new. I would have expected to have two Tower Companies for the size of business in Ghana, but it seems each of the three are doing well.

If a TowerCo pays too much for towers and do not achieve good co-locations and a reduction in opex, they could lose money. So Ghana is still probably a challenging environment.

TowerXchange: Are there any transferable lessons from your experiences in Ghana to other countries in Africa?

Tony Dolton, Vodafone: Every market is different. In Egypt we have three operators with similar networks, and I believe it would be difficult to make a traditional TowerCo business case without some sort of network consolidation so for a TowerCo model to work in a country like Egypt we probably have to have a slightly different model than the traditional one.

I think when looking at taking advantage of a tower opportunity, it is important to establish what you’re trying to achieve – return of cash to the business is great or often necessary in in the right environment, but if you can reduce your requirement for short term cash, it might be better to structure a deal more likely to give a reduced opex, such as the deal we completed in Ghana – and lower opex is always beneficial to the long term business

Population: 82.5mMobile subscribers: 83.4mMobile penetration: 101%GDP per capita (PPP current USD): $6,324Internet users per 100: 35.6

(Source: World Bank, 2011)


Egypt market overview

Special feature:

There are approximately 170,000 telecom towers in Africa today. In order to meet growing demand for capacity and coverage, up to 300,000 towers may be needed. Independent tower companies can meet much of that requirement, attracting an estimated $15bn of capital investment into Africa’s communications infrastructure in the process.

Introduction to infrastructure sharing in Africa

Four introductory articles explain:28 Why share Africa’s towers?48 How to structure a deal50 The criticality of tenancy ratios52 When is the right time to share towers?


Infrastructure sharing is like building a big house in a prime location then appointing a real estate firm to divide it into several apartments. You keep the penthouse for yourself, and then that real estate firm leases out the apartments to multiple tenants, creating far more value than if you just rattled about in that big house on your own.

The sale and leaseback of towers to specialist independent tower companies is not a new phenomenon of course – it’s a widespread practice in Europe, the US and India, but the volume of infrastructure sharing transactions in Africa is increasing.

TowerXchange spoke to Keith Boyd, who in 2002 co-founded and served as CEO of Venture Communications, one of the pioneers of African telecommunications infrastructure. Keith is now Business Development Director at Eaton Towers, with whom Venture Communications merged in 2008. Keith explained “initial resistance to infrastructure sharing has gone over the last three years. Previously operators were all building their own networks, trying to outspend each other, with two or more towers on the same hill. That was the case when coverage was king - the big operators had better access to cash, and could outspend the smaller operators.” With ARPU declining, fierce tariff wars and increasing data demands putting pressure on network capacity and EBITDA margins, a new era of

Tower portfolios represent long term, recurring cost to operators. A cost they’d like to stabilise and minimise. If acquired by an independent towerco, those same towers represent long-term recurring revenue, supplemented by lease revenue from co-locating tenants who can spread out and further reduce operational costs across.

Why share Africa’s towers? “ “Initial resistance to

infrastructure sharing has gone over the last three years

?


“Every tower valuation is different due to the differences between jurisdictions – there can be no standard read across of value per tower for example, a KPI which is often quoted,” says Rhys Phillip, Partner and Head of Transaction Advisory Services for Telecoms at Ernst & Young. It’s necessary to consider the rental rate and term of the lease, as well as the capital released, among a number of different factors. “Differences in transactions are driven by the legal, tax and regulatory regime in the jurisdiction, the motivation of the operator in selling, the competitive characteristics of the local market and the funding of the towerco,” concludes Ernst & Young’s Phillip.

efficiency-focused network strategy has begun, and a wide variety of different tower sharing deals, each shaped to specific market objectives, are being announced regularly.

Boyd continues: “Eaton Towers have bought towers from Orange and Warid in Uganda, and we’ve got a ten year operating lease with Vodafone Ghana. In Ghana we don’t own the towers, but we invest in and maintain them. In South Africa, we are rolling out our own towers, and have seen very good uptake of co-location slots on these, as operators densify their networks in urban areas”

Comparisons between infrastructure sharing transactions

2010 Millicom / Tigo Ghana Helios 750 $54m for 60% Joint venture

2010 Vodafone Ghana Eaton 750 Not applicable Operational lease

2010 Cell C South Africa American 1,400* $430m Sale and leaseback

2010 MTN Ghana American 1,876 $218.5m for 51% Joint venture

2010 Starcomms Nigeria SWAP 407 $81m Sale and leaseback

2010 Millicom / Tigo DRC Helios 729 $45m for 60% Joint venture

2011 Millicom / Tigo Tanzania Helios 1,020 $80m for 60% Joint venture

2011 MTN Uganda American 1,000 $89m for 51% Joint venture

2012 Orange Uganda Eaton 300 Unknown Sale and leaseback

2012 Warid Uganda Eaton 400 Unknown Sale and leaseback

2012 MTN Cameroon IHS Africa 827 $143m Sale and leaseback

2012 MTN Cote d’Ivoire IHS Africa 931 $141m Sale and leaseback

*Cell C deal included 1,400 existing towers plus up to a further 1,800 under construction

Africa’s biggest infrastructure sharing transactions to date

Year Operator Country TowerCo Est. # of towers Publicly stated purchase price Deal structure

www.towerxchange.com | TowerXchange Issue 1 |

Our introduction to infrastructure sharing continues on page 48

29

How to guide:

TowerXchange pulls back the curtain to reveal how tower portfolios are evaluated from an engineering, commercial and financial perspective. Whether you’re buying, selling or building towers, this feature explains how to maximize the capital value of your assets.

Shareability

Three expert interviews:32 Ganges International on driving down the cost of multi-tenant towers34 Ramboll on ‘Design for Shareability’37 What are my towers worth? Mott MacDonald on due diligence


undertaken evaluations for American Tower and Eaton Towers in Africa. “It’s critical to evaluate what proportion of the tower portfolio are genuinely shareable; location, structural integrity, and to get a sense of the subscribers per point of service and demand forecasts,” says Andrew Doyle, Managing Director of the technology & communications practice at Mott MacDonald.

By way of a cautionary tale, TowerXchange spoke to a consultant with extensive experience of African telecommunications infrastructure, who said: “I know of one instance where the operator sold assets to a towerco, and that towerco targeted a tenancy ratio of 2.3 to be successful. However, less than half the towers in the portfolio were shareable as they were overloaded, poorly constructed, or just in a sub-optimum location. There wasn’t capacity for three to four tenants on the remaining premium shareable sites, so the 2.3 tenancy ratio target was very challenging!” However, it is possible to strengthen legacy towers to boost capacity and realize aggressive tenancy rations, as Ramboll and Ganges explain in the next articles

TowerXchange spoke to a senior representative of the TMT team at Standard Chartered Bank, from whom many of the infrastructure sharing RFPs originate.

He told us, “the valuation derives not just from the number of towers, but tenancies, location, capacity and potential for revenue contribution. Investment banks use proprietary models to figure out these metrics, looking across the technical, financial, and strategic angles. Valuation models vary dramatically. It goes far beyond the asset-based perspective, which is just the metal and real estate, to the potential of a site to generate revenue and profit.”

TowerXchange has mirrored Standard Chartered’s methodology, asking Ramboll and Ganges Internationale, two of the world’s foremost tower design companies, for their perspective on the technical evaluation of multi-tenancy towers. We’ve followed Standard Chartered’s roadmap to subsequently take a look at the financial and strategic evaluation of tower portfolios, drawing on the experience of Mott MacDonald, who have

How do you put a $valueon telecom infrastructure assets?Towers + tenancies + turnover... its’s a complex formula!

Shareability isn’t just a function of the

technical and financial potential of a site

– service matters; specifically, the timeline

between requesting a tenancy and the

first day you generate revenue. A recently

launched network complained “although we

were able to agree bulk tower sharing deals

to our advance 5 year plan, securing a couple

of thousand sites, tower sharing didn’t really

accelerate our time to market – some co-

locations took 24 to 30 months to agree with

the operators! However independent towercos

like American Tower and Eaton were up and

running much faster.”

TowerXchange understands that American

Tower measures the cycle time between a

tower request and the first day the tenant

earns revenue. ATC say they can get a new

tenant up and running in a month. It’s a simple

case of working closely with their customers

and ensuring that everything is there and is

ready when a new tenant arrives with their

equipment vendor.

Shareabilityas a service

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Driving down the cost of multi-tenant towersTowerXchange spoke to Ganges Internationale to get some advice how to build, buy and upgrade towers for multiple tenants.

Ganges Internationale is a ‘Total Solutions Provider’, specialising in all the capex elements of telecoms infrastructure: from the design and supply of towers, to building foundations and installing tower, antennas, shelter, electrical and other equipment.

Ganges sold over 3,000 towers in Africa between 2007 and 2012 and have over 30,000 installed in more than 14 countries on the continent. Clients include Airtel, Vodafone, Huawei (MTN), Orange, Helios, Eaton, Ramboll and Safaricom. In Africa they work with partners such as Plessey, QTE and Reime to deliver towers and other equipment for Total construction.

Read this article to learn:< How many tenants you should design new towers to accommodate< The cost of single versus multi-tenant towers< How to strengthen legacy towers for multiple tenants< How Airtel rolled out towers costing 40% less than their competitors< An insight into tenancy ratios and rental rates in Africa

Keywords: Investing in Multi-Tenant Towers,

Loading, Strengthening, Tenancy Ratios, Cost

Reduction, Outdoor Equipment, Rental Rates,

Shareability, Infrastructure Sharing, Africa,

Ganges, Airtel

TowerXchange: What are the critical design factors in the shareability of a tower?

Bhaskar Babu, Marketing Head – Exports, Ganges International: Operators should plan for 3 tenants on each tower, although there are up to four or five tenants on some towers in some countries where there are more operators and in big populated cities like Nairobi, Lagos or Dar es Salaam.

A multi-tenant tower doesn’t have to cost much more than a single tenant tower. The land costs the same, maintenance and power costs don’t increase much. Most of the equipment is the same. The tower might be slightly higher, but we’re talking about less than 20%; it’s just a modest increase in the weight of steel and in the cost of the foundation. A forty to fifty metre tower can be shared, even lower heights. Height is rarely a problem for signalizing, unless you’re using microwave antennas for the backbone network, particularly in hilly terrain. Antenna brackets can sometimes accommodate two or three antennas (Dual/Triple GSM brackets) or even with circular platforms where up to 12 GSM antennas can be fixed at single height for four operators. Backhaul and the site network are bigger considerations when it comes to shareability since operators need to use bigger microwave antennas.However, the lack of standards for loading in many African countries remains a challenge. There’s also a lack of people with the technical skills to evaluate designs and the cost of offerings; network suppliers often don’t know the micro-level costs, although Vodafone and Airtel have excellent technical teams to evaluate towers and foundations. For example,

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“ “

We can upgrade a two operator tower to suit three co-locations by sending just 20 parts

Airtel has rolled out towers costing 40% less than those of MTN, Etisalat and Glo in Nigeria.

TowerXchange: What can operators and towercos do to reduce the total cost of cell sites?

Bhaskar Babu, Marketing Head – Exports, Ganges International: When such a high proportion of the total cost of the site can come from equipment such as shelters and air conditioning units, operators should consider the benefits of buying class A equipment directly from manufacturers – when they buy through contractors, they can be subject to markups of 20-30%. Airtel reduce costs by buying direct from vendors, and give those materials to their contractors. Airtel gets the lowest prices due to product standardisation and buying in bulk for many countries on a long-term contract basis.

You can also reduce operating costs by using less indoor equipment. Using outdoor BTS equipment that operates at ambient temperatures means the shelter capacity and air conditioning load comes down, and you don’t need so many lengthy cables.

TowerXchange: Is the transfer of tower ownership from operator to towerco good news from your perspective?

Bhaskar Babu, Marketing Head – Exports, Ganges International: Some tower manufacturers dislike these deals because volumes go down – where once three towers were built, now it’s only one shared tower. But for professional companies like us, it’s not such a threat. We’ve upgraded our designs for

sharing companies and are the largest supplier to ATC. Also we get more work in legacy tower strengthening, which is good for the industry in the long term.

However, not all towercos are profitable. In India, only Infratel and Indus are making good profits. The minimum cost savings and lease up rates to break even are not being achieved by other towercos in India. In Africa tower tenancy ratios may need to be even higher because opex is so high. African towercos’ 20-25 year contracts and high rentals for expensive new sites may mean they struggle to quickly attract additional operators tenancies and achieve profitability from day one.

Airtel conducted a study into whether to build new towers, and saw ROI in less than three to four years if they built their own towers, giving them the potential to offer lower rental rates to tenants in the future. Towercos need to offer lower rates to operators so that operators can take up more sites. Most legacy towers are not designed for sharing hence towercos are not interested in crowding the towers and reducing the rentals.

TowerXchange: What are the different requirements when selling to a towerco compared to an operator?

Bhaskar Babu, Marketing Head – Exports, Ganges International: The structures ordered by towercos should be of greater loading capacity with space for 3 to 4 operators, and also to have flexibility to upgrade to higher loading with minor charges in

the future. We do a lot of work to help towercos strengthen legacy towers they’ve acquired – strengthening foundations, upgrading shelters and diesel generators.

With towercos seeking long-term contracts with operator tenants, it’s important that they choose contractors with the credentials to be around for 20 years and more. It can be a problem if a tower supplier vanishes – you might lose designs and drawings. If you don’t have the drawings, as happened to American Tower in Ghana, then the new vendor has to measure every component of the site and do lots of re-engineering. It can be very costly.

We design future-ready towers, with shared drawings and common dimensions. For example, we can upgrade a two operator tower to suit three co-locations by sending just twenty parts, essentially increasing thickness, while other dimensions remain the same. Operators and towercos should keep the future in mind and standardise the towers in their network; having 20-30 different tower designs in network makes it much more difficult to make changes such as moving towers to new sites


Design for shareabilityHow to evaluate the design, foundations, and loading of towersto determine current capacity and required strengthening to add additional tenants

passive infrastructure fits uniquely with Ramboll’s products and services, where especially Ramboll’s expertise in tower loading validation, strengthening, and design and supply of towers have remarkable references.

Ramboll is preferred supplier to Huawei in Eastern & Southern Africa and in Western Africa as well. Furthermore, Ramboll is approved supplier to NSN, ZTE, and Ericsson. Ramboll also work directly with towercos like Bharti Infratel, Indus, ATC, IHS, Helios and with operators like Airtel, Vodafone, and MTN. In 2011 alone, Airtel bought almost 3000 Ramboll Towers for Africa.

Previously, Torsten led Ramboll’s successful entry into the Indian tower market where Ramboll today enjoy an estimated 70% market share. In addition to Ramboll’s success in tower supplies, Ramboll has invaluable experience and references working closely with customers like ATC and Indus, where in 21 months more than 30,000 sites where audited and analysed and more than 8,300 strengthening solutions given.

TowerXchange: How do operators and towercos balance investing in space for potential multi tenancy with minimizing cost when ordering new tower designs?

Torsten Esbjørn, Regional Director, Africa, Ramboll: We find that people need help with evaluating the technical options when deciding on a design for the rollout: do you invest in a tower that takes two, three or four tenants, given that there can be no

Read this article to learn:< How to find hidden capacity in over-engineered towers< How to conduct a thorough evaluation of tower foundations< When to reverse engineer lost data and drawings< Why standardising your range of towers increases flexibility< A comparison of infrastructure sharing in India and Africa

Keywords: Investing in Multi-Tenant Towers,

Loading, Valuation, Safety, Strengthening,

Foundations, Drawings, Shareability, India,

Infrastructure Sharing, Africa, Ramboll

Torsten Esbjørn, Ramboll

Ramboll Group is the biggest consulting engineering company in Northern Europe, with over 10,000 employees based in 200 offices across 23 countries. Their expertise in designing and evaluating towers is unrivalled.

Torsten Esbjørn came to Johannesburg in 2011 to position and market Ramboll’s products and services to the increasingly interesting African Telecom market. The change from an operator-owned to an independent tower company based industry for

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guarantees of future tenants, and what options is there to change a two tenant design to something else once it has been deployed? There is always a risk of being over-optimistic. TowerXchange: How do buyers and sellers of towers evaluate ‘shareability’?

Torsten Esbjørn, Regional Director, Africa, Ramboll: As well as evaluating the commercial potential for co-locations (see the interview with Mott MacDonald on page 37), you must also evaluate technical aspects – you should not just assume you have a well designed, safe, and well-maintained tower.

If you want to hive off your towers, your first headache is to establish the data quality of your tower assets base – some of the more incredulous challenges is that not all towers are where you thought they were, and in other cases the tower you thought were there, is something else entirely.

You need to understand your legacy towers: was it

installed for one, two or more tenants? How many square meters of loading did the designer say it could take, and how many can it take in practice? The documentation might say it can take 10 square meters, but if you recalculate using today’s expertise you might find it can take 13 square meters. That could mean capacity for another tenant – that is 50% more lease revenue if you can increase tenancy from two to three. A proper tower load valuation will help find the hidden capacity in over-engineered towers, identifying potential for upgrades with a minimum of investment might increase capacity from two to three tenants. Our experience in India has shown that approximately 30% of all sites can be strengthened – that is a significant revenue stream hidden in existing assets that can be unlocked by a minimum investment.

On the other hand, some towers might be unsafe, for example overloaded or poorly designed or installed. The documentation might say it can take 10 square meters, but once analyzed it can only take 7 square meters. For example, we audited tens of thousands of sites for one towerco, and found that 3,5% of towers were unsafe. The conclusion for such sites may be that they have to be taken down or the antenna load has to be reduced and/or rearranged. Safety has to be a priority.

A proper evaluation of the foundation considers the quality of the concrete, how it’s reinforced, the depth and dimensions of the excavation. I’ve seen some companies verify foundations by simply drilling 3 holes. In such instances you’re only certifying the grade of the concrete, you haven’t

got a complete picture of the foundation and that affects safety and load capacity.

These Tower Load Valuation Activities can ensure that towercos don’t overpay, and that operators get full value.

TowerXchange: how can operators and towercos add value to their legacy towers?

Torsten Esbjørn, Regional Director, Africa, Ramboll: You can strengthen towers and rearrange antennas to add value to the asset by increasing shareability, thereby creating more revenue potential.

You might have lost all data and drawings for a tower, so you need to reverse engineer and measure everything to work out how much wind loading the tower can handle. It’s important to use a reputable company with proper insurance and risk assessment methodologies – use a company that can’t afford to get it wrong.

TowerXchange: Should African operators install multi-tenant towers with a view to future tower sharing?

Torsten Esbjørn, Regional Director, Africa, Ramboll: Most urban rollouts consist of multi-tenant towers, but the rural situation is a completely different ball game – so many variables make the choice of tower extremely difficult. Most operators today have a clear sharing strategy in place.

Standardise the range of towers in your network

“ “Do you invest in a tower that takes two, three or four tenants, given that there can be no guarantees of future tenants?


if you can. If you need 13.5 square meters in one region and 14.5 square meters in another, be wary of ordering completely different designs, which can mean a higher cost and less future flexibility.

We’re seeing exactly the same strategies being adopted across Africa that we saw in India: operators increasingly sharing towers, the bulk of new rollouts coming from independent towercos – it’s the same discussion, and the same need to help technical departments understand their legacy assets.

TowerXchange: Having come from India to Africa, how would you compare the opportunities for infrastructure sharing in the two regions?

Torsten Esbjørn, Regional Director, Africa, Ramboll: I’m not sure that infrastructure sharing will spread quite as swiftly in Africa as it did in India. There are so many borders, different regulations, and some countries have a low population density. Some African countries will be very interesting for infrastructure sharing, some not at all.

However, the increasing number of infrastructure sharing deals being agreed in Africa excites me. It’s great to see towers transition to specialists who manage the towers as their core business. Ramboll are designers and engineers first and foremost, and our services are perfectly fitted to help with the transition of tower assets, from technical evaluations and tower design, to software for asset management, rollouts and managed services

Pedro Rabacal, Network Officer, International at Vodacom succinctly summarises the investment dilemma facing many operators as they consider whether to invest in shareability. “Do we build cheaper, low capacity, single tenant towers, spreading our investment for a wider footprint?” Asks Rabacal, “or do we invest two and a half to three times as much in multi-tenant sites with more expensive generators? And how do we balance that with the cost of installation in rural areas, areas where we might need to be efficient enough to serve a $10 per week ARPU environment?”

Should tower portfolios in Africa be built with sharing in mind? Warid’s network rollout was co-ordinated with Orange from the outset, yielding a solid tenancy ratio (and a good sale price) when the towers were sold to Eaton.

But Uganda may be the exception rather than the rule. While operators may be building multi-tenant towers with a view to future capacity, particularly in urban areas with growing data traffic and higher ARPUs, few network planners will commit additional capex without a clear indication of future revenue streams. The revenue forecasts get increasingly difficult, and the installation and operational costs increase, as one moves into rural areas increasingly beyond the reach of transport infrastructure.

Vodacom’s multi-tenant investment dilemma

Zulu Village, South Africa


What are my towers worth?How the experts conduct due diligence on tower portfolios to evaluate potential investments

We spoke to Andrew Doyle, Managing Director of Mott MacDonald’s technology and communications practice and two of his principal consultants, Simon Clayton-Mitchell and Dave Tanner, to learn more about the art of evaluating tower portfolios…

TowerXchange: Thank you for your time gentlemen. Please could you tell us about the different models required to undertake the due diligence for infrastructure sharing projects.

Mott MacDonald: We have a set of models, benchmarks and forecasts which we use to predict lease up rates, revenues and costs. These will typically feed directly into a financial due diligence process. The data is combined into an analysis presented to secure finance for tower transactions.

Let’s start with our typical demand-side models, which look at the current market structure. We consider what assets the operators have, where their towers are located, the amount of tower sharing that has taken place to date, and the drivers for growth. Often we’re able to talk to the operators about their feel for where the network is going. We evaluate current and future subscriber numbers, traffic growth, new technologies, coverage extensions, capacity, infill in towns, and based on these we forecast the required network architecture investment over the next ten to fifteen years.

We find that our forecasts vary significantly from country to country. We could be talking about driving 2G to 95% coverage in one country while introducing 4G in another.

Read this article to learn:< How demand side models are used to evaluate tower portfolios< How to evaluate site attractiveness< How to evaluate a tower company’s addressable market< How to analyse site location data across multiple operators< Is infrastructure sharing in Africa a good investment?

Keywords: Investing in Multi-Tenant Towers, Rental Rates, Financial Due Diligence, Subscriber & Traffic Forecasts, PoS Forecasts, Shareability, Infrastructure Sharing, Africa, Mott MacDonald, Eaton Towers, American Tower

Mott MacDonald’s technology and communication business has extensive experience of providing due diligence and consulting services on infrastructure sharing strategies – just one part of a comprehensive range of advisory services. The consultancy has worked with some of the leading players in the African tower sharing market such as Eaton Towers and American Tower, either working directly for or appointed by their investors on particular transactions.

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“ “We’re able to assess the towerco’s addressable demand based on the overlap between available capacity at the locations they’re acquiring, and where there’s demand for new sites

Once we’ve predicted capacity demand in a country, we translate that into forecasts for the number of sites and points of service needed. Ultimately that enables us to assess the addressable market, and the towerco’s prospective market share if they acquire that portfolio. From this we are able to forecast the potential lease up rate. And with a forecast of both the number of potential new towers and points of service that might be needed, we can predict the capital expenditure and operating expenditure needed to maximise the shareability of the network.

Alongside that, we benchmark to determine whether the proposed lease pricing is sensible, often seeking to at least match, and preferably improve upon, the revenues generated at existing sites.

Finally, we also evaluate risk from an operational perspective. Are the buyers of the towers building a towerco in the way they need to? Have they got right skills, processes and procedures in place?Depending on who we’re appointed by, we present these findings to the towerco to inform their business plans and negotiations, or to investors so they can then make a decision on the financing of the deal.

TowerXchange: How do you evaluate the shareability of the physical assets at a site, from the towers themselves to backhaul and power capacity?

Mott MacDonald: We evaluate “site attractiveness” in our due diligence process – matching operators’ current and future demand for sites, or indeed

tenancies, to determine how that aligns with the locations and quality of towers in the portfolio for sale.

We conduct physical site audits to evaluate the quality of the site. Is it a big, well-constructed lattice with space for additional kit, or is it a rusty old site that needs upgrading? Is there enough shelter and lease space for new cabinets and cabins? Is there room on the towers for additional antennas? We look at transmission: the connections, reliability – is there enough bandwidth available? Is there fibre? Is there enough power? Is it on grid? What’s the grid connection like – is there enough capacity? Potential transmission and power problems tend to be quite obvious, for example if 85% of sites are using significant diesel generator run time, with the associated truck rolls and diesel costs, you know a lot of investment might be required in the network.

We also try to take a geographic information system view of the world – where the towers are located compared to locations of other operators. We

usually have the site location data on the portfolio being acquired, but it can be a challenge to get location information from other operators, although sometimes it can be derived from site maps or other available data.

If we have this data, we’re able to conduct an analysis of how far apart the towers are, the overlap in networks, and this informs the modelling side of the due diligence. This enables us to get a sense of whether the opportunity is an urban fill-in play or more focused on rural network extension, for example. We’re able to assess the towerco’s addressable demand based on the overlap between available capacity at the locations they’re acquiring, and where there’s demand for new sites.

TowerXchange: how do new technologies, whether 3G or in future 4G, factor into your forecasts and models?

Mott MacDonald: Capacity for future 3G and 4G equipment of course creates additional demand. We have some interesting models to map potential demand at each point of service by technology, whether it’s 2G, current or future 3G or 4G. We are able to predict the capacity the operators are going to need for each, and get a sense of the balance between macro cells, microcells, small cells, in-building solutions and offload to Wi-Fi, giving us a picture of how demand for traffic will be met.

TowerXchange: What can you tell us about the increasing demand for points of service across Africa?


“ “We feel that the first or second towercos will find a market, if they strike relatively quickly

Mott MacDonald: Every market we’ve looked at has significant demand for additional towers and points of service in general, driven by coverage extension and 3G. We would anticipate a further substantial increase in demand for points of service with 4G, albeit that is quite a bit further down the line.

In three out of four different country models we last produced, there was a doubling of the tower requirement in the next 10-15 years, and in the fourth market the growth was just less than double. So you see why Africa is an attractive market for towercos and investors.

TowerXchange: Given the increasing volume of tower sharing deals in Africa, should operators invest in building more shareable towers to boost valuation in a future sale?

Mott MacDonald: We think operators would find it difficult to make a case to invest that capital expenditure now, but they’ll look at it on a case by case basis. Building a shareable site doesn’t have to cost that much more, but of course it depends how much space you share. In markets where little sharing is taking place currently, an operator could build shareable structures in unique locations, but there’s no guarantee you would get tenants.

Operators tend to look only as far as whether to build a tower at a given site or not, they don’t tend to see tower sharing as a potential revenue stream, which is of course why towercos’ focus on co-locations adds so much value.

TowerXchange: Based on the models and forecasts Mott MacDonald have built over the

different infrastructure sharing transactions you’re advised on, does infrastructure sharing look like a no-brainer in Africa? Have they looked like good investments?

Mott MacDonald: The maturity of the market in terms of mobile and, in particular, mobile broadband adoption is critical, and in the seven or eight markets we’ve looked at, I would say the infrastructure sharing model stands up well.

We feel that the first or second towercos will find a market, if they strike relatively quickly. Markets will continue to mature and delays may mean that the greater opportunities are missed.

With increasing data demands, network growth and falling ARPUs, margins are pressurised. So we feel that increased infrastructure sharing, whether through outsourcing or sale and leaseback to a towerco, or through joint ventures, is where many African markets are heading. But operators and towercos alike should not delay!


Special Feature:

Infrastructure sharing continues to play a growing role in Ugandan network expansion. From the early days of tower swaps, to the coordinated network rollout of Warid and Orange, 2012 has now seen the entry of American Tower and Eaton Towers into the Ugandan market.

In this special feature, TowerXchange tracks the development of infrastructure sharing in Uganda, seeking lessons transferrable to other jurisdictions by talking to some of the key stakeholders at Uganda’s operators, towercos and regulators.

UgandaCase study

Don’t miss:41 How Orange leveraged infrastructure sharing to claim data market leadership42 The BuddeComm Perspective on Uganda43 Regulations to support infrastructure sharing, an interview with the UCC45 How Eaton Towers hit the ground running with a high tenancy ratio in Uganda; an interview with Alan Harper, CEO


Uganda Case StudyHow Orange leveraged infrastructure sharing to claim data market leadership in Uganda

By way of an introduction to the market, let’s take a look at Uganda’s operators and towers. MTN’s network has the most cell sites in Uganda, with growing data demands prompting them to recently install 78 new base stations and plans to deploy a further 300 3G+ sites, bringing their total cell sites in Uganda to 1,100 by the end of 2012. MTN command a market share of just under 50%.

Airtel, formerly Celtel / Zain, were the first GSM network in Uganda and have around a 20% market share and approximately 700 sites. UTL is the oldest network with some 500 sites.

Then there’s Warid and Orange Uganda, the latter of which reported an 8% market share in Q4 2011, having increased 57.3% in the second half of the year. “Orange Uganda were the last market entrants in 2009, and we own 70% of the data market, largely on the basis of tariffs and speed,” said Godfrey Kisekka, CTO, Orange Uganda.

As in many African markets, the entry of Airtel has prompted tariff wars. With low and still falling ARPU, there is pressure on operators’ cost structures. This provides motivation to work with independent tower companies and other outsourcing partners to stabilise and minimise operational expenditure, with reductions of 30% reported already.

We asked Orange Uganda’s CTO Godfrey Kisekka to explain the evolution of tower sharing in Uganda. “I was at UTL (Uganda Telecom) previously. UTL was the sole telecom company in Uganda until Airtel (then Celtel) entered the market in 1995. MTN entered the

Read this article to learn:< The evolution of tower sharing in Uganda

< The role of the CTO of Orange Uganda in preparing data to sell their towers

< How tenancy ratios were maximized BEFORE the sale

Keywords: Market Entry, Due Diligence, Data,

Network Rollout, Tenancy Ratios, Infrastructure

Sharing, Africa, Uganda, Orange, Uganda

Telecom, MTN, Warid, Airtel, American Tower,

Eaton Towers

Uganda made telecoms infrastructure headlines at the end of last year when American Tower set up a 1,000 site joint venture towerco with MTN. Uganda was back in the news in June when Eaton acquired 700 towers from Warid and Orange. TowerXchange talks to Orange, UCC and Eaton to learn why infrastructure sharing is taking hold in Uganda.

Abela Rock, Katakwi, Uganda


market in 1998, and in the late ‘90s UTL and Airtel started some modest tower sharing. Warid tried to share sites when they entered the market in 2007, but found it difficult and ended up building most of their own infrastructure. When Orange came to Uganda, we were under time to market pressure. Warid found it beneficial to share with us. While Orange did build some new sites, we also shared 180 of Warid’s sites, while they shared 80 of ours. By this point Airtel were also sharing many sites. And of course earlier this year Orange Uganda completed a sale and leaseback transaction with Eaton Towers.”

TowerXchange asked Kisekka, as CTO of Orange’s Ugandan operation, what was your role in the tower sale and leaseback transaction? “As CTO I ensure integration between Group and affiliate activity on operational and strategic issues. Operational and capital costs were already under discussion, and we investigated the towerco model as well as various alternate models.”

“I had to gather lots of data to prepare the documentation for the RFP,” continues Kisekka. “We had a special local team supplemented by Group experts and the expertise of Sofrecom.”

What were Orange Uganda’s objectives in adopting the towerco business model? “We freed up capital for build-to-suit projects. We were sharing infrastructure anyway, but our core competency is as a telco service provider. Eaton Towers specialize in those site infrastructure practicalities such as security and fuel, releasing opex savings greater than when we simply share sites with another operator.”

Orange sold 300 sites to Eaton Towers, who announced the deal in March 2012 together with the acquisition of 400 towers from Warid. Both deals were structured as sale and leaseback transactions. Warid had invested in building towers in prime locations with capacity for upgrades and additional tenants, and already had Orange on many of their towers, as well as tenancies from Airtel and a WiMAX operator. So tenancy ratios were up around two even before Eaton started selling further co-locations.

MTN Uganda and American Tower created a joint venture towerco in late 2011. American Tower paid $89m for a 51% stake in ATC Uganda, and approximately 1,000 towers were transferred to the new business.

Infrastructure sharing is off to a good start in Uganda, with both ATC Uganda and Eaton Towers Uganda having access to portfolios with excellent coverage. You can read more about Uganda from the perspective of Eaton Towers CEO Alan Harper in the interview on page 45

Dependence on costly diesel generator power and regulations encourage infrastructure sharing in Uganda, according to analysts at BuddeComm.

As the number of antenna towers dotting Uganda’s landscape increases, the government is working on regulations to encourage infrastructure sharing among the network operators. A major problem is the lack of access to the electricity grid in many rural areas. The network operators depend on diesel generator power for more than 40% of their sites, which can add operational costs of up to US$200,000 per year per site. As a result, MTN, Zain, UTL and Warid formed a consortium in 2009 to share costs of connecting their sites to the grid.

ATC Uganda, a joint venture between MTN and American Tower Corporation (ATC) took over MTN’s towers in Uganda in December 2011. ATC paid US$89 million for a 51% stake in the new company. It plans to roll out more than 280 new sites in the country over the next three years

For more on BuddeComm’s excellent market research, visit www.budde.com.au

Column

The BuddeComm Perspective: Uganda

Uganda market overview

Population: 34.5mMobile subscribers: 16.7mMobile penetration: 48.4%GDP per capita (PPP current USD): $1,354(Source: World Bank, 2011)Cell sites: 3,067, of which 1,267 off-grid (GSMA)Coverage: 75.8% (GSMA)ARPU estimated at $3.80 in 2011 (BMI)Mobile internet users: 977,500 (UCC)


Regulations to support infrastructure sharingTowerXchange shares a wish list of regulatory requests, and looks at how the UCC creates a supportive environment for infrastructure sharing in Uganda

When TowerXchange speak to operators and tower companies about what they need from their regulators to best support infrastructure sharing, there is a common list of requests.

< Explicit telecoms infrastructure sharing regulations are preferable to policies found within general communications and anti- trust policies or, worse still, policies pertaining to electricity towers

< A fairly priced, transparent licensing regime for network providers that keeps less reputable players out of the market

< Light-touch regulation supporting competition, backed up with help to resolve disputes, but not getting involved at site level or in pricing

< Encouragement, rather than mandating infrastructure sharing is generally preferred to enable the economics of competition to define the market

< Consideration of incentives for rural connectivity, with efficient investment of Universal Access Funds

…All supported by tax authorities that share the same ethos of clarity and fairness.

The critical requirements seem to be transparency and speed of response. As ever, time to market is critical, and having a responsive regulator able

Read this article to learn:< How operators and tower companies think infrastructure sharing should be regulated< How the regulatory environment in Uganda supports infrastructure sharing< News of the UCC’s forthcoming new infrastructure sharing guidelines

Keywords: Regulation, Licensing, Market Entry,

Universal Access, Active and Passive Infrastructure

Sharing, Africa, Uganda, UCC


to swiftly license and support the market entry of value-adding infracos helps attract substantial infrastructure investments.

The regulation of infrastructure sharing in Uganda – a positive example

The operators and towercos in Uganda speak highly of the “helpful, transparent and positive” support for infrastructure sharing received from regulators the Ugandan Communication Commission (UCC).

TowerXchange spoke to Patrick Mwesigwa, Director of Technology and Licensing at the UCC. He told us “the UCC encourages co-location and sharing of infrastructure because it enables maximum optimization of resources and limits duplication of network resources; optimizes capital expenditure and hence frees funds for investment in core network equipment; and contributes to protection of the environment.”

It seems that the UCC are preparing an explicit infrastructure sharing policy: “The UCC is finalizing guidelines which will require operators to share infrastructure wherever feasible under mutually agreed commercial arrangements. Infrastructure

sharing is expected to provide good incentives for new entrants in the market, while it will also enable the existing operators to optimse the use of their infrastructure,” adds Mwesigwa.

We asked Mwesigwa: how are towercos licensed in Uganda?

“Tower companies in Uganda are issued with Public Infrastructure Provider (PIP) licenses which enable them to erect towers and other related facilities which are rented by service providers at mutually agreed commercial arrangements.”

What is the UCC’s view on the impact of infrastructure sharing on rural connectivity?

“Tower sharing will lower the costs for development of networks in the rural areas and thus make the business more viable for existing and new operators. We envisage rapid penetration of services in the rural areas as the costs of infrastructure go down.”

We concluded by asking the UCC’s view of active infrastructure sharing – for example, Rural NetCo has a license in neighboring Tanzania.

“The UCC will issue guidelines that require operators mainly to share passive infrastructures such as towers, cable ducts, antennas, buildings et cetera. But the guidelines also permit sharing of active infrastructure under mutually agreed commercial arrangements,” concluded the UCC’s Mwesigwa

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The UCC is finalizing guidelines which will require operators to share infrastructure wherever feasible


Eaton Towers hits the ground running witha high tenancy ratio in Uganda

Alan Harper, CEO of Eaton Towers

TowerXchange: Thank you for agreeing to share some insights in this interview, Alan. To put this interview in context, please tell us a little about the current state of the telecoms market in Uganda.

Alan Harper, CEO, Eaton Towers: MTN are market leaders, with Airtel second, Warid third, Orange fourth, and UTL fifth. The sixth license was bought by Sure Telecom, recently acquired by Roshan, and they’ve not yet launched.

We bought all the towers from Warid and Orange, the third and fourth licensees, which combined give us national coverage. Prior to this, tower sharing had been relatively minimal between operators, with the exception of Orange and Warid who had rolled out in a fairly co-ordinated way – co-locating on one another’s sites – while there had been quite a bit of sharing with Airtel, who are on a reasonable number of Orange and Warid’s towers.

TowerXchange: Partnering with a towerco enables more long-term network investments, where will you invest first?

Alan Harper, CEO, Eaton Towers: We’ll provide better mechanisms for refuelling; remote network monitoring through the NOC to monitor passive infrastructure, improving security on sites. We’ll also undertake some network extensions beyond the initial portfolio, for example in the West of Uganda there are new mining and oil & gas discoveries, so there are some new industrial areas that need coverage. But the major driver is capacity

Read this article to learn:< How Eaton Towers plans to reduce opex in Uganda

< The benefits of acquiring a portfolio with a high tenancy ratio

< Strategies to extend the network and enhance capacity

< What happens when towercos compete for co-location tenancies

< Comparing Eaton’s sale and leaseback deal in Uganda with their operational lease deal in Ghana

Alan Harper, Co-founder and CEO of Eaton Towers, kindly consented to be interviewed concerning Eaton’s recent acquisition of 300 towers from Orange and 400 towers from Warid in Uganda.

Alan has over 25 years of telecoms experience, including 17 years in Africa. Most recently, he served as Group Strategy and New Business Director for Vodafone Group PLC from 1995 to 2007, responsible for corporate and regulatory strategy, business development, R&D and public policy. He was Managing Director of Vodafone UK from 1999 to 2000.

Keywords: Sale and Leaseback Deal Structure, Cost Reduction, Network Extension, Capacity Enhancements, Urban vs Rural, 3G, Tenancy Ratios, Rental Rates, QoS, Infrastructure Sharing, Africa, Uganda, Ghana, Eaton Towers, Orange, Warid, MTN, American Tower, Airtel, Uganda Telecom


enhancement – most of the new tower growth is urban areas, not just in Uganda but in most markets – with rural to urban migration there’s a growing customer base and of course data usage is increasing. Orange in particular has a data and quality play, with a good 3G network and urban strategy.

TowerXchange: Speaking with the team at Warid, I understand their towers already had good tenancy ratios after a conscious strategy on their part to build a network with prime locations and multi-tenant capacity for future value. For example, I understand some 260 of the 700 towers were already shared between Warid and Orange. How does Eaton add value to a portfolio that already has good tenancy ratios?

Alan Harper, CEO, Eaton Towers: We start with a good portfolio, with established sharing agreements, and some benchmarks for pricing in the market. This avoids the challenge of varying expectations on tenancy rents.It had been a conscious, co-ordinated rollout between Orange and Warid – sharing towers made pragmatic sense at the outset, and it made both more interesting portfolios to us. It wouldn’t happen

like that in most other markets – you’d expect more overlap between towers, but it meant we didn’t buy redundant assets. So while we had to pay for it, we’ve taken over those tenancy agreements and secured that ongoing revenue stream – we start on a very high tenancy ratio.

MTN Uganda and American Tower announced their deal a couple of months beforehand, securing a portfolio of around 700-800 towers, but because MTN had done relatively little sharing before the transfer, they start with 700-800 tenancies. We have a very similar nationwide footprint but start with over 1000 tenants – making us the market leading towerco in Uganda. This gives us scale, pre-existing revenue, and an ability to run a bigger business from day one. We want to drive the lease up rates, targeting 0.5-1 tenant per tower. Meanwhile, the rollout of 3G adds to the capacity needs of network.

TowerXchange: speaking of MTN and American Tower, to what extent do the tower portfolios overlap? How do you differentiate your service from alternate co-location sites?

Alan Harper, CEO, Eaton Towers: We may have overlapping footprints, but not often overlapping tower locations. You might have a one square kilometre area within which you need a new base station, if there’s only one tower, there’s only one choice – the tower has simply got to be in the right place. So it’s not that intensely competitive, either you’ve got the location or you haven’t.

If there are two towers within 100 metres, and if

both have capacity, then you might choose on the basis of a volume deal with operator, knowledge of better QoS, or you might consider performance against service level agreements on other towers – essentially, which towerco is easier to deal with. So it’s rarely a shootout on tenancy rental costs.

TowerXchange: What are the benefits of infrastructure sharing for Uganda as a country and for Ugandan subscribers?

Alan Harper, CEO, Eaton Towers: There are economic benefits for the operator: better network coverage with lower capex and opex investment, which enables better QoS and an opportunity to reduce tariffs. There are environmental benefits; obviously three tenants on one tower is better than three towers. But it’s not just about visual impact, it’s about reducing power consumption, truck rolls – the logistical overhead of one tower is so much less than for three. It’s a genuine win-win. Uganda wins because the government achieves it’s objectives in terms of speed and quality of network rollout, while also creating new license revenues from towercos; operators win because service levels improve, QoS improves, and the balance sheet is improved; while towercos win new business and customers.

TowerXchange: Tell me about the regulatory environment – how supportive have the Uganda Communications Commission been?

Alan Harper, CEO, Eaton Towers: The UCC have been helpful and supportive where asset transfers needed clearance – they were comfortable with

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While we had to pay for it, we’ve taken over those tenancy agreements and secured that ongoing revenue stream – we start on a very high tenancy ratio


QoS. Importantly, the UCC had a clear licensing policy, and enabled Eaton Towers Uganda to get up and running quickly.

African governments are starting to understand that towercos are a good thing; they enable network extensions, they present an opportunity for new license fees (or revenue shares), and those license fees are fair.

TowerXchange: How do your strategies in Uganda, where you’ve acquired 100% of the equity in the towers, compare with Ghana where you have an operational lease with Vodafone Ghana?

Alan Harper, CEO, Eaton Towers: From a customer point of view there’s really no difference: we sell services, we run towers, we have quality of performance targets. The operator drives the business model. The only reason we do operating leases is because it’s what the operator wants, if for whatever reason they’re not ready to sell their towers. And of course as in Uganda we’re also happy to do tower purchase and leaseback – although these deals can take longer.

The market structures are similar in Ghana and Uganda – a similar number of licensees. Of course we started with more tenants in Uganda, we started with a tenancy ratio near 1 in Ghana. Probably the biggest difference is that the idea of a towerco is more advanced now. CTOs accept towercos more readily, so the biggest difference has been that our speed to market has been faster in Uganda

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How to structure an infrastructure sharing deal to suit your market and objectivesStriking a balance between lease rates and up-front cash

not as attractive a deal for the towerco.”

Singh continues: “Towercos will offer a range of deal structures, perhaps offering future lease discounts based on opex savings realized, or they might offer a lower lease rate right now and the towerco keeps the subsequent opex savings. It’s a matter of striking a balance between lease rates and up-front cash.”

“Towercos are smart at doing the math and working out what makes sense to them, while the OpCo needs to determine their priorities in terms of P&L, cash flow and shareholder valuation,” continues Standard Chartered’s Singh. “For example, MTN’s deal with American Tower realized a high value per tower. As a profitable business they could probably afford higher lease rentals that helped maximise value. However, if you have a cash-starved operation that isn’t yet breaking even, perhaps you can’t afford higher leases.”

The business case for sharing towers

Not every operator is convinced about the business case for sharing their towers. Some operators remain protective of network assets that had been a critical source of competitive differentiation.

One operator’s remarks summed up the perspective of those opposed to sale and leaseback, asking “Why sell? To create positive cash flow? Is that a good enough reason to waive the competitive advantage accrued from the network? Are the benefits equitably balanced across all parties? There is a risk that operators are giving up too much value to towercos. In some cases opex actually rises as operators use the towerco like a bank and sign up to higher lease costs to release more

Read this article to learn:< A comparison of sales and leaseback, operational lease and joint venture deal structures< How to balance up front cash release with reduced opex to achieve your objectives< Anchor tenant privileges of first movers< The pro’s and cons of selling towers – the business case for operators< Regulatory mandates for tower sharing

Keywords: Structuring a S&L, JV and an Operational Lease Deal, Cost Reduction, Build vs Co-locate, Business Case, Infrastructure Sharing, Africa, Uganda, Ghana, Kenya, Egypt, Standard Chartered, MTN, American Tower, Deka Global, Warid, Orange, Eaton Towers, Vodafone Ghana

“The structure of any tower transaction depends on what the sell-side mobile operator is trying to achieve,” says Mohit Singh, Associate Director of M&A at Standard Chartered. “They might be trying to get stranded assets off the balance sheet, reduce opex and release capital for future rollout. Under such circumstances, if your objective is to minimise the burden on the OpCo by lowering lease costs and passing certain risks onto the towerco, you might need to retain a lesser share of future synergies, and up-front cash will be limited as it’s

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cash. OpCos had to invest the initial capex, and now the towercos are looking to benefit from someone else’s balance sheet. Operators need to realize benefits from these transactions too – there has to be a balance.”

But the pioneers of infrastructure sharing in Africa remain bullish. Fazal Hussain, Managing Partner at Deka Global and former CEO of Helios Towers Nigeria contends “infrastructure sharing will eventually happen everywhere – there’s just no case to keep having multiple towers serving the same location. And there’s the incentive of first mover advantage – anchor tenant privileges for operators, and being first to market to attract the finite number of tenants for the towercos.”

“Anchor tenant privileges can be pretty much whatever you want,” continues Hussain. “You define the covenants. Do you want the upside from opex savings? Do you want to retain a substantial equity stake in the towerco? Do you want a discount when additional tenants co-locate? If you’re a first mover, you can take your pick!”

“Where once there was resistance to sharing such strategic assets, operators are starting to realize that instead of retaining their towers to delay new competitors’ rollout, they’d be better off sharing their towers, creating a revenue stream from those new market entrants, using them to subsidise their own network, marketing and pricing,” concludes Hussain.

Many regulators in Africa are strongly in favour of infrastructure sharing, in some cases banning new site builds. As one senior network planning manager at a new market entrant operator explained: “we have

no option but to pursue a co-location strategy as the authorities are reluctant to grant many additional site permits – African regulators are increasingly concerned about the environmental impact of towers.”

In markets such as Ghana, where infrastructure sharing has taken hold, very few new sites are being

built. As Alan Harper, CEO of Eaton Towers explains, “the rationale for a new base station works something like this: first, can I add equipment to one of my own towers? If the operator can, they do. If not, can I co-locate on an existing tower, either by doing a bi-lateral swap or co-locating on a towerco’s tower? And only if neither of these options is possible do they build.”

Unpacking the range of tower deals open to operators

Keith Boyd’s experiences represent two of the main three forms of tower transaction, from operational leases as agreed between Eaton Towers and Vodafone Ghana (see the interview with Tony Dolton, former CTO of Vodafone Ghana on page 24), to full sale and leaseback, as exemplified by Eaton Towers’ work with Warid and Orange in Uganda (see the interview with Alan Harper on page 45).

The third variation on the model is where the operator carves-out their towers into a newco joint venture, and retains a substantial stake in the joint venture, as MTN have done in retaining a 49% stake in ATC Uganda and ATC Ghana. This model has to date been favoured by Millicom, who have retained a 40% stake in their deals to date with Helios in Ghana, Tanzania and the DRC.

Joint ventures offer an opportunity for operators’ shareholders to benefit from the favourable valuation multiples of infracos – successful towercos might trade at EBITDA multiples in the teens, while operators might trade at seven to eight

times multiples. We haven’t yet seen an Indus-style operator-led joint venture in Africa, where several operators pool their assets, perhaps offering a management contract to a third party towercos. There have been rumours of such joint ventures in Kenya and Egypt.

Of course, one can also use tower transactions to liquidate cash for turnaround plays and aggressive rollouts. In such circumstances, an operator might accept increased leaseback costs in order to maximize the amount of capital released in the short term.

However, a high sale price doesn’t always mean a short-term priorities over-ride the long term. One African operator realized a sale price over 30% above the replacement value per tower, and increased leaseback costs by around 50%. But thanks to their retention of a substantial stake in the joint venture towerco, the aforementioned higher valuation of towercos means the deal makes sense for the CFO.


How to measure successThe criticality of tenancy ratios

Target tenancy ratios vary according to a variety of factors including the capacity of the market, volume of sharing before acquisition, rental rate and terms of the initial sale of the towers. Experienced practitioners tend to agree that a tenancy ratio above 1.5 is usually the first target in most markets. If tenancy ratios exceed 2, it usually indicates a highly successful tower venture.

The competitive sensitivity of tenancy ratios means we cannot publicly state how the different infrastructure sharing deals are progressing, but we do know that towercos in some of Africa’s most mature markets are on target to achieve tenancy ratios well above 1.5 by the end of 2012.

Towercos can only do so much to attract new tenants. Ultimately the RF characteristics of the tower are what they are. Towercos may not be able to influence roll out plans, but they can identify holes in coverage, and of course they all maintain relationships with RF Network Planners.

Therefore, tower companies must analyse data supplied by the seller, using their own models to bid for portfolios based on an accurate forecast of potential tenancy ratios. TowerXchange have revealed some of the evaluation metrics used in our interview with Mott MacDonald on page 37.

Another important measure of operational efficiency is site-level profitability, as highlighted by AT Kearney’s excellent recent report “The Rise of the Tower Business.”

It’s not just the initial deal structure that defines the success of tower sharing transactions. Income from co-locations is the critical measure of success for towercos, and for their investors and partners.

Read this article to learn:< The different means of calculating tenancy ratios< How towercos are progressing toward target tenancy ratios in Africa< The option to use infrastructure sharing transactions to release capital

Keywords: Tenancy Ratios, Network Rollout, Business Case, Deal Structure, Infrastructure Sharing, Africa, Freshfields

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Tenancy ratios, also known as lease up rates, remain the critical measure for success. But beware of the different means of presenting tenancy ratios – is an equipment upgrade from an anchor tenant counted as an additional tenant? Sometimes bartering may also be counted in tenancy ratios. Ultimately the best measure of success remains improvements to EBITDA margin.

Another critical consideration is the need to secure permission of all shareholders. As we know, substantial stakes in many African operators are retained by local market shareholders. Natasha Good, Partner at Freshfields Bruckhaus Deringer explains: “every subsidiary of a global operator is effectively a new OpCo in it’s own right when it comes to structuring infrastructure sharing transactions – each local OpCo board needs to be familiar with tower sharing. Previously network operators had been able to make changes with every moving part – employees, contractors, networks – so tower sharing requires the loss of control of what feels like a very core asset.”

Operator CFOs can use tower transactions to achieve a variety of objectives. EBITDA might actually go down if you’re selling and leasing back towers at a premium rate in order to maximise cash released – the increased lease costs simply being the cost of that capital. But it might be necessary to free up cash flow, which might be used to provide dividends, or to fund network rollout or

extensions that accelerate time to market.

It’s a common misconception that CFOs are universally in favour of infrastructure sharing, whilst CTOs remain protective of their network assets. As one senior executive at a tower company stated, “one of the principal challenges is convincing local CTOs and COOs that it’s a good idea – although it’s becoming easier as more and more CTOs have experience dealing with towercos.”

The conclusion of TowerXchange’s ‘introduction to infrastructure sharing in Africa’ is a simple one: there are an infinite variety of tower deal structures, defined by sliding scales of capital released, rental rates and stabilised opex and equity stakes, not to mention the term of the deal. All these variables mean infrastructure sharing can be tailored to meet different objectives in different market contexts

Securing buy-in from key stakeholders in the operator


To share or not to share……When is the time right to share your towers?

The perspective of incumbent market leader operators

Many market leaders had feared that if they shared their towers too soon, they might facilitate the market entry of low tariff competitors who would erode their market share and increase churn in the short term. But if market leaders don’t share towers, those same competitors might secure first mover advantage. If leaders leave it too late, their towers could be devalued as someone else has snapped up the finite number of prospective tenants. Africa’s longest-established operators might have legacy towers, which would benefit from working with a towerco to secure investment in power solutions and tower strengthening to increase tenant capacity.

Read this article to learn:< The business case for market leaders and new market entrants to share towers< The infrastructure sharing strategies of Africa’s leading operators< The indicators that suggest it’s a good time to share towers < How to create shareholder value through infrastructure sharing< How first movers create the greatest value by snapping up credit-worthy tenants

Keywords: Market Maturity,

First Mover Advantage,

Shareholder Value, Tower

Valuation, QoS, Coverage,

Network Rollout, 3G, 4G,

Urban vs Rural, Market

Evaluation, Tenancy Ratios,

Infrastructure Sharing,

Africa, Ghana, Uganda, DRC,

Tanzania, Cameroon, Cote

d’Ivoire, South Africa, Pyramid

Research, Helios, MTN,

Vodafone, Millicom, Orange,

Warid, Etisalat, Airtel

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Many transactions in Africa have yielded over $150k per tower

Market leaders should accelerate progress toward infrastructure sharing, as they will currently find themselves in a strong negotiating position. In some markets, towercos are prepared to pay more than the replacement cost of towers – many transactions in Africa have yielded over $150k per tower. Market leaders can release capital, stabilize opex AND realise an uplift in network performance at a time when QoS is becoming a critical differentiator – especially critical to secure those all-important high value customers.


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“There is a big advantage to being first movers – only so many towers will be shared. We’ve shared towers where we’re number one in the market with the right market competitive dynamics” – Khumo Shuenyane, MTN

Warid and Orange realized a good sale price… because they already had a healthy tenancy ratio, having shared many towers from the outset

The perspective of new market entrant operators

New entrant operators should accelerate their network rollout by sharing towers with incumbent market leaders if they can. There’s a backlog to secure permits for new cell sites, if they are permitted at all, so new entrants should deploy as few of their own towers as possible. Leverage independent towercos and existing operators’ network reach and try to tap into volume discounts. Concentrate any new builds in higher value locations – look for gaps in incumbent market leaders’ networks, particularly around data capacity in urban areas.

Consider a coordinated roll-out with another 3rd, 4th or 5th ranked operator. For example, Warid and Orange realized a good sale price when they sold a total of 700 towers to Eaton Towers in Uganda earlier this year because they already had a healthy tenancy ratio having shared many towers from the outset.

What’s in it for market leaders to share with new entrants? Enhance the valuation of towers before selling by sharing with new entrants and driving tenancy ratios. Market leaders can further enhance their value proposition by offering attractive roaming agreements.

The perspective of towercos

Towercos and investors have a delicate timing dilemma too. Acquire towers too soon and they could pay a first mover premium for a market that might lack sufficient credit-worthy tenants. Acquire too late and the there might be insufficient tenants still available to achieve tenancy ratio and profitability targets. Towercos need to be well funded – many have had to pay a premium for a substantial portfolio of African towers in order to be considered credible players. Get it right and valuation multiples in the mid to high teens can be achieved.

Diagnosing market readiness

When it comes to timing a transaction, it’s important to consider the number of licenses in a market, including the regulator’s stance on licensing 3G and future networks, and any restrictions on new builds, as all these factors affect the tenancy ratios that can be achieved. Urban network expansions, with the densification required to cope with increasing data demands and upgrades to next generation networks, are considered to be a more favourable indicator than rural network expansion, where towers tend to have less healthy tenancy ratios.

Another way to tell when the time is right to buy and sell towers is to look for signs that coverage has become a commodity. “In some markets, the importance of coverage as a competitive differentiator has become over inflated,” said Kerem Arsal, Senior Analyst at Pyramid Research. “Quality of Service isn’t great in urban areas, rural connectivity is poor – competitive market saturation means operators have reached a

limit where they have to go out into more rural areas, and this necessitates opex reductions.”

This view is shared by Africa’s leading operators. “In some markets there is still a degree of competitive advantage through coverage – so we’re in no rush to share infrastructure there,” says Khumo Shuenyane, Group Chief Strategy Mergers and Acquisitions Officer at MTN. Even the towercos agree: “towers are a strategic asset and therefore not sellable in countries where one OpCo dominates,” asserts Chuck Green, CEO of Helios Towers Africa.

However, when the time is right to share towers, you’ve got to move fast. MTN’s Shuenyane continues: “There is a big advantage to being first movers – only so many towers will be shared. We’ve shared towers where we’re number one in the market with the right market competitive dynamics.”

If one operator sells their towers, it tends to prompt the other operators in that market to act. Vodafone Ghana and MTN Ghana’s towers were on the market within a year of Africa’s first infrastructure sharing transaction from Tigo Ghana. It took even less time in Uganda, where American Tower’s deal with MTN was fast followed by Eaton Towers acquiring a similar number of towers from Orange and Warid.


The infrastructure sharing strategies of Africa’s leading operators

All Africa’s leading operators seem to be inclined toward infrastructure sharing:

Millicom have shown their hand in Ghana, DRC and Tanzania – they see infrastructure sharing as a strategic investment MTN’s appetite for infrastructure sharing continues unabated, with deals closed in Ghana, Uganda, Cameroon and Cote d’Ivoire, and rumours persisting about a potential deal in South Africa Etisalat had an active RFP for up to 4,500 African towers earlier this year Vodafone have aggressive targets for infrastructure sharing in certain African markets

However, the greatest influence over African tower sharing in the coming months might come from Airtel, who have registered “Africa Towers” subsidiaries in 16 African countries. Airtel have a commitment to low cost telecommunications and substantial investments and experience from their involvement in tower sharing giants Bharti Infratel and Indus in India.

Independent tower companies’ inclination to pay a premium for assets will diminish as the market leaders close their deals – we’ve reached the tipping point for infrastructure sharing in Africa.

So the market leaders are all keen. But beware – not all tower tenants are created equal.

Sale and leaseback deals are fuelled by 10 to 20 year income streams from leases, so the ability of the tower company to lease up the towers to credit-worthy operators is key.

Infrastructure sharing in African telecoms is literally is a land-grab. Depending on your market, there could be between two and five credit-worthy licensed operators, so there could be as many as ten prospective tenants if you count WiMAX, ISPs and broadcasters. But towercos can only do so much to attract new tenants – the RF characteristics of

the site are what they are, and there are only so many tenancies to be secured in any given market. First movers will have a considerable advantage in maximizing their valuation and in securing tenancies.

Don’t let your valuable tower assets get stranded on your balance sheet, their value declining, opex increasing whilst your competitors reduce their own opex by outsourcing to specialist infracos. Share your towers when the time is right, but that time could be now!

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There may be a case for operator-owned joint ventures in African countries with 2 or 3 strong market leaders, but the economics, coverage and transmission planning are complicated when towers are in close proximity, potentially duplicating one another. Decommissioning of sites can be expensive, and TowerXchange has seen no large-scale projects of this nature yet in Africa. However, at least one of Africa’s leading operators seems to favour this model.

A potential fifth phase of infrastructure sharing might see a progression to active infrastructure sharing. We’ll have an in-depth article on active infrastructure sharing in issue 3 of the TowerXchange Journal.

Four phases of tower market maturation inspired by Helios CEO Chuck Green’s words

An alternative final phase in the maturation of Africa’s tower market – operator joint ventures similar to Indus

Market leaders own the network and feel “I invested lots of capital in my network, so I’m not sharing”

Governments liberalise the market, prompting new market entrants and increased competition. Every new entrant needs finance even to roll out by co-locating on incumbents’ towers

The market share of leaders erodes. Coverage is no longer king. QoS and network delivery becoming key differentiators. Every time another tower goes up next to one of yours, value is being destroyed. Incentive to protect your investment in the network by sharing as this monetizes stranded assets on

the balance sheet, stabilizes and can lower opex, and gets rid of O&M responsibilities

Tower sharing enables incumbents to compete with disruptive new entrants’ prices, while also potentially lowering opex and improving EBITDA margin


With special thanks to the TowerXchange “Inner Circle” · With special thanks to the...

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