A preview of Airtel’s African tower sale

Portfolios for sale in proven and unproven tower markets will change the characteristics of the acquiring towercos

Read this article to learn:

  • Some headline KPIs concerning Airtel’s African towers
  • The potential impact of the Airtel tower transaction on the characteristics of Africa’s four biggest PE-backed towercos
  • Why American Towers may not be participating in the process
  • Differentiating between the assets in ‘frontiersy’ and established tower markets
  • A closer look at Tanzania as an example

Airtel’s long rumored sale of all 15,000 of their African towers is nearing completion. Some TMT news outlets have announced the structure of the deal but, having spoken to the CEOs of Africa’s towercos, TowerXchange can confirm that those reports are premature and that the final shape of the transaction is yet to be determined.

Figure 1: Proportion of sites on the Airtel network running 3G

figure-one-airtel

Nonetheless, here’s what we do know. Airtel is prepared to sell off their 15,000 towers in digestible ‘chunks’ rather as one single portfolio. While there will be fierce competition for Airtel’s towers in proven tower markets, there may have been only one bidder in some of the less proven tower markets, giving rise to a question as to whether Airtel’s valuation will be met in each country. Certainly, as operators of ‘Africa Towers’ and shareholders in Bharti Infratel, Airtel has the expertise to retain any assets that do not attract a bid above a nominal ‘reserve price’. However, it seems likely that most of Airtel’s Africa towers will be sold.

Most commentators agree that IHS, Helios Towers Africa, Eaton Towers and Helios Towers Nigeria are all bidding for the segments of the Airtel portfolio that attract their interest, and it seems that American Tower is not participating in the process. This could be a due to a combination of Airtel wanting to shed responsibility for energy logistics while American Tower prefers a power pass through clause, or it could be a reflection of American Tower’s finite appetite for the country risk present in many of Airtel’s operating countries. It could simply be that American Tower prefers to deploy capital in the US domestic, LatAm and European markets.

Airtel has not appointed a banker adviser, but reports suggest they are handling the transaction efficiently themselves, with the process proceeding broadly in line with their ambitious target timeline – let’s put it this way, we expect to be writing an analysis of a completed Airtel tower sale in the Summer edition of the TowerXchange Journal!

Figure 2: Subscriber growth on the Airtel network

figure-two-airtel

Frontier market towers

If, as rumoured, one tower company acquires the towers in the majority of countries shown in red in Figure 5, where local RAN Planners and Rollout Managers are not used to co-locations on independent towers being available, then that tower company is going to look more “frontiersy” to prospective future investors and strategic partners. Don’t misunderstand our analysis – taking on a frontiersy portfolio may not be a bad thing – we’ve often seen an exaggerated initial uptake of tenancies after the first tower transaction in a market as pent up demand for co-locations is unlocked. However, to date Africa’s towercos have only proved the efficacy of the business model in some of the more obviously attractive markets such as Nigeria, Ghana, Tanzania and South Africa, so whichever towerco acquires Airtel’s towers in their frontier markets is going to have an evangelical mission to promote the virtues of tower sharing to tenants and regulators alike.

Figure 3: ARPU running through the Airtel network

figure-three-airtel

While there will doubtless be many local stakeholders to win over in markets like Burkina Faso, Chad and Niger, with a rapid mobile subscriber growth from a low base and positive GDP growth, the runway for long term growth is tremendous. As we’ll see in the subsequent BMI and Mott MacDonald analyses, Airtel are not the only credit worthy tenant in these markets, but there are challenges to be overcome, not the least of which being energy logistics in countries with less than 15% electrification, and the unpredictability of regulations in a countries characterised by volatile domestic politics.

Will the Airtel transaction stimulate competition among towercos in established markets, or reinforce the market leadership of first movers?

The other side of the Airtel tower sale may attract several bidders to the process. The crown jewel in SSA African telecoms is Nigeria, which means towers assets in that country are sure to be in great demand. We’ll look more closely at the Nigerian market later in this special feature.

The sale of Airtel’s towers in Tanzania and DRC will doubtless have piqued the interest of Helios Towers Africa, which already has very successful operations in both countries, while it will be interesting to see how IHS responds to the sale of Airtel’s towers in Rwanda and Zambia, following so hard on the heels of their acquisition of all 1,269 of MTN’s towers in those countries.

Figure 4: Exponential growth in data on Airtel’s network (data shown in millions of MB)

figure-four-airtel

Exponents of the independent tower business model unsurprisingly but rightly advocate that only one or at the most two towercos should operate in any given emerging market country, in order for to creates the best opportunities to exploit economies of scale. For example, Ray O’Shea of Tanzanian O&M subcontractor NEWL explained the impact of Helios Towers Africa entering Tanzania: “where once we had dedicated teams for each operator, and field engineers spent a large proportion of their time on the road, now our model is regional, with each local team looking after a cluster of 20-25 towers for a mix of operators.”

Figure 5: Airtel ‘s towers are include countries that are both proven and unproven tower markets

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Conclusion

The sale of Airtel’s African towers will redefine the landscape for Africa’s four largest PE-backed independent towercos. Some of them, probably one of them, will take on a more frontiersy character, but if the acquisition of assets in markets with significant country risk is reflected in the purchase price, it can still be a good deal. Other tower companies may have their first mover advantage in proven tower markets reinforced with supplemental acquisitions, or they may find themselves facing fierce competition.

Figure 6: Estimated breakdown of the ownership of Tanzanian towers

figure-six-airtel

However, TowerXchange’s main conclusion is that this is a highly investible, attractive portfolio of tower assets; it’s early days for mobile data in Africa, but the number of MBs of data running through the Airtel network has more than doubled in a year, and Airtel are a savvy and credit-worthy anchor tenant  -a good business partner for towercos. The PE-backed towercos are going to emerge from the Airtel transaction significantly closer to achieving scale, so the door for new market entrant towercos to come into Africa via any method other than acquisition may be closing.

Comments (2)

SALE OF TOWERS: TEMPORARY SOLUTION TO THE BIGGER PROBLEM

We have been hearing for last two years that Airtel is trying to offload its tower assets in Africa, where they have invested about $9Bn without returns. More over, its profits from other markets are neutralised by the losses in Africa every quarter. On top of that debt burden has been imposing heavy penalty on its future plans of expansion and acquisition in other geographies specially in Latam.
Just two days back they have announced sale of 3100 tower assets in four countries ( Tanzania, Democratic Republic of Congo, Republic of Congo and Chad, though unconfirmed). Although Burkina Faso and others were also on the offer, Helios is possibly has not shown interest or price wise it was conducive to go for other markets. It is noteworthy that Airtel has not offloaded its tower assets in Nigeria where there is a possibility of increasing the revenue by jacking the tenancy ratio up ( profitable at 1.7 or more). By this sale of 3100 towers out of 15000 towers, Airtel will be able to reduce the debt burden of around $10 bn by about a fifth, which they would like to see reducing sooner than later by unlocking the value in Afriacn towers. Also, much needed funds can be diverted towards Latam and other emerging markets including US.

The sale is not the solution to the problem which most of the operating companies like Airtel, Vodafone, globacom and others etc face today, but the solution lies somewhere else which they never address and till date operators and towercos continue to bleed at their underbelly. Major problem today for any towerco is to streamline the tower operations and keep the opex under control, majority of which is cost of energy. Today’s problem was seeded when the towerco concept was not there and all the mobile companies built the towers for their expansion of the network at fastest speed paying least attention to the issues which came up later. They were fiercely trying to grab the market through cut throat price war, margins shrank and to add to the woes poor opex management, northward moving crude prices, lack of quality grid power and diesel theft (In India and Africa)made it worse. They knew it pretty well that management of towers will be a problem sooner than later, but that was not the time to look at it and certainly it was an informed and conscious decision taken that is proving fatal today.
subsequently, when towercos came up, operators mounted pressure on the towercos and expected to manage the monster which they created and failed to manage and discipline it. Nevertheless, towercos had come in existence for the same very purpose so the challenges are/were formidable. Towercos have been able to bring in some semblence of order in the whole ecosystem and tenancy/sharing of infrastructure helped a great deal to maintain operators balance sheet. But towercos also failed grossly to come up with a viable solution to meet the challenges to manage the energy cost. They have till date have been trying to pass on this failure of their to ESCOs and that is the reason ESCOs remained a failed initiative, at least in India for which these towercos like Indus Towers, Bhati Infratel, Viom, American Towers should do introspection. they did not get the support from Energy service players as they only put forward untenable conditions Surprisingly, they have been asking others to invest time and money to sort out their junkyard and yet bleed. Also the government directives to reduce the green house gas emission across the geographies has not been effective and countries signatory to Kyoto protocol themselves do not know when would they be able to meet their target of 2020 which is just six years away.
At the end I would like to conclude by saying that Selling tower assets is a temporary measure to the problem. The solution lies in managing the opex which is not happening. It requires concerted efforts of all the stakeholders (operators/towercos, technical solution providers, equipment manufacturers, ESCOs and the government agencies). Technology can provide the solution but success lies in its gainful utilization and a just business case for ESCOs.

kosmotherly

Hi Maheshwar, I’m sorry but I disagree with several points in your posting. One, the sale of 3100 towers by Airtel to HTA is only the first tranche of the transaction, with all 15-20,000 Airtel towers in Africa expected to be sold in the near future. I strongly suspect we will soon discover that another party was interested in the assets in Burkina Faso and other countries – and we expect Airtel’s Nigerian towers to be sold in due course.

Two, HTA has not paid $2bn for these 3100 towers, as you suggest. The purchase price is not in the public domain, but it is not $2bn.

Three, the sale and leaseback of towers does not preclude tackling the energy opex problem. Investing in longer term payback energy efficiency innovations may not be towerco’s first priority when they acquire a new portfolio – after all, they need to assess what they’ve bought, upgrade structures for multiple tenants, and often switch out DGs and add CDC batteries. Towercos’ investments in renewable energy are likely to be unlocked when tenancy ratios rise, TCF increases and portfolios start generating adequate capital to invest in solutions that improve site level profitability and ultimately capital value. It is easier to build a business case for renewable energy at a multi-tenant tower than for operator-captive single tenant towers.

So I believe the sale of towers is the first step towards the solution of your ‘bigger problem’.

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