According to commentary in the Mott MacDonald Share Square, Egypt is a relatively mature market: “despite mobile penetration of over 100%, 3G penetration in Egypt is low... 3G growth will provide the opportunity for a tower operating company with a portfolio of towers to focus on driving up their Lease Up Rate.”
Egypt has three tier one operators: Vodafone Egypt with around 40% market share, Mobinil with 35% and Etisalat with 25%. A new MVNO license is imminent. “Telecom Egypt will have an MVNO license by second half of the year, but they won’t be adding many new sites - at least at the beginning - as they will be largely using the existing network of the other operators,” suggests ADNA’s Magdy Zaky.
With 3G estimated to be contributing just 5-7% of operators’ revenue in Egypt, the three incumbent MNOs are all trialing LTE.
Will there be a tower transaction in Egypt this year?
“Mobinil is considering offering some towers for sale, and an official RFP has been issued,” says HOI-MEA Board Director Khaled Gad.
Mobinil’s majority shareholders are Orange, holding just under 94% of equity, with Orascom holding around 5% of equity. The operator has just under 30m subscribers in Egypt. Mobinil operates around 5,000 cell sites in Egypt, with only 150 or so sites off grid, the rest connecting to one of the more reliable electricity grids in Africa. Mobinil’s website boasts 99.65% population coverage.
What is motivating Egypt’s operators to consider tower transactions? “I feel that North African operators’ tower strategy is more similar to European rather than Sub-Saharan Africa thinking,” suggested Mobiserve CEO Tarek Aboualam. “It’s a balance sheet rather than operationally motivated transaction, with objectives to free cash, lower capex, and focus on the core business, rather than the more technically motivated decisions in Sub-Saharan Africa, which aim to pass on operational challenges to specialist towercos.”
What is the timescale for a tower transaction in Egypt? “Once the tenders published their requirements, which could be as soon as Q2 2013, everything will be clearer,” added Mobiserve’s Aboualam. “Infrastructure sharing is going to happen in Egypt, and it will be good for everyone. Each operator seems to be taking a slightly different position, but variety enriches the discussion!”
Seven drivers of a tower transaction in Egypt
Willingness of operators to consider tower transactions – dialogue between operators has been ongoing for some years, discussing a variety of towerco models including operational leases, operator-led joint ventures and sale and leaseback
Credit worthy potential anchor tenants
Imminent additional licensee
Data growth as 3G adoption increases
Network upgrades and extensions postponed during the revolution expected to be implemented as stability improves
Rising diesel costs as a government subsidy comes to an end
Four proven, licensed local infrastructure partners
What role will each licensed local infrastructure partner seek to play in any Egyptian tower transaction?
Alkan Networks
Strategy: Own towerco or partner
Illustrative Quote: “We have several options for any new towerco transaction that may occur in Egypt, one of the options is to establish a consortium with one of the key players in the build to suit market in the region. We have the capacity to manage the infrastructure of all operators together; however we are keeping all options open, whether to work solely or to establish a consortium with one of the multi-country towercos” (Tamer Wahba)
Credibility: Installed 6,000 towers in Egypt, 6,000 more beyond Egypt, and manage a further 10,000 sites
Click here to read the full interview
EEC Group
Strategy: Partner
Illustrative Quote: “If one of Egypt’s operators were to sell towers, EEC Group would like to bring our local and political knowledge to a joint venture with one of Africa’s established major towercos bidding for those assets. We’re aggressively pursuing conversations with two major towercos, who would bring their experience with deal structuring and setting up the NOC. We feel the towercos need a local partner with regional exposure, so there’s considerable synergy in us working together” (Samih Wahid Adly)
Credibility: EEC Group has deployed around 20,000 towers in Africa
Click here to read the full interview
HOI-MEA
Strategy: Own towerco
Illustrative Quote: “Mobinil is considering offering some towers for sale, and an official RFP has been issued. I’ve spoken personally to Mobinil to express HOI MEA’s interest in acquiring those sites. HOI MEA are interested in providing independent towerco services to gain more stability in our market and to develop our business a step beyond our competitors” (Khaled Gad)
Credibility: Over 1,650 telecom towers in Egypt and Sudan, plus 4,000 towers installed in other countries
Click here to read the full interview
Mobiserve
Strategy: Own towerco or partner
Illustrative Quote: “We are certainly interested in the tower acquisition and leaseback business. MobiTower is our towerco subsidiary based in Egypt. We are in deep talks with all the operators, in some cases in advanced negotiations. When Mobiserve decided to move into the towerco business, we knew we lacked some experience and know-how. So we are in serious talks with a major international player working in the tower business in other countries. While Mobiserve bring the local knowledge of operations and rollout in North Africa, this other company are more experienced in how to negotiate a deal, structure a contract and build revenues” (Tarek Aboualam)
Credibility: Mobiserve is a regional company managing 18,000 sites across eight markets covering North Africa, the Middle East and Southern Asia
Click here to read the full interview
The impact of the revolution on capex deployment by Egyptian operators
Samih Wahid Adly, VP & COO at EEC Group commented: “The unrest post revolution is certainly impacting the telecom business. Operationally, the situation is much more complex and challenging - from the lack of security affecting transportation and materials, economic instability causing an increase in virtually all operational costs, and fiscal policies potentially bringing in higher taxes and removal of subsidies.”
“The Egyptian towerco market started at the end of 2010 but was on hold for some time because of new revolution in Egypt,” adds HOI-MEA Board Director Khaled Gad. “The market is now starting again with all three operators, Vodafone, Mobinil and Etisalat, sharing existing and new sites.”
Magdy Zaky, Commercial Manager at ADNA shares a similar perspective: “The operators have become very conservative about investing capex in Egypt, with a considerable reduction in greenfield site rollout, and a preference to deploy rooftops, which can cost a third of the cost.”
With network investments pent up behind the logistical challenges of upgrading cell sites since the January 2011 revolution, and government subsidies that had kept the cost of diesel below US $.3 per litre in Egypt coming to an end, market conditions in Egypt are favourable for tower transactions, and the CEOs of some of the pan-African towercos have been clocking up frequent flier miles travelling to Cairo.
Why operator-led joint venture towercos are difficult to structure
Indus-style, operator led joint venture towercos look like the most efficient option for MNOs in principle as all the value created can be retained.
However, the reality is that joint venture towercos are extremely difficult to structure. Operators are used to competing fiercely, not working together. The objectives of each party are seldom aligned, whether it be in terms of the balance of the deal between cash released and opex minimisation, network extension objectives, or the timetable to implement 3G or LTE. While it’s difficult to align the objectives of two operators, it’s even tougher when a third operator is involved, as would be the case in Egypt, so a single operator will often find it easier to partner with an independent towerco.
Read the other analyses and interviews in TowerXchange’s Egypt case study:
The Mott MacDonald Share Square: Egypt read here
Mobiserve believe a tower deal is imminent read here
EEC Group are positioning themselves to partner towercos read here
HOI MEA reinvents itself as a towerco read here
Alkan’s end to end services read here
ADNA calls for African towerco investor into Egypt read here
