Airtel’s tower sale enables Africa’s towercos to achieve scale and to diversify country and counterparty risk, while the transactions will enable Bharti Airtel to retire ~US$2.5bn of their estimated US$10bn debt. As the deals have been announced, frustratingly the countries involved have not been confirmed – here we present TowerXchange’s educated guess as to which towerco is acquiring the towers in which country, together with an overview of the tower market in each country.
Which towercos acquired Airtel’s towers in each African country?
According to TowerXchange research, Eaton Towers has acquired Airtel’s towers in Ghana, Niger, Burkina Faso, Kenya, Uganda and Malawi.
Our research also suggests that Helios Towers Africa has acquired Airtel’s towers in Tanzania, Chad, DRC and Congo Brazzaville.
Burkina Faso: Eaton Towers will be introducing the independent towerco business model to Burkina Faso, where Telemob and Airtel vie for market leadership, with Telecel not far behind. 3G was launched in 2013. Mobile penetration was 72.1% at y/e 2013, according to BMI.
Chad: Helios Towers Africa are the first and only towerco in Chad, where their old friends Tigo compete with new counterparts Airtel and national operator Sotel Tchad. Airtel has launched 3G, Tigo has a 3G/LTE license and plans to launch imminently. Mobile penetration was just 36.8% at y/e 2013, according to BMI.
Congo Brazzaville: Helios Towers Africa will hop over the Congo river (not literally of course) into Congo Brazzaville, with obvious potential to share resources HTA’s neighboring operations in DRC and with the imminent acquisition of towers in Gabon. Congo B saw in-market consolidation with Airtel’s recent acquisition of Warid vaulting them over MTN to become market leaders. Bintel’s Azur are ranked a distant third.
DRC: Helios Towers Africa will add Airtel’s tower network, renowned as the farthest reaching in DRC, to the more urban-centric 729 towers acquired from Tigo in 2010. DRC is a poster-child for growth potential, with just 4,000 towers covering a population of 75.5mn (that’s 18,875 per site!), spread over 2.3mn sq km, and mobile penetration still under 20%. DRC’s scale and growth potential has attracted four tier one MNOs, Airtel, Orange, Tigo and Vodacom, while Africell quickly grabbed 20% market share through aggressive pricing. When TowerXchange spoke to Africell in July 2014, the company had co-located on 180 Helios Tower Africa sites, and had not yet felt the need to build any of their own towers.
Ghana: Eaton is already active in Ghana, where they will add Airtel’s towers to the 750 Vodafone towers they are managing with license to lease. There are three major towercos active in Ghana, which have been snapping up tenancies for over three years. Back in 2010, Helios Towers Africa setup a joint venture towerco with Millicom Tigo as minority partners, to which 750 towers were transferred. Shortly afterward Eaton Towers closed their deal with Vodafone Ghana, then American Tower set up another joint venture with MTN to which 1,876 towers were transferred (ATC Ghana now markets 1,998 Ghanaian towers, on which the tenancy ratio was 1.4, as reported at the end of 2013). MTN leads a similarly crowded market for operators, followed by Vodafone, Tigo, Airtel and Glo, with Expresso struggling to establish a foothold. Mobile penetration has passed 100% within Ghana’s population of 26mn.
Kenya: Eaton Towers haven’t had it easy in Kenya. Their contract to manage with license to lease 1,000 Orange / Telkom Kenya towers was cancelled after their counterparty hit financial troubles – Orange are rumored to be keen to exit Kenya, while yu (Essar Telecom) have already divided up their assets and left. Why are they leaving? It’s tough competing with Safaricom, their 68% market share, their deserved reputation for innovation, and their sticky mobile money service, the world famous M-PESA, through which 25% of Kenya’s GNP now flows. With 16% market share, Airtel is a healthier counterpart for Eaton, but with uncertainty surrounding the #3 and #4 ranked operators, and an ‘Open Access’ LTE network mooted, the economic fundamentals in Kenya may be more attractive than the operator landscape, at least in the short term. There are around 6,000 towers in Kenya, of which around 3,500 have 3G antenna.
Malawi: Eaton’s acquisition of Airtel’s towers in Malawi marks the debut of the independent towerco business model in one of Africa’s most under-developed telecom markets. According to Mott MacDonald, mobile penetration is just 35% in Malawi, and growing at just 2.3%. Airtel lead a dupoloy with TNM. 3G was launched as long ago as 2009. According to the GSMA, geographical coverage is 79%, with 94% of the Malawian population covered, with around 800 towers in the country.
Niger: When Eaton Towers opens up the first towerco in Niger shortly, they’ll need to be ready to engage with a challenging energy logistics scenario, low population density, and sub US$5 ARPU. Airtel has recently secured a 3G license in Niger where it competes with Orange, SahelCom and Moov (recently sold by Etisalat to Maroc Telecom). Mobile penetration was just 34.8% at y/e 2013, according to BMI.
Uganda: Eaton Towers will be adding Airtel’s Ugandan towers to the 700 towers they acquired from Orange and Warid back in 2012. Airtel since acquired Warid, while Orange sold out to Africell. Uganda remains ripe for further in-market consolidation, with seven licensed MNOs. American Tower is also active in Uganda, where they have a joint venture with MTN and currently market 1,226 towers. At y/e 2013 ATC Uganda’s tenancy ratio was 1.1.
Tanzania: By adding Airtel’s towers to those already acquired from Tigo and Vodacom, Helios Towers Africa now has over 75% of the towers in a country which couldn’t be more perfectly setup for infrastructure sharing. Each of Tanzania’s four main operators (to which one must add Zantel, whose towers have been the subject of past sale rumors) is dominant in a different region of the country, providing a strong incentive for co-location to accelerate nationwide coverage. Substantial BTS programmes are also under way, led by Vodacom.
How TowerXchange forecast the Airtel towers will be divided among Africa’s towercos
Which towercos are the most likely buyers of Airtel’s remaining towers?
Gabon: TowerXchange sources suggest Helios Towers Africa have agreed in principle to acquire Airtel’s towers in Gabon, and the deal is pending regulatory approval. Gabon’s oil wealth is partly responsible for the country having one of Africa’s few mobile penetration rates above 100%. Airtel competes with Libertis, Azur and Moov, recently sold by Etisalat to Maroc Telecom.
Madagascar: We understand Eaton Towers are in pole position to acquire Airtel’s towers in Madagascar, with the deal agreed in principle and pending regulatory approval. Airtel are the market leaders in a Madagascar with around 40% of subscribers, with TELMA and Orange splitting the remainder between them. Mobile penetration remains around the 30% mark. Madagascan telcos are already familiar with the concept of independent towercos after the success of TowerCo of Madagascar, formed from an initial carve out of assets from TELMA, and with a tower count already approaching 300. Madagascar offers significant potential amendment revenue as 3G deployment continues for the next 18 months or so, with operators pushing for LTE as soon as mid 2015.
Nigeria: We hear conflicting suggestions from sources, but there seems to be a consistent view that American Tower and Helios Towers Nigeria are at Airtel’s negotiating table, possibly tabling some kind of joint bid, more likely bidding for either different segments of a split portfolio, or indeed simply bidding for 100% of the assets against one another. There would be some merit in IHS acquiring Airtel’s Nigerian towers from a defensive point of view, but a significant degree of overlapping locations with the assets IHS already acquired from Etisalat and MTN Nigeria would seem to reduce the potential value of the portfolio to IHS. Airtel’s towers may simply be worth less (although not worthless) to Africa’s most aggressive tower bidder, illustrating that last mover disadvantage can be a factor even when deals are closed within months of one another. For a detailed analysis of the Nigerian tower market, check out the “Nigeria migrates to the independent tower company business model” editorial in this edition.
Rwanda: IHS are rumored to be in pole position to acquire Airtel’s Rwandan towers, following their acquisition of 550 towers from MTN Rwanda in 2013. Rwanda is home to three tier one MNOs, so has no shortage of credit worthy tenants. MTN leads the market, followed by Tigo and Airtel. Korea Telecom secured a joint venture with the Rwandan Ministry of Youth and ICT to build a nationwide LTE network. Mobile penetration in Rwanda is around 65%, but ARPU below US$3 had been reported by MTN in 2013, one of their lowest in Africa.
Sierra Leone: Airtel’s Sierra Leone towers simply have not appeared on the radar of TowerXchange’s research. It’s possible Airtel’s towers in Sierra Leone may yet be bundled with one or more remaining countries, but it’s hard to imagine towercos being overly enthusiastic to launch in Sierra Leone given the very low penetration rate and lack of other licensed tier one MNOs (the market is led by Africell, while licenses are also held by Airtel, Lap GreenN and Comium).
Zambia: IHS are likely to acquire Airtel’s Zambian assets in a strategy again mirroring their recent acquisition of MTN’s Zambian 719 towers. Mobile penetration is approaching 80% in Zambia, where Airtel lead the market joined by MTN and Zamtel.
How will the sale of 15,000+ Airtel towers across Africa affect the landscape of the tower industry?
The Airtel transaction has helped create the critical mass, scale and diversification of country and counterparty risk that Africa’s private equity backed towercos have targeted since inception. TowerXchange don’t think Africa’s current wave of sale and leasebacks are finished, but as Africa’s towercos approach and pass the 10,000 tower mark, attention will turn to operational excellence and improving margins.
The Airtel tower deals illustrate how in many markets one towerco is now dominant; a healthier scenario that in the early days when, for example, three towercos competed for a finite number of tenancies in a country of just 26mn (Ghana). The reality is that most African countries don’t have capacity for more than one towerco, especially when one considers that the first and second ranked operators are frequently the only counterparties turning a profit. Therefore, future tower transactions may see more in-market consolidation of tower portfolios under a single towerco, rather than widespread entry into new and competitive markets. Africa’s ‘Big Four’ towercos have established beachheads in most of the markets where the fundamentals are most attractive, leaving smaller, riskier markets increasingly open to new entrants.
Even if the tower transaction pipeline slows down after the final Airtel deals and the MobiNil deal in Egypt is finally closed, there remains plenty of scope for African tower industry growth. Tenancy ratios are climbing fast but are still well below hypothetical glass ceilings, which themselves are raised all the time with next generation technologies stimulating amendment revenue and new entrants seeking co-locations to accelerate time to market. TowerXchange expect to see at least one tower opportunity come to market in the attractive South African market in the next year, while Orange continues to seek partners for an MLL deal in Senegal, Mali, Guinea B and Guinea C. And the rumor needle is starting to twitch in North Africa.
Forecast African towerco footprints
How did Africa Towers add value to the sites pre-sale?
Africa Towers (Airtel’s tower company) subsidiaries were registered in all 16 countries for 12-18 months prior to the tower transactions. Airtel’s towerco were more active in some countries than others, but what was their focus?
Africa Towers consolidated Airtel’s tower assets, demerging them from the parent MNO and making the tower transactions easier to complete. They refocused manpower on passive infrastructure. They improved uptime in many countries from 99.2 or 99.3% to 99.5%. Perhaps most importantly, Africa Towers increased the tenancy ratio from less than 1.1 to 1.3 in many markets.
Was the strategy a success? Value was certainly added, but did Airtel lose first mover advantage in several markets, including the critical Nigerian market, by changing course from a carve-out towerco to a sale and leaseback? We’ll reserve judgement until the last of the transactions closes.
How have the capital markets responded to Bharti Airtel’s African tower sale?
Airtel’s share price is up almost 20% since the first of their African tower transactions was announced.
From the moment Airtel’s African tower sale was rumored, reports had suggested Bharti Airtel had targeted raising US$2-3bn from the tower sale to pay down part of the operator’s ~US$10bn debt. How are Airtel faring against that objective? TowerXchange forecast the African tower sale will net Airtel around US$2.5bn when complete.
While the purchase prices agreed in Airtel’s transactions with Helios Towers Africa (3,100 towers) and Eaton Towers (3,500 towers) aren’t in the public domain, TowerXchange can make an informed guess that around US$1.1bn has been raised from the sale of 6,600 towers to date, suggesting a cost per tower of around US$175,000. If the cost per tower agreed was nearer US$200,000 in Nigeria, which would be consistent with recent tower transactions in the country, Airtel’s Nigerian towers could net a further US$1bn. Add in Gabon, Madagascar, Rwanda and Zambia and a further US$400,000 could be raised.
