In the two years between the publication of the first edition of the TowerXchange Journal in December 2012 and December 2014, the number of towers owned and managed by independent towercos rose from 17,000 (12% of Africa’s towers) to 47,600 (29%). The SSA towerco market is dominated by the ‘Big Four’; private equity backed towercos Eaton Towers, Helios Towers Africa and IHS, plus publicly listed giant American Tower, joined by a handful of regional and ‘middle market’ towercos. In this article, we reflect on the state of the SSA tower market at the dawn of 2015.
State of the market
The African tower industry’s 47,600 towers are divided between Africa’s ‘Big Four’ multi-country towercos (IHS has 22,000 towers, American Tower 9,936, Helios Towers Africa 7,800-8,300 and Eaton Towers just over 5,000), a couple of significant single country towercos (Helios Towers Nigeria with 1,300 and TowerCo of Madagasacar with ~200), plus a handful of ‘middle market towercos’, primarily in Nigeria and South Africa. For more data on the middle market towercos, see “TowerXchange’s analysis of the independent tower market in Africa.”
With further transactions imminent in Gabon and Madagascar (sold by Airtel); Senegal, Mali, Guinea Bissau and Guinea Conakry (Sonatel / Orange), Egypt (MobiNil), and perhaps South Africa (Telkom) Africa’s ‘Big Four’ towercos will soon reach the 10,000 tower count widely recognised as representing ‘scale’, setting them on a new path focusing on the drive to profitability and eventual exit.
We’ve reached the end of the parallel infrastructure era for much of SSA; the majority of tier one MNOs’ towers in priority markets have been transferred to towercos, most tier two and new entrant operators prefer co-location to new build, and the majority of build to suit programmes are being executed by towercos and co-ordinated to minimise proliferation of towers. Africa’s towercos expect organic growth in the range of 10-15% per annum.
To acquire SSA’s most desirable towers, over US$5bn of capital has been deployed by Africa’s ‘Big Four’ towercos over the last four years, with many millions more invested in improvement capex programmes to upgrade tower structures and power systems for multiple tenants. That investment peaked last year; the African tower industry almost doubled in size in the second half of 2014, when 23,800 towers changed hands for an estimated US$3.6bn (excluding the value of the 51% stake in MTN Nigeria’s towers, retained by the MNO).
The current wave of tower transactions is coming to an end, with just the aforementioned four packages of towers in the near term pipeline for H1 2015. However, SSA will see further knock on transactions triggered in 2015 – the Airtel African tower sale has drawn Helios Towers Africa and Eaton Towers into several new markets, where the other credit worthy MNOs might consider divesting their towers before the finite number of tenancies is snapped up, leaving their passive infrastructure assets stranded on balance sheets. A more detailed analysis of potential knock-on transactions is provided in TowerXchange’s “What’s left? The tower monetization strategies of SSA’s leading MNOs” special feature.
With the pace of tower transactions slowing, the ‘Big Four’ towercos are refocusing on the evaluation and integration of newly acquired assets, staffing up new local opcos, novating leases, upgrading and co-locating new sites, and driving toward profitability. Tenancy ratios are approaching and, in a few cases, exceeding two, driven by incumbent MNO’s needs for cell site densification and next generation technology upgrades creating amendment revenue, supplemented by a couple of points contributed by Wi-Fi, urban 4G plays, broadcast and other non-traditional MNO tenants.
Investibility
The transparency of the pipeline of emerging market tower deals, not just in Africa but in Asia and LatAm, combined with increasing comfort in towercos’ ability to deliver the tenancy ratio and tower cash flow growth in their business plans, means existing investors have doubled down on many investments, and new investors are coming into the ecosystem capable of writing bigger cheques. African telecom towers is now a more proven asset class, and the three private equity backed members of Africa’s ‘Big Four’ towercos all have access to capital from existing and new investors. Nonetheless, opportunities for earlier stage venture capital and private equity funding can still be found among middle market towercos, albeit with the caveat that there is more risk to be found at that layer of the ecosystem.
For SSA’s handful of ‘middle market’ towercos, the name of the game remains creating a solid cash flow base through managed services and targeted deployment of macro sites, IBS, rooftop and special structures. The majority of SSA’s middle market towercos are build-to-suit centric plays. If they build robust towers in desirable but unique locations, such companies could soon become viable targets for trade acquisition by one of Africa’s ‘Big Four’ towercos. TowerXchange identify four opportunities for ‘middle market’ and new entrant towercos in our “2015: the year of the middle market towerco” editorial.
Implications for the supply chain
We’ve said it time and time again; towercos are becoming the most important buyers of passive infrastructure equipment and services in emerging markets.
Towercos are building the vast majority of new towers in the markets in which they are active. Even in markets where towercos are not yet active, MNOs have an eye on co-location and the potential for future sale, so there are few single tenant structures going up. While the migration to the independent towerco model is important for static asset manufacturers, it’s even more important for managed service providers. The transition from a single tenant, MNO-driven world to a multi-tenant, towerco-driven world unlocks upgrade revenue and unleashes substantial O&M contracts that can provide invaluable cash flow for turnkey infrastructure firms.
Towercos want to know what they’ve acquired, so replacing malfunctioning RMS with telco-grade solutions, backed up with site intelligence platforms purpose built for towercos, remains a priority. TowerXchange is tracking over a dozen RMS vendors serving emerging market telecoms – there are dominant market leaders in China and India, but no preferred solution has arisen for Southern and Southeast Asia or SSA, where towercos have piloted multiple solutions and are still seeking one which ticks all their boxes.
The emerging market cell site energy proposition is increasingly about what investments make sense under near-term improvement capex programmes, and what innovations are more cautiously piloted as part of efficiency programmes that may take longer to hit the bottom line for vendors. We still haven’t seen an ESCO or powerco of scale in Africa, although TowerXchange expect to hear from powercos managing 4-digit tower counts by the TowerXchange Meetup Africa 2015. The attitude of Africa’s ‘Big Four’ towercos toward the ESCO proposition was surprisingly bullish at this year’s event but, in a requirement echoed across all supplier categories, the appeal was for solutions that are ‘fit for Africa.’
TowerXchange Meetup Africa 2014 attracts 238 top decision makers in African towers
Now established as the must-attend event for the telecom tower industry in Africa, the audience at the TowerXchange Meetup Africa 2014 grew 36% year on year, and still maintained a decision maker level audience that was 83% Director to C-level. While TowerXchange is not the biggest event in African telecoms, it represents the most concentrated gathering of passive infrastructure buying power you will find on the continent.
This was no doubt the most useful show of the year to have attended. There is nothing I would change
Renowned for it’s unique small group, round table breakouts, the 2014 Meetup also featured an expanded, curated exhibition of 36 equipment and service providers, hand-picked as solutions ‘fit for Africa’ and proven in Africa.
TowerXchange Meetup Africa 2014 audience breakdown by industry
Once again the opportunity to meet real decision makers in the industry. Receiving encouragement from these same experienced and specialised folk is incredibly valuable. Kieron himself also provided an introduction before the event that has since led to a series of meetings at TowerXchange and an invitation to formally present to a Tier 1 operator
The TowerXchange Meetup Africa 2015 relocates to the prestigious Sandton Convention Centre Ballroom on October 1 and 2 this year. We have twice the capacity for exhibit space, but half of our booths have already been sold before we start our promotional campaign! Every TowerXchange Meetup has sold out weeks before the event, so contact Annabelle Mayhew, TowerXchange’s Chief Commercial Officer, at amayhew@towerxchange.com to secure your booth today!
