In geekier moments, it entertains me that mobile telecoms towers – one of the dullest parts of the TMT world - are also one of the hottest areas in telecoms rights now. Nowhere is this more true than in Africa, which regular readers will know is the market I find most interesting. This post focuses on the opportunity in towers in Africa.
Cellular towers are the building blocks of mobile telephone networks. Typically they consist of a pylon on a leased site (“passive” network components), to which is attached the base station and antenna (“active” network components). In a country like the UK the average network has about 14,000 of these location, many of which are shared. In India, Airtel alone has over 70,000 towers, whereas in Africa networks even in the largest countries like Nigeria make do with a few thousand apiece.
The latter fact hints at why towers are hot property and why the three largest infrastructure companies are involved in a land grab for these assets. Tower sharing enables a dramatic reduction in the cost of one of the most expensive parts of the infrastructure. If one independent provider buys tower assets off a number of networks, consolidates them, then operates them as one business in an efficient manner, then everyone benefits.
The need is particularly keen in Africa, where the average cellular tower and its active elements cost about $200,000 to install – this is four times the cost of other emerging markets. The reason for this massive difference is the lack of other types of fundamental infrastructure in Africa. Want to install a tower in a rural area? You’ll have to contend with the fact that there’s no roads to transport the kit on, no power grid to make it run or fibre backbone to connect it to the network. So you’ll most likely need a helicopter, a generator (and/ or solar panels) and a bunch of microwave kit. Then you’ll need regular deliveries of diesel and guards with AK47s to make sure it doesn’t go missing.
As you can see, building new towers is an expensive, time consuming business and without the market share of a market leader like MTN or Vodacom, it’s too expensive to build and run on your own. It’s therefore no surprise that it’s challenger brands that are keenest to enter tower sharing deals with the likes of American Tower, Eaton and Helios. Even better than the operational benefit is the large chunk of capital that can be released by selling off this infrastructure. My estimate is that $9Bn of value can be released by African operators from selling their towers and buying access to them from opex.
The figure shows how the market’s excitement in these assets has led to a significant decline in the average cost of a tower. In the early days of the market – 2005 through 2008 – tower deals were on a huge scale and in developed markets but as the model became more established, the competitors better capitalised and the vendors more aware of the benefits, operators in smaller markets started to put their assets on the market. This has led to the average price of a tower on the global market falling from over $500,000 in 2005/06 to less than $200,000 in 2011/12.
I expect to see many more deals coming to light in emerging markets this year, just another part of the quiet expansion of developed market telecoms companies into these new frontiers.