Nigeria has had it so smooth in terms of mobile subscription growth but same cannot be said in terms of quality of service being rendered in the industry. But now that telecom operators seem to have found their way through the radar of tower spin offs, hope is on the horizon. And the expectation is that with tower operators on rescue mission, and tower management out of their way and full focus on their core business of service delivery, Nigerian telcos should be able to improve on their quality of services. SAMSON AKINTARO reports
Swimming with the Tide
Upon all the successes of the Nigerian telecommunications sector, there is still a clog, and that is the challenge of service quality. As much as the subscribers lament, the industry regulator gets worried and has often times had to take drastic actions by sanctioning the operators. Obviously, the sanctions have not yielded any positive results as the service quality has not in any way improved even after the operators have had to pay sanctions to the regulators on many occasions.
That perhaps explains why the regulator seems to have toned down its punitive actions and now forging a common front with the service providers to address some of the challenges inhibiting good quality service. One of those challenges, which the operators themselves have had to take drastic decisions to address is that posed, by their full involvement in the management of their base transmission stations (BTS), which pundits have ascribed to their inability to focus squarely on service quality. And the response to that from the operators is the massive sale of towers to tower management companies in what has now become industry practice as telcos strive to cut overhead costs and improve their service quality.
Before now, the operators had maintained the posture of jack of all trades and were trying to be master of all until the cookies began to crumble. With service quality getting poorer as more and more Nigerians joined the mobile communications train, the reality of the need to expand service and install new base stations soon dawned on the network operators. But to achieve this necessity, a number of obstacles are to be crossed, which perhaps the operators never envisaged at the beginning of the business.
First, they had to contend with series of application for approval from various government agencies and bodies, thereafter, they have to face threats from locals who also demand settlement before the operator could even bring its equipment for the construction of base station. These are aside the challenge of how to secure the facility and how to power it 24/7.
At a point, one of the leading operators in the country had lamented openly about the difficult it was facing in rolling out base stations across the country. The reason, according to the operator was that hardly would it install base stations in any communities across the country without encountering confrontation from the locals or government agents. To get a base station running, for instance, the operator noted there are several approvals that operators must secure from all kinds of regulators including the Nigerian Communications Commission (NCC), state governments, local governments and state environmental agencies.
While the attendant huge capital and operating funds required for the running of telecoms firms in the country has been taking a serious toll on their profit margin and making it difficult for them to meet their shareholders’ expectations, the situation, according to the operators, is worsened by the significant pressure on the industry’s Average Revenue Per User, ARPU, downward pricing pressures on call rates as well as flexibility on pricing of products and services.
With all these challenges, the only option left for the operators is to embrace co-location that is, sharing of base stations, which of course, they had initially rejected. Tower sharing “entails operators collaborating to share either the active elements (the physical network) or the passive elements of their base stations – including the physical tower structure, security, power and diesel generators – in an effort to carve out the enormous capital and operational expenditures that infrastructure rollouts demand.”
Incidentally, while most of the operators were clamouring for colocation as the best way to save themselves the stress of building base stations here and there and reducing Capital Expenditure (CAPEX), none could summon the courage to go ahead and co-locate with the other as fear of sabotage crept in.
Luckily at that period, independent tower management companies began to show up at the Nigerian telecom scene and that brought a huge relief for the operators. Today, the likes of Helios Towers Nigeria (HTN), IHS and SWAP have become the burden bearer for telecom operators. As a matter of fact, they have become the major backbone of all telecom operators in the country as operators massively offload their towers to those companies to manage.
By the end of 2014, over 70 per cent of towers in Nigeria were owned or operated by independent tower companies. The massive shedding has continued this year with MTN, Airtel and Etisalat selling off their remaining towers in separate deals. And with these developments comes the greater expectations that the operators will be able to improve their service quality now, having been set free of tower management and left to focus on their core business of providing quality service. Will they meet up to this expectation? Only time will tell.
The Multi-billion Dollars Tower Deals
What began like an experimental deal few years ago has now blossomed into multi-billion dollars transactions, in which mobile operators are raking in money to finance other aspects of their operations. As at the last count, the tower deals already sealed by three of the four GSM operators in the country, MTN, Airtel and Etisalat was in the region of $4 billion.
Incidentally, the tower sales frenzy began with troubled Code Division Multiple Access (CDMA) operators who were trying all means to remain afloat in the face of stiff competition that was choking them as smaller players compared to the GSM operators. By December 2010, STARCOMMS Plc (now defunct) had finalised a sale and leaseback agreement with Swap Technologies and Telecomms Plc relating to 407 of its 557 Base Station Towers for a consideration of $81.4 million in cash. Under the terms of the transaction, Swap took over the operation and maintenance of the passive aspects of the 407 towers. Those towers comprised the physical structures as well as the power components, while the core network and radio components remained under Starcomms’ ownership and control. The lease agreement was for an initial duration of 15 years, and allowed Starcomms full access to the towers to operate its network.
Shortly after that, in 2011, Visafone Communications Limited, which is the only surviving CDMA operator now, also sealed a $67 million infrastructure sharing deal with IHS Nigeria Plc, a publicly quoted Company and a leading telecoms infrastructure provider in sub Saharan Africa. The infrastructure sharing strategy, as revealed then, was a long-term partnership involving the sale and leaseback of the tower assets of Visafone, aimed at optimising their operational efficiencies. The strategic partnership was expected to lead to significant benefits by enabling Visafone to focus on its core business of providing mobile services and solutions bringing in operational efficiency, and enhanced quality of service to its customers. It was also to provide IHS the platform of consolidating its telecom infrastructure business and industry leadership position with more than 800 owned sites under collocation in Nigeria and several thousands of sites under management.
And thereafter, many of such deals have been coming from the GSM operators. Just recently, Etisalat Nigeria completed the transfer of 555 telecom towers to IHS Holding Ltd, leading Africa mobile tower provider, the second tranche of a sale and leaseback deal. The transaction is believed to be in the region of $400 million. Earlier, Etisalat Nigeria had sold 2,136 of its towers to IHS and leased them back as part of plans to expand its coverage in Africa’s largest economy. Etisalat said the partnership with IHS is designed to promote network sharing, ensure higher quality, sustain reliable mobile services, lower overall costs and also promote a cleaner environment through reduced diesel usage and increased investments in alternative energy solutions.
In the same vein, Bharti Airtel , had this year alone, sold more than 4,800 mobile phone masts in its Nigerian operation to American Tower Corp for $1.05 billion, as part of its plan to cut costs and reduce its debt. Bharti Airtel agreed to be the anchor tenant on the masts it is selling to American Tower, initially for 10 years. CEO of Bharti Airtel Africa,Christian de Faria, said this year that Nigeria is the largest mobile market in Africa and a key one for Airtel.
“American Tower has a proven track record in passive infrastructure management, and we look forward to benefitting from the best practices from all other countries it operates in,” he said. In July, Bharti Airtel also announced that it had raised $1.3 billion with the sale of its mobile towers in five African countries from Helios Towers, IHS Plc and American Tower Company. The proceeds will go towards reducing the $10 billion debt used in its African operations in 2010.
Airtel is reportedly seeking to sell 15,000 African towers. Although it had halted the sale of its towers in Tanzania and Chad to Helios Towers in June, it said it was negotiating similar deals with six other countries in Africa. Under the original agreement, Airtel would sell around 3,100 towers in four countries to Helios.
Similarly, MTN Nigeria has already sold more than 6,000 mobile towers to IHS which will be raised to 9,000 in due course and thus rake in over $2 billion. The sale will help reduce MTN Nigeria’s costs and improve the quality of the network for the operator which has suffered regulatory infractions in recent times.
CEO/president of MTN Group, Mr. Sifiso Dabengwa, while releasing MTN Group’s financial results a fortnight ago, said the Nigerian towers sale had added to a decline in MTN Nigeria’s capital expenditure by 63.2 per cent between January and June 2015 to N18,177 billion (R1, 172bn). In February this year, the sale of MTN Nigerian towers helped MTN Group’s full-year earnings per share to gain as much as 25 percent.
“We will drive our strategy of becoming the ICT partner of choice and continue to transform our operating model through cost optimisation, operational efficiencies and commercialising our tower infrastructure” he said. Dabengwa said despite the success recorded, “we expect the balance of the year to remain challenging for MTN Nigeria. Notwithstanding tough operating conditions, there will be a strong focus on active subscriber management and providing more competitive voice and data offerings to high value customers.”
By selling towers to infrastructure groups such as IHS, MTN can offload the responsibility for the work needed in future, although they will incur the rental cost of continuing to use the towers. IHS, meanwhile, can open the towers up to rival groups to share, which generates additional revenues.
Following the deals, IHS, the biggest tower company in Africa, will own and manage more than 15,500 of the installations in Nigeria and more than 23,100 in Africa as a whole. It will own and manage over 6,540 towers in Nigeria, all of which will be managed by the most advanced Network Operating Centre (NOC) in the country. The tower companies have installed a large number of alternative energy sites in Nigeria, investing state-of-the-art NOCs that ensure uptimes of over 99 per cent are achieved on their sites. They are also committing hundreds of millions of dollars in the towers acquired on advanced generators, efficient batteries and alternative energy solutions to reduce diesel consumption and improve efficiency of grid use.
It will also provide customers with market and industry leading levels of passive network uptime. It will market services on the towers, promoting tower sharing and colocation to help drive network improvements, better service to subscribers and economic growth, according to the operators.
With Tower Relief, Industry Awaits Improved Service quality
Right from the time the tower sales were being proposed by the telcos, many stakeholders who saw it as the way to go had been defending the moves on the ground that operators outsourcing tower management would enable them focus on their core business of service provisioning, thereby improving their service quality. Now that all GSM operators, except Globacom, have commenced massive sales of those assets that are believed to be distractions, the expectations now among stakeholders in the industry is that telecom service quality will be better.
According to the chairman, Association of Licensed Telecommunications operators of Nigeria (ALTON), Mr Gbenga Adebayo operator’s divestment from towers is a testimony that the country’s telecommunications industry is responding to the dynamics of global economic trends, which makes operators more efficient as they focus on the core competent of service delivery. He added that the move will create more jobs as it encourages springing up of supportive players in the industry.
“This is also fallout of our internal regulatory mechanism to ensure growth in the industry. More so, tower sale could be as a result of administrative reasons, cost reduction or shareholders decision,” he said. Corroborating this view, the President of Association of Telecommunications Companies of Nigeria, ATCON, Engr. Lanre Ajayi described the sale of towers by operators as a development in the right direction as it will ensure that people focus on their areas of competence.
Commenting on this development, Sanjay Srivastava, Manager, Finance & Commercial at IHS Towers noted that with the sale of the majority of Nigeria’s towers to independent tower companies, the operational challenges that were the MNO’s problem are now the tower companies’ opportunities. Those opportunities include: improving site level profitability through investment in energy efficiency; reducing fuel theft; and unlocking economies of scale in maintenance processes.
“By consolidating Nigeria’s tower portfolios, tower companies such as IHS have a unique opportunity to unlock economies of scale by creating efficiencies in site operations and maintenance (O&M). The management of active and passive infrastructure at Nigeria’s cell sites has hitherto been outsourced, primarily to Ericsson and Huawei, under contracts which in many cases may have to be restructured after the transfer of passive infrastructure assets from MNOs to tower companies,” he said.
Srivastava observed that with over US$4bn already paid by tower companies to build and acquire 85% of Nigeria’s towers, pent up demand for co-locations will see tenancy ratios rise fast, generating tower cash flow that quickly justifies the capital deployed. “But the spending spree will not be over – hundreds of millions of dollars of improvement capex will be deployed bringing tower structures and power solutions up to a standard to ensure the exacting SLAs of multiple tenants can be met. So, I call this as a win for Nigeria’s MNOs, a win for Nigeria’s tower companies, a win for their investors, a win for tower and power equipment and service vendors and, most importantly, a great opportunity for the enhancement and extension of Nigeria’s communications infrastructure – a win for the people of Nigeria!”