According to IFC data, between 2019 and 2030, the number of telecom sites in six assessed regions – Sub-Saharan Africa (SSA), Middle East and North Africa (MENA), Latin America (LAC), South Asia (SA), East Asia and the Pacific (EAP), and Europe & Central Asia (ECA) – is expected to increase from around 4 to 5.4 million, growing at roughly 2.7% per year.
Taking this into account, the towerco business model has been a disruptive changing force in the telecom industry. If we look back a decade ago, the outsourcing of strategic telco infrastructure including towers and networking management was still a new phenomenon, with the MENA region being one of the least penetrated by the towerco business model globally. But in recent years, the sector has picked up pace in MENA with ongoing tower sale processes under consideration in the Kingdom of Saudi Arabia, Jordan, Iraq, Bahrain, Tunisia, Oman, and Pakistan, as well as a new towerco license in Egypt.
Joint ventures among telecom operators and sale-leaseback transactions between telecom operators and third-party towercos are unlocking new opportunities and new players, both regional and international. At present, MENA's 279,852 towers come amid a heightened focus on driving co-locations and operational efficiencies, together with implementing best practices in the sharing and optimization of passive infrastructure. These address the rise in mobile penetration; technology evolution and network densification; and expansion of telecom networks in rural and remote areas.
With equity stakes and operator-captive towercos common in the rest of the world, Middle Eastern MNOs are still in the process of figuring out the flexibility of the region’s towercos. It is expected that the urge to lower CAPEX requirements, added to network virtualization movements’ regulatory push, will result in greater sharing initiatives between operators.
Infrastructure sharing
Digital connectivity is a must in this era, yet almost three billion people remain offline due to a lack of stable and affordable internet access. Sharing infrastructure among operators and across sectors could be a potential solution.
Traditionally, towercos are created to capture the benefits of network sharing whilst unlocking further shareholder value. They are the ones responsible for the site and the so-called passive infrastructure, consisting of towers, masts, fencing, and power supply. But as towercos become increasingly key partners to carriers, these major infrastructure players become much more important operational partners to the telcos.
According to the GSMA network economics model, the number of coverage sites and performance sites will increase by 50%. With this infrastructure demand, operators should consider both sharing of passive and active infrastructure cost-effectively to achieve optimal performance of sites and deliver 5G capability.
With the 5G era being accelerated in terms of commercial deployment, MNOs face the urgency to embrace infrastructure sharing. This contributes to improved competition and increased economies of scale, which, in turn, accelerate access to digital transformation. The fact is that infrastructure sharing is more and more applied in all regions for both mobile and fixed networks; based on commercial agreements and specific regulatory mandates. To illustrate, Ooredoo Group announced its $750 million deal of signing a sale and leaseback agreement of over 4,200 telecoms towers in Indonesia. As per Delta Partners, regulatory measures are enforced as conditions of a license, which must be purchased in order to offer towerco services; regulatory review of a business plan; and master-lease agreements and technical KPIs in countries including Bahrain, Nigeria, Egypt, and Qatar.
Furthermore, sharing mobile broadband infrastructure can help optimize the number of sites and reduce the visual impact of network expansion. With the help of tower sharing, there’s a significant reduction in deployment costs, giving MNOs a faster time to market. For instance, the cost of deploying 5G mobile network technology could be reduced by more than 40% by sharing antenna sites. By facilitating infrastructure sharing, the towerco model can also generate OPEX savings by sharing expenses on electricity, land rents, and site maintenance, alleviating a continuous drop in the revenue per user for MNOs and improving profitability.
The breakdown of CAPEX and OPEX by Analysys Mason provides details on how infrastructure sharing can potentially reduce costs so extensively. Operators have actually experienced a 35-40% reduction in the total cost of ownership (TCO) from sharing passive infrastructure.
Not only that but MNOs are also faced with increased competition and compressing margins, which is one of the considerations why infrastructure sharing has also gained support from telecom regulators, with tower sharing being encouraged in some markets.
Towerco business models can be easily categorized into two groups: pureplay independent towercos like American Tower, SBA Communications, and Cellnex, and operator-led towercos such as TAWAL, Vantage Towers, and China Tower Corporation. In Nigeria and Ghana, MNOs like MTN, Airtel, and Etisalat have carved out their towers to independent towercos IHS, ATC, and Helios Towers, in response to increasing competition intensity.
Interestingly, the average number of wireless network operators sharing an independent tower is 2.4, compared to 1.3 for MNO-controlled towers. With this in mind, independent towercos make it easier and cheaper to roll out new networks.
Morgan Stanley also believes that one of the best ways to leverage global data growth and 5G build-outs may be a focus on the towercos, not the telecoms. At approximately 9% annually over the next three years, they expect global towercos to grow both site-leasing revenue and earnings. A growing share of the business is going to towercos, which primarily generate revenue by leasing space on their communication with the contracts varying based on tower location and capacity as well as space, weight, and position of equipment.
Growth opportunities
There are critical levers for selecting a towerco on build-to-suit (BTS) assignments. A strong footprint and robust portfolio are critical for considering a towerco as a strategic partner. Roughly 40% also consider fair pricing schemes that involve arrangements in local currency, reasonable escalation index, and grace periods, among others. Alongside this, when it comes to new business opportunities, towercos should formalize new, innovative offerings within their existing sites and adjacent infrastructures and follow a customer-centric approach rather than using a transactional approach.
Technology evolution and end-customer data consumption are pathways tackling network densification within new infrastructure models such as small cells or DAS solutions. These initiatives present attractive opportunities on a case-by-case basis, maximizing towercos’ capabilities, regional presence, and client appetite.
Additionally, the 5G upgrade is a key growth driver in the towerco business as they have the ability to help carriers soften the up-front CAPEX by hosting multiple networks where their infrastructure sits. Towercos will also need to push fresh investment into digital solutions and data systems for their partners and customers.
Modern tower portfolio management systems such as what Atrebo has could help global companies in the critical telco infrastructure sector to achieve complete digitalization of their infra management. A 360° view of assets and infrastructure gives a more holistic view that can accelerate site development, reach the full potential of collaboration, and create reports for wiser monitoring.
With digital solutions in place, towercos could unlock the value of tower proximity with customers and users, opening opportunities to enlarge their customer base, embracing partnerships with IoT companies, and meeting the growing demand for internet-based applications.
Market consolidation could also reduce competition and boost operators' profitability. Among the ongoing deals on the horizon are Pan-African operator MTN Group’s tower sale in South Africa with IHS Towers, acquiring 5,709 telecommunication towers for ZAR6.4 billion while Deutsche Telekom has started the sale process of its towers business (roughly 40,600 mobile towers) and expects indicative offers that could value the business at close to 18 billion euros ($19.9 billion). Open for M&A deals as well are Vodafone’s Vantage Towers, with roughly 82,000 towers, and Orange’s tower unit Totem, with nearly 26,000 towers.
Depending on needs, strategic orientation, capabilities, and desired involvement level, different options can be proposed by towercos, including sales and leasebacks, network management deals, joint ventures, and ad hoc deals.
If towercos can sustain the industry’s growth narrative, and extend the efficiencies by sharing infrastructure, then the journey from steel and concrete to signal and service is a journey that the majority will be taking in the upcoming years.