ANALYSIS: Tower outsourcing deals prove there is money in dated infrastructure
France Telecom-Orange's decision to outsource 2,000 mobile towers across the Côte d’Ivoire and Cameroon in Africa is a clear indication that dated telecoms tower infrastructure has a role to play in emerging markets, according to analysts.
The Ambani brothers have also signed a network-sharing agreement for telecoms tower infrastructure in India. "Sharing passive infrastructure is a compelling opportunity to offer a better service through improved network coverage and reliability," said Marc Rennard, executive director for Africa, Middle East and Asia at Orange.
The Ambani partnership was designed to accelerate the roll-out of 4G services across the country, as well as enable the potential addition of towers in other locations to ensure comprehensive penetration across the region.
But the most compelling case for the argument for tower infrastructure comes from African infrastructure arm Helios Towers, which made a major tower acquisition in July this year when it took on the entirety of Vodacom's tower network in Tanzania.
It acquired 1,149 telecoms towers from Vodacom, meaning its tower coverage in Tanzania has more than doubled. The sale is the first Vodacom has made for infrastructure assets in Africa, but it has done similar deals in India, where it outsourced the management of the business to specialist groups to lower costs.
Market watchers say that through selling towers, mobile operators are also able to offload operational costs and responsibility, as well as generating an upfront payment. However, as is the case with Helios Towers, they often then have to lease back infrastructure over a long-term contract. In Africa, the sale and outsourcing of telecoms infrastructure has rapidly increased over the last two years.
Exciting growth, potential risk
"Against this background, I would say that Africa has the potential to be one of the most exciting growth stories over the next 10 to 25 years, but as with all emerging markets, it is not without risk," said Charles Green, CEO at Helios Towers. "Operating networks in Africa is complex both from an operational and capital point of view."
Green says that penetration rates in the country have historically been low, but are rising, and networks now need to be much denser than existing 2G and 3G networks. Operators are forced to make a large capital commitment when business becomes more competitive.
"Another factor is propelling this change: there is increasing pressure from regulators for improved quality of service, with fines for poor quality," he added.
Tower infrastructure outsourcing is a well established practice in the US, and the market continues to thrive. This August, Global Tower Partners was reportedly put up for sale, with an expected sale price of $4 billion.
It owns and leases over 1,600 wireless sites and 6,400 telecoms towers across the US, Mexico and Costa Rica, and its sale has attracted interest not only from telecoms tower operators, but also infrastructure funds.