Mergers and acquisitions have reshaped Africa's telecoms landscape over the past decade and are absolutely necessary to make the market a success.
Today, demand continues to drive up network expansion for new users and network densification for technology upgrades, creating a perfect storm of additional capex requirements, higher interest rates and changing hurdle rates for investors.
However, lack of investment in the telecoms infrastructure in some African countries has led to a tower estate that is not fit for the next stage of the African mobile market.
For the continent to achieve its much-lauded goals, the mobile networks need to be radically modernised, made multi-tenant, emissions compliant, efficient and reliable in order to accommodate new technologies, as old technologies are “grandfathered” and population growth drives demand for coverage and capacity.
On a spreadsheet in an air-conditioned office, the market looks ripe for M&A - and we have seen a flurry of acquisition and transference of assets over the past 2-5 years.
Once you get your boots on the ground, however, which is hard to do when evaluating a tower estate spread over many thousands of square miles of difficult terrain, it becomes clear that as many as two thirds of this infrastructure is not fit for purpose.
It’s my view that much of the value of these M&As will be written down in the future.
One previous experience I have had in my career was with a portfolio of about 450 strategic but poorly run sites in Uganda. Having done a first appreciation, they were a good fit, but deeper digging raised red flags.
Looking at the sites, they were in appalling condition: rectifiers were in bad shape, batteries were dead, generators were very fatigued, and grid connections were ropey.
The efficiencies they could gain in energy were negligible and would have required a re-fit of around 65% of power equipment.
We went away and decided only 120 were worth having, but the deal was for all of them or none of them. Often, you have to buy the whole train set, you can't just buy the best express trains, you have to buy the smaller ones, the fat controller and all the stations too.
The risks need weighing up. If the site condition is too poor, you may be forced to move onto a site you already own, leaving you with an old unused site – that has perhaps a fallen fence, sunk concrete that needs pulling up, contamination on the site, or overall a rotting tower that becomes a health and safety issue that generates no revenue.
Acquisition of towers is more than a land grab. You have to think about and consider the issues that you’re buying with a site.
In M&A, over and above the price, there are some consequential strategic aspects that need to be considered, without which many deals are doomed to failure: strategic fit, people and culture, openness and transparency.
Acquiring firms in the sector know from experience that their new assets are likely to be in an inferior condition than they were promised. But this erodes both trust and confidence and also limits the price people are prepared to pay.
One area which would bring clarity, fairer pricing and assurance to the market is the provision of real-time data, so everyone could be certain about the estate and its performance. Sadly, while we have the technology, we are still a way off from that level of transparency.
People and Communication
Post-acquisition, it is vital to be clear in communications with all the stakeholders, especially the acquired employees, who will be worried about their job security. The most talented employees will be the first to leave in those circumstances.
So, if possible, over-communicate with them, and provide reassurance, otherwise, you may get left with an inoperable estate and all the institutional knowledge walking out the door.
There is usually some tension between customers and the selling towerco pre-transaction, as the towerco doesn’t want to rock the boat.
Customers see a change of ownership as a chance to alter existing arrangements they dislike. However, business dynamics in existing contracts cannot easily change, so customer expectations need careful handling.
I’ve seen inherited contract dynamics like high fees and MFN clauses aimed at inflating sale value complicate co-location and pricing. It can cause havoc, and new owners need to keep clear and considered customer communications front and centre.
Operational insights
When it comes to integrating in a way that’s based on the reality on the ground, rather than what has been sold, you need a clear overview of the state of your new assets.
Employing technology that can provide deep and detailed insight into inherited operational management and infrastructure conditions, at speed and scale, is transformational for these teams.
My firm, PowerX, have built the technology to enable towercos to understand and optimise their investments, using data science and machine learning to harness and analyse real-time data.
The platform receives billions of real-time data points from sites, drilling down into the details of each and every individual tower while providing the overarching view of the network needed to make larger strategic decisions.
We can help towercos pinpoint inefficiencies and anomalies, flagging areas to be addressed, such as a broken solar panel or leaking fuel tank, as well as actions to boost operational and energy efficiency.
Underutilisation of assets is a particular pain point technology like this can solve.
For one customer in Africa, we uncovered that over 40% of the physical infrastructure assets it owned were going spare and could be redistributed across the network, saving it from buying new.
25% of solar assets were not being fully harnessed. Deploying PowerX flagged these issues and automated the changes needed: in this case, intelligently managing batteries to maximise solar energy storage.
In another example, PowerX has helped a towerco to mothball more than one generator per site across a newly acquired network, providing CAPEX savings of over $6M.
Gaining a holistic understanding of new networks and identifying these hidden efficiencies is an almost impossible task without this tech. Without it, you must rely on manual activities, carried out by employees who may be worried for their future and perhaps have little incentive to provide accurate information.
Data intelligence and insight from PowerX can make the difference between successful turnaround of sites and long-term successful acquisitions, and a towerco failing to deliver what the region needs of it: a resilient, efficient and sustainable tower network.
From a PowerX perspective, the reason that politicians have previously used sweeteners of improved coverage to persuade locals to vote is that they desperately need connectivity, often using the Universal Service Funds to install sites where the commercial MNO’s would not operate.
The low-quality, often broken sites that do not meet the needs of the telcos, need to be brought back to life. That will require investment in repair and maintenance to enable a multi-tenant site with high levels of uptime and performance with good transmission connectivity to the MNO’s core networks.
It is simply not an estate that can be managed with the extant technology. They will soon become obsolete and unable to connect isolated parts of the continent with their neighbours. Without these major changes, the continent is facing digital stagnation. Transparency, deep data insight and efficiency through next-generation technology is the clear path forward.
