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Nigeria's leading finance and market intelligence news report.

The business case for telecom towers

The horizons of Nigeria’s towns and villages have transformed dramatically over the past 20 years with the appearance and expansion of telecom towers; 30 to 70-meter-high structures that inundate peaks and heights across the country.

The record growth of the Nigerian telecom industry cannot be divorced from a robust telecom tower infrastructure which has played a pivotal role in bridging the digital divide and facilitating pervasive mobile connectivity. The tower industry in Nigeria has laid a strong foundation of growth for the telecom sector and has supported the sector in keeping pace with the fast-paced technology advancements.

IHS has been one of the pioneers in infrastructure sharing, helping telecom operators to roll out services in record times, and enhancing national spread of signalling.

The dynamics of the Nigerian tower operator industry are, for the most part, similar to those of the established U.S. tower industry. Mobile Network Operators (MNOs) typically prefer to outsource their passive network components because it significantly reduces their capital costs and helps manage their operating costs.

Shavik Ghosh, writing for the ‘Mint’ noted, “…telecom towers are a lot like real estate, everything depends on the location. Land must be acquired at the exact coordinates where the tower is needed. After the telco has decided on a location, the coordinates are given to the towerco, which checks to see if there are any other towers in the area that can be used. To cut costs, towercos rent the land for a tower on a long-term lease. That brings the challenge of dealing with landlords, which can be something of an ordeal, according to an executive in charge of operations and management (O&M) for one of the independent tower companies, who did not want to be named”.

Read Also: IHS listing seen as investment magnate for Nigeria’s telecom sector

Nigerian telecom industry

MNOs in the country have had a long history of outsourcing various telecommunications infrastructure needs to independent telecommunications infrastructure providers, including the building of new towers since 2001. Managed services have been in place since 2006. Shortly thereafter, the MNOs began sharing passive infrastructure and independent tower companies started to provide long-term leased services.

In 2011, MNOs started entering into bilateral agreements to co-locate on each other’s sites. For MNOs, co-location offers a much more cost-effective and faster alternative to building new towers. Independent tower infrastructure operators have met the increasingly large demands of MNOs as they have aggressively pursued new subscribers.

Between 2014 and 2016, IHS, which owns 45 percent of the total towers in Nigeria and is the largest telecommunications infrastructure provider in the market with 68 percent of the independent market towers, acquired tower portfolios from 9 Mobile and MTN Nigeria while Airtel Nigeria sold its towers to American Tower Corporation.

“The IHS mission is to provide telecommunications infrastructure to mobile network operators in Africa that enables the widest, most efficient and reliable networks, supporting the economic development of the region. We are constantly developing new, efficient and effective technologies and rolling out passive networks to make that happen,” says Sam Darwish, CEO of telecoms company IHS Towers, which has raised more than $5.5 billion in funding.

Founded in Nigeria in 2001, IHS Towers’ business model is relatively straightforward: The company buys mobile towers from telecom companies, or builds them itself, then leases them back to the operators. The company now has operations in Cameroon, Côte d’Ivoire, Rwanda and Zambia.

Opportunities

Many MNOs across Africa are selling off their tower assets. This trend, brought on by a strong imperative to cut network deployment and operating costs, is expected to intensify in the future.
The infrastructural challenges for MNOs in Africa are two fold; to cost-effectively power their existing network and expand network coverage to the population currently without access to mobile communications infrastructure.

The opportunities inherent in this for tower companies are immense.

With IHS in the lead, Nigeria has been one of the forerunners in passive infrastructure sharing, which is now a world-wide phenomenon. The “towerco” business model opened significant gains; from rapid market expansion and faster time to market, to opex and capex efficiencies, and offloading capex burden from telecom operators.

Plenty of new opportunities, as noted in a 2020 Ernst & Young (EY) are arising for tower companies to shift their attention from a macro tower focused business, towards new business models hinged on fibre, small cells, data centres, Wi-Fi, smart cities and beyond.

Advancing the capex to opex model, towercos, said the report “can venture into data centres and edge computing (micro data centres) play. As the economy grows, low hanging revenue opportunities can come from capitalizing the real estate rights with the infrastructure providers – opening growth avenues in advertisements, electric vehicles infrastructure, security solutions and traffic control among others”.

In addition, says EY, while there is broad consensus that 5G will drive up the total cost of network ownership, given the massively increased densification of urban areas and the resulting heightened requirements for fibre deployment, infrastructure providers are better positioned to support the industry’s need for fibre rollout and small cell densification.

Furthermore, opportunities are awash for HIS to strengthen its local market and dominate offshore markets especially in the areas of building, operating and maintaining Internet of Things (IoT) network, and serving as a neutral host Wi-Fi provider.

Monetising existing assets is a significant opportunity for towercos in the country. Towercos can expand their service portfolio beyond tower based real estate and include provisioning other services on their tower sites. With distributed, power backed, and increasingly fiberized sites, towercos can explore revenue streams that exploit this dispersed real estate advantage. A potential business stream includes setting up of edge computing on tower sites by deploying micro data centres near the network edge. With steady power supply and ready backhaul, tower sites can support edge data centres closer to the user, reducing the need to send backhaul data traffic to a centralized hub.

The location advantage of towercos also renders them fit for serving as storage, warehousing and delivery centres for various businesses. With availability of power and air-conditioning, even perishable goods storage can be explored as a business stream. Tower structures can also be monetized for out-of-home advertising, with placement of billboards on towers/monopoles. Another service proposition beyond vertical real estate is the provisioning of primary and backup power. As towercos have significant expertise in managing energy assets, they are well-positioned to provide power-as-a-service. With the advent of electric vehicles, towercos can play an important role in this upcoming opportunity and unlock a new revenue stream. The availability of reliable power and possession of distributed sites makes towercos well-suited to provide EV charging infrastructure

Challenges

Nigeria needs towers and lots of them. Perhaps, the biggest local and immediate challenge is in the maintenance of towers and tower sites: the rising cost of fuel and the need to be environmentally responsible, as well as reassuring the public that its structures are not health hazards can be a sticking point for the towercos.
Towers have a significant carbon footprint and this has been a sore point between the Nigeria Communications Commission (NCC) and the National Environmental Standards and Regulations Enforcement Agency (NESREA).

Ease of doing business remains a major concern for all in the country and across large parts of the continent. Dealing with construction permits, poor access to electricity, multiple taxation and enforcement of contracts are key concerns that need to be addressed for faster infrastructure rollouts. To expedite the creation of robust telecom infrastructure and to fulfil, it is important that ease of doing business is treated as a priority.

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