Learning to share: Could tower-sharing be the solution to rural networks' problems?
Late last year, the South African mobile giant MTN announced the sale of around 1,200 of its mobile towers in Rwanda and Zambia to a company called IHS Holding, which already owns more than 10,000 towers across Africa.
MTN will still use the towers it built, but the company has chosen to rent them from IHS, which will eventually rent them to other operators as well.
The sale is the latest in a trend of 'tower sharing' deals sweeping the continent, helping operators manage their costs and speeding up network rollouts in countries where vast swathes of territory remain unconnected.
In the West, tower sharing has been considered the norm for years. "The EU has actively encouraged this activity since the first mobile licenses were issued," notes a report on mobile infrastructure sharing put out by the GSM Association (GSMA). In some countries, such as Sweden, some forms of tower-sharing have even been mandated by the state.
For countries with large rural populations that are difficult and expensive to reach, tower sharing can be crucial in broadening network coverage. But despite the advantages for operators in developing countries, in African the practice is still at an early stage, according to Peter Lyons, the GSMA's head of public policy for the Middle East and Africa.
Of course, there are different types of tower sharing. An operator letting a competitor use its masts, for instance, is not a new phenomenon. "Tower sharing has been taking place for a long time in Africa on a barter basis between operators," MTN said in a statement. "Mobile operators have been swapping space amongst themselves (arguably on a limited basis) with no money exchanging hands."
But the professional tower companies like IHS that have been moving in lately are relatively new, their expansion having been limited in the past by national regulatory frameworks that haven’t always been in line with the needs of the burgeoning telecoms market.
"In the late 1990s and early 2000s, a lot of countries were thinking that competition at the infrastructure level was key to getting faster rollout and faster coverage. They would see infrastructure sharing as some kind of reduction in network-based competition," Lyons said. "But the realisation over the last few years is that competition is not so much on the infrastructure layer anymore. It's more on the service layer."
Plus, he said, mobile coverage was originally focused only on major cities. "But as these networks got increasingly pushed into remote and rural areas, the regulatory frameworks had to adapt and think of the macroeconomics of it all."
These days these regulatory frameworks are adapting fast, Lyons said, as more and more African telecoms are moving towards tower sharing, and multinational tower companies like Helios and Eaton have been buying up masts across the continent. Airtel, he said, is actively looking to sell 15,000 of its towers across Africa, which represents a "good portion" if its infrastructure on the continent. MTN has already sold off nearly 6,000 of its 30,000 towers in Africa and the Middle East.
Forecasts predict that by the end of 2014, third-party tower companies will own or manage nearly one-third of the mobile towers in Africa, according to the GSMA’s recent Sub-Saharan Africa Mobile Economy Report.
The economic case for tower sharing is undeniably compelling. "Think of it like real estate," Lyons said. "If you buy a house, you can convert it into flats."
A 2009 report put out by consultants Capgemini, Mobile Tower Sharing and Outsourcing: Benefits and Challenges for Developing Market Operators, estimates that towers account for almost 50 percent of capital expenditures for an operator, and tower maintenance represents 60 percent of operating costs. In rural areas that are difficult and expensive to reach, the numbers can be even more daunting.
Capgemini reports that in India, some operators have saved up to 40 percent in network operating costs through tower sharing, and that the same potential for savings exists in other countries as well.
"In MEA [the Middle East and Africa], it has been estimated that an additional 100,000 towers would be required to extend reach in the next five years, a growth of over 50 percent from current figures. Tower sharing could achieve potential savings of $8bn in that period," the report said.
Now that African city-dwellers nearly all have access to mobile networks, the GSMA predicts that future growth will come mostly from rural zones where network coverage is currently poor or non-existent. Around 96 percent of the unconnected population is rural, according to the Mobile Economy Report, and the competition to reach these areas is intense.
But incomes in rural areas are typically low, and the costs of covering them high. "The return on investment for the infrastructure is significantly less, so operators are looking for ways that they can manage their cost structure" Lyons said.
This includes the cost of buying land and building the towers themselves, but also the expense of transporting diesel over bad roads to run the towers, as well as paying for security. "If they're managing that individually, they’re a lot more exposed to those ongoing costs," he said.
Capgemini estimates that in Asia, the Middle East and Africa, a tower must be occupied, on average, by 1.5 operators in order to break even.
Still, in areas with poor coverage in which network quality is a source of competitive differentiation, operators may be reluctant to sell their infrastructure. The loss of this differentiation is one of the risks of tower sharing, Capgemini says, along with loss of control and potential leaks of proprietary information.
Adequate regulation, the consultancy notes, is also needed to prevent cartels of operators from forming to prevent new entrants from accessing infrastructure.
On the other hand, the option of renting towers from third-party companies could be a boon to new operators, who would no longer be obliged to invest in their own towers before setting up shop. What's more, Lyons said, it "gives the operators more flexibility to be competitive" on more levels than just infrastructure, levels that could include price, quality of service or data packages, which would benefit city-dwellers as much as their rural counterparts.
MTN calls the emergence of independent tower operators "a natural progression in mature telecoms markets". For rural Africa, it can't come soon enough.