Tower above the Rest . . . A new strategy by Mobile Network Operators….

The 21st century has awakened the world to a new set of engagements, experiences and expectations. With the uneventful Y2k, that many of long forgotten, the new century started growing more interesting and challenging by the year. The advent of the 4IR, IoT and the COVID-19 pandemic has changed the world as we know it forever.

The world of telecommunications in under pressure like never before. The demand for access to broadband internet globally is growing exponentially. Africa and the Middle East are hungry for the benefits of mobile telephony; from 3G to 4G/LTE and now the advent of 5G. With 5G networks expected to carry almost half of the world‘s mobile data traffic by 2025, the Middle East and Africa is expected to have the highest growth rate in the next six years, according to research from Ericsson.

"The average data per smartphone is expected to reach 18GB per user per month in 2025 in the Middle East and Africa region – as Sub-Saharan Africa is expected to reach on average 7GB," it found. Smartphone users will consume a global average of 24GB per month in 2025 from 7.2GB currently, as video usage increases, and new services become available. 

Some 13% of the global population lives in Sub-Saharan Africa, which is served by less than 2% of worldwide mobile base stations, according to the report. In the Sub-Saharan Africa region, mobile broadband subscribers are about 30% of the population. Ericsson echoes other reports in predicting that "a young and fast-growing population" will drive this user growth to 50%. 

"Mobile data penetration is relatively low, with data usage, smartphone penetration and 4G population coverage all only around 30%," the report found. "However, there is increasing demand for digital services and financial inclusion, including in rural low-income areas."

First-time youthful mobile users will maintain Africa momentum as the fastest-growing mobile region for cellular users, the GSM Association reported in July 2019. Over 160-million new subscribers will come online by 2025, growing the region to 623-million users. This is about half of Africa's population and a 44% increase on the 456-million users in 2018, according to The Mobile Economy, Sub-Saharan Africa 2019 report.

Meanwhile, the GSMA estimates that 5G's economic potential is a possible $5.2bn economic boom in Sub-Saharan Africa by 2034, or the equivalent of 0.7% of GDP growth.

Growth of the mobile telecoms sector is strong especially in emerging markets. Economic growth, a vibrant youth sector and the demand for access to the ‘world’ is fuelling the demand. Mobile operators are expected to spend $60 billion on network infrastructure and services between 2018 and 2025 – with almost a fifth of this total being invested in new 5G networks. Sub-Saharan Africa’s mobile ecosystem supports around 3.5 million jobs and contributed $15.6 billion last year through consumer and operator taxes (source: GMSA).

The demand to grow the physical footprint of Mobile Telephony networks is required to meet this exponential growth. Investing in a Mobile Telephony network is not a once off event. With the continuous development of technology for faster communication network operators are required to continually invest in the network infrastructure… or do they?

With pressure mounting from public groups for access to mobile services at more affordable rates coupled with a variety of mobile related services, mobile network operators (MNO) have been revising their strategy.

Building a mobile network infrastructure is expensive business. Mobile Operators are spinning off their mobile towers to independent ‘Tower Companies” and leases these towers back in a sale and leaseback like arrangement.

Why is this happening? Mobile Towers (the Mobile Infrastructure) make up the bulk of MNO’s capital investments and, especially in emerging markets, most of their operating costs, mobile operators are opting to share towers—renting them from other Telco’s or tower companies instead of making ongoing financial investments in infrastructure. In the process, mobile operators are searching to drastically cut costs and maximise profits. This shift in capex is facilitating a refocus of key funds of the MNO.

The tower companies are new players in the Telecoms space. It is a brilliant way to relieve pressure off the MNO' and allow them to focus on the core of their business – to offer mobile telephony and related services. The telecom industry is changing rapidly through the extension of services including banking, insurance, entertainment and education.

MNO’ have amassed debt with their rapid growth/expansion, understandably considering the demand for the need for telecommunications by the public and into new markets. Being leveraged is not ideal for any business regardless of size. With the massive investment in the towers, MNO’s are able to spin this off raise the much-needed cash to reduce debt. This has attracted private equity investors, who are excited about the opportunities to increase growth and cash flow that the tower spin offs over. MNO’ are able to realise the significant value from tower asset deals.

Like all investments, sustainability of the investment and its return are paramount. Each tower should be viewed as an independent site just like in the property game – one property investment is treated independently from the next property investment. Site-level profitability is quickly becoming a new measurement ‘standard’ for tower companies focussed on growing their portfolio of telecom tower infrastructure. Operational excellence is therefore quickly becoming an essential skill. This new arrangement is similar to an outsourced service where the value of outsourcing is not just in sharing costs but in a specialist provider's ability to manage costs and quality.

Some of the key factors that need to be considered for operational excellence include -

·      Fixed costs for power and fuel versus the traditional pass-through

·      Customised sites versus one size fits all

·      Rationalisation of overlapping tower locations to improve costs

·      Meeting green/environmental requirements with energy consumption of towers

·      Specialist skills

Is having the independent Tower Companies bad for the telecoms industry?

Not at All – In fact – It is good for the telecoms Industry… With the tower infrastructure outsourced by the MNO to a specialist, the MNO’ are able to free up capital, reduce debt, focus on their core business and deliver a better overall service to the market. The independent tower companies are able in turn to be the specialist provider of telecom network services with operational skills in energy management, operations, customised site planning, and low-cost design. All in all, leading towards a near win-win.

The future looks bright for the telecoms sector amid the challenges of the Covid pandemic and the global economic slow-down. Tower companies will be part of a cost-sharing proposition to the MNO’. The economic reasons for MNOs to spin off their tower operations will be difficult to ignore. Cost and margins pressures ever present coupled with operational improvements that will be key in partner choices and construct of how network growth and refresh occur.

Interesting times, we have.....

Sources:

·      AT Kearney

·      GMSA

·      Forbes.com

·      Strategy-business.com