Connect with us

People 'n' Issues

Telcos learn to share

The costs of providing network infrastructure are finally being slashed as operators accept that they can share some basic facilities without compromising their activities.

The masts that march across the country are a prime example where duplication not only wastes money and effort, but also creates an eyesore. Now more operators are taking the sensible approach of sharing their towers, says Johan Smith of KPMG’s African Telecoms Group.

The move can cut infrastructure costs by as much as 16% to 20%, and the accumulated savings on both capex and opex run into billions of dollars. ‚Increasing competition and decreasing profit margins for telecom operators in the emerging markets have made tower sharing an attractive proposition,‚ Smith says.

Tower sharing has been normal business practice for a decade in America and Europe, driven by the need to reduce network set-up and running costs. Operators in Africa and the Middle East have been slow to wake up to the potential, but several multi-billion dollar deals are now being discussed, Smith says.

Africa’s telecoms industry is becoming highly competitive yet still requires significant infrastructure investments to enhance the network coverage. At the same time, operators must upgrade older networks to offer more sophisticated broadband services. Sharing their towers – and often outsourcing the whole task to a third party tower specialist – not only cuts their costs but also allows them to focus on customer service.

It’s not only the operators that benefit. Tower specialists including Helios Towers Africa, ATC and Eaton Telecom are already chasing first-mover advantage by bidding to acquire the tower infrastructure from operators in the region.

In December 2010, American Tower Corporation (ATC) agreed to acquire a stake in almost 2,000 of MTN Ghana’s transmission towers. They will create a joint venture company, TowerCo Ghana, with ATC responsible for managing the assets. ATC has also acquired 1,400 towers from Cell C in South Africa. Vodafone Ghana has outsourced the operation of its 750 towers to Eaton Telecom in a deal designed to cut running costs and improve coverage. Eaton will invest $80 million in infrastructure over the 10-year duration of the deal. Importantly, Eaton will lease spare capacity to other local operators to improve their coverage and cut their costs.

Meanwhile, Nigeria’s Helios Towers Africa has signed similar deals with Millicom Ghana and Tigo DRC. ‚Such deals are just the start of a new and unstoppable trend for African operators,‚ Smith says.

Although it has so far been limited to a few operators, increasing competition and regulatory pressure to reach under-served areas will make operators investigate the possibility of striking large multi-country deals, KPMG predicts.

In countries where the war for customers is still being fought through better network coverage, operators will not want to share their assets, as that would erode their advantage. But in more mature markets, sharing will enable the operators to roll out networks faster, and reach less profitable areas together.

Social responsibility obligations also force some players to cover unprofitable rural areas, where tower sharing will let each operator fulfil its duties without major capex. The savings not only come from not having to erect separate towers, but by splitting the site rental and fuel bills too.

New entrants can make a faster impact by sharing towers with existing operators. But since that exposes established players to the risk of losing market share, they may choose not to cooperate.

One drawback to tower sharing is that operators must monitor network performance and quality very carefully if they outsource the task of network rollout and equipment maintenance. ‚These are controllable challenges,‚ Smith says. ‚With appropriate contract governance and well-defined service level agreements, operators can manage the challenges adequately.‚

With a teledensity of 43% in Africa, mobile operators can expect significant subscriber growth over the next five years, KPMG says. The cost of providing services to new subscribers and the likelihood of price wars will put tremendous pressure on their margins.

‚It is imperative that operators find solutions to manage costs and ensure profitability. Infrastructure sharing provides a significant cost savings opportunity,‚ Smith concludes.

* Follow Gadget on Twitter on @gadgetza

Subscribe to our free newsletter
Continue Reading
You may also like...
To Top