Tower sharing can save mobile operators “north of 20%” in costs, says Eaton Towers CEO

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Tower sharing is beginning to take off on the continent with 3-4 companies now offering the service to operators. Operators with larger market share remain sceptical but those in extremely competitive markets are quicker to see the benefits. This week one of the continent’s tower share operators Eaton Telecom announced that it had signed a deal with Vodafone Ghana. Russell Southwood spoke to its CEO Alan Harper about how the business works and what’s in it for operators.

Eaton Towers was set up by Vodafone veteran Alan Harper with two other colleagues: former Orange CEO Sanjiv Ahuja and one of the key figures in the development of Celtel (now Bharti Airtel owned Zain) Terry Rhodes. According to Harper:”We looked and saw that this was a business that was developed in other parts of the world so decided to launch in late 2008.”

A year ago DPI became a majority shareholder in the business. It bought with it a tower construction business called Venture Communications which has been merged into the business and it will gradually phase out tower construction work. Venture’s clients include Zain, Econet and Cell-C. It was already building and managing towers in the Cape Province for ZTE and Cell-C.

The company has two operating bases - one in Ghana and the other in South Africa – and an East African sales base in Dar es Salaam. Last Tuesday it signed a deal with Vodafone Ghana to take over and operate its 750 towers and offer co-located services on them. Another Ghanaian mobile operator has also agreed to buy shared services on these towers.

So what’s the reaction of mobile operators to the proposition?:”The reactions have generally been good. It’s been a more difficult sell in South Africa but it’s changing. In current market conditions, margins are getting tighter.” Operators tend to have mixed views depending on their market strength. An operator with a dominant market position is unlikely to be interested whereas challenger operators see the argument that towers are not a strategic asset more quickly. Sometimes those who pioneered roll-outs in markets are reluctant to let go of these assets.

“Coverage is not a major advantage. Finding ways to share, and get OPEX and CAPEX down is as it allows management to focus on things like pricing and the relationship with the customer. It’s not about how the deal with their towers but how they deal with their customers. And that’s what the mobile business is about and it’s a different mindset for some operators.”

The tower sharing company can either buy existing towers from an operator or build new towers for them or a combination of both. Once the towers are being managed on behalf of the operator, the tower sharing company can then sell shared space for passive infrastructure on them as the “trusted intermediary”.

Passive infrastructure covers things like site lease, the compound, security and refuelling the generators:”We don’t run active electronics but that’s not to say that we couldn’t do that in the future. We deal with the simple stuff. We provide capital for upgrading the towers and invest in upgrading the sites. So if the generator needs replacing or the tower needs strengthening, we do these and other things to make each site more efficient.”

So is the company looking at renewable energy sources given the high costs of fuelling base stations?:”As energy is such a large part of our costs, we have to make sure the logistics and bulk purchase is right. So far we haven’t done hybrid systems but that’s what our CTO Thomas Jonell (another former Celtel person) is looking at. Sometimes it pays, sometimes it doesn’t.”

In Ghana, one other mobile operator has already agreed to co-locate on some of the former Vodafone towers. Better still, the operators get paid for the tower assets so both get a handy CAPEX benefit as well as OPEX savings. Eaton believes the OPEX saving is “north of 20%. It’s about price but it’s also got to be a long-term relationship. You’re part of the operational capability so SLAs and quality standards are all built in.”

“The quickest, easiest and cheapest way to roll-out is to co-locate and this will make us valuable to operators. We will look at where it makes sense to roll-out by adding new towers.” The tower sharing company can also deal with things like 3G data roll-outs where new sites and equipment may be needed.

“In the rest of the world, it has mainly been new builds. But in the States, operators sold their towers to tower operating companies and we saw this as a likely development in the African market.”

So who are the competitors on the continent?:”The landscape has changed a fair bit since we started. Originally there was only Helios Towers in Nigeria but it’s now gone out into other African markets. We’ve also seen American Towers in one or two countries like South Africa and Ghana but not in the more ‘out of the way’ places. Bharti has bought a portfolio of towers (with its Zain acquisition) and is quoted publicly as wanting to take the tower sharing model to Africa.”

And the long-term ambition for the company?:”We want to get a portfolio of assets with 4-10 customers, mainly big customers with accounts of several million dollars a year with 10-15 year leases with renewal clauses built in. The bread-and-butter of the business will be mobile operators but we’d be happy to have data and fixed line customers and even TV and radio transmission companies. In five years time there will be 3-4 tower companies across Africa and we’d like to be one of those companies. Say 5,000 towers across 3-4 countries.”

Harper is clear that the towers have to be open to all mobile operators:”We wouldn’t take on towers where there were restrictions on who we could do business with. You have to take on towers that can be sold to all other operators.” There are currently somewhere around 80,000-100,000 towers across Africa and in five years time this might grow to 130,000-150,000. American Towers is the largest company globally with 20,000 towers in the USA and 10,000 elsewhere. In India, Indus (the joint Bharti-Vodafone company) has somewhere between 50,000-100,000 towers.