Power to the base stations – a modest proposition

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Africa’s mobile operators have achieved an enormous amount in a very short period of time. Their roll-out of mobile services to millions of people has energised the economies of many African countries. However, much of what has been put in place is both costly to operate and requires logistical operations that overcome almost impossible obstacles. Hats off to them because they can do it but is it a sensible way to run a business? One of the largest Sub-Saharan operators has over 5,000 base stations in a single country, many with two back-up generators. Is it in the telephony or the power business? Russell Southwood tries to find a way out of this dead end.

A base station might cost a mobile operator in the region of US$125,000 for everything: the mast, the generators, the equipment to transmit, air conditioners to cool it, fencing and a hut for the equipment. In countries like Nigeria or South Africa, the number of base stations required runs into the thousands. For most other African countries, an operator would require hundreds of base stations. For example, MTN’s Lonestar in Liberia, a relatively small but undeveloped country, will have 100 base stations at the end of its current investment phase.

Many of these base stations are in urban areas and have a power supply from the state energy utility. These only require one diesel generator as a back-up source to cover the all-too-frequent power outages found in most African countries. But beyond the reach of the national power grid, the operator has to install two diesel generators, allowing for continuous generator-provided energy in the event of one generator failing. In addition, some sites are so far from the point where diesel can be obtained that they require tanks to store up to three months worth of fuel: in other words, at these base stations, operators literally have money buried in the ground.

Enormous sums of money are spent both on fuel and on transporting it around African countries to service these base stations. In one of the more extreme cases on the continent, an operator has to send the fuel by boat where it is then hand-loaded off the boat on to a lorry for the final portion of its journey. Lorries used on roads in the West African rainy season are very rapidly wrecked beyond the point where maintenance is useful.

The more urban base stations with relatively easy access to roads and grid power can cost US$2500 a month to run. By contrast, the rural bases stations without either of these advantages can cost up to US$20,000 month to run: in other words, each base station of this type costs an additional $210,000 a year to run.

So both capex and opex are held high through lack of power to the base stations. There are three threads to untying the knot of how to supply power to more base stations: the current assumptions around power generation; the taxes levied on mobile operators; and the universal service levies made.

No-one who has worked in Africa for any length of time will have escaped the “lights-out” moment. The grid power goes down and if you’re lucky, you sit in darkness until the emergency generator kicks in. Speaking personally, on many occasions this has been in hotels running conference events. Pause for a moment to think….

Organisations like hotels can and probably do pay their electricity bills. Yet because the monopoly power operator has not invested enough in its grid and cannot manage demand properly, it turns off its power when it overloads. So demand is not the problem but supply is. The only near parallel in telecoms is when mobile operators fail to provision sufficient capacity and the network goes down: Nairobi on a Friday afternoon might be an example. In both cases at that point supply is being rationed rather randomly.

Power supply is often a monopoly (either private or public) and on rare occasions a duopoly. But in almost all cases these are vertically integrated organisations that combine both transmission and local delivery, not so dissimilar to the early days of African telecoms. But the reality is hundreds of thousands of costly individual diesel generators as people seek to pay their way (rather inefficiently) out of the mess of the current power utilities have created through under-supply.

So why not allow a greater range of service providers and generators who can put both investment into smaller-scale power generation and transmission? In other words allow a town-sized generator in a rural area to provide power across the local area and if there is a surplus of power, put it into the national grid. Promote pre-payment cards and electronic vouchering as a way of cheapening the financial transaction.

What’s this got to with base stations?, I hear you ask. We’ll come to that all in good time. Currently Africa’s mobile companies are charged somewhere between 25-35% in taxes. No-one is saying that the mobile companies should not pay taxes and because they are efficient organisations, they serve as an extremely useful way for less efficient Governments to collect tax. But the higher the tax levels imposed on the companies, the higher their operating costs and as sure as night follows day, the higher the amounts they have to charge people for using their services.

So you have two things that might have some impact on the power to base stations issue standing very close to each other. The mobile operators cannot reduce their base station energy costs because there is no power transmission. Government is responsible for the supply of power transmission. Government is collecting money to provide public services like power transmission but for whatever reasons (and they are many) does not have the capacity to act on the supply of power transmission with any speed but it has collected money to do so. Hold that thought.

So we come to the third thread in the knot: universal service agencies and their funds. According to World Bank global figures, universal service mechanisms have collected US$6.2 billion but thus far have only managed to spend US$1.7 billion, leaving US$4.5 billion “in the pot”. Again according to the World Bank, a further US$3.8 billion will be collected by 2010. Universal service charges to operators are between 2-5% depending on the country. However, the story these figures tell is that the universal service access money cannot be spent fast enough. So again we have money that might tackle the power to the base station task.

The difficulty for Government and its agencies is that in most African countries, the money has simply been put away in the wrong drawer, labelled ‘please spend on telecoms only’. For Africa has only three horizontal regulators (Mauritania, Niger and Rwanda) who have the task of tackling both power and telecoms issues together. But this is simply “box mentality” and if there is a recognition that the problem is important and a will to do something about, money exists to tackle it. If the recent forum held by Nigeria’s regulator NCC is anything to go by (see Telecoms News below) then there is an awakening understanding that power is a problem. It’s then a case of converting this into political will to get something done.

So how might it get done? On the investment side, it would be possible with political will to get both Government and its universal service agencies to contribute financially to the task. The devil’s bargain between the Government and the mobile operators is as follows: we lower your taxes and in exchange you help us solve a range of agreed power transmission problems. The Government wins by extending the power network. The mobile operators win through getting lower operating costs on their base stations.

In a nutshell, the mobile operators appoint a private company to build and operate a power transmission network. This company would have as its anchor customers at least two mobile companies. Whatever surplus power it generated would either be sold to the national grid operator or be sold on to retail customers. There are private investors in Africa wanting to put money into private power generation and perhaps they might also come in as investors. The mobile operators have shown that it is possible to get things done on the continent and to make money doing it. Perhaps they should now pick up the gauntlet that will allow them to address their high operating costs and get lower taxes at the same time.