The AfricaNext Tower Co-Location Report: Unlocking the Value in African Cell Tower Assets

Countries covered: Ghana, Tanzania Over the past two years, the African telecoms market has witnessed at least seven transactions involving the sale (or outsourcing) of cellco tower assets to stand-alone tower companies. In late 2010, the USA’s second largest tower company, American Tower Corporation (ATC) announced that it would acquire the 1,400 towers of South African third mobile operator Cell C. The ATC-Cell C deal followed similar transactions, with Millicom selling its towers in Ghana and Tanzania, and Vodafone Ghana outsourcing the operation of its towers to Eaton Telecom. We see these transactions as yet another indication that (some) African mobile markets have reached maturity stage. We like the tower co-location business case primarily because of its operational leveragability, but this is balanced by considerable risk in the ability of tower operators to generate acceptable returns in the African context. This report seeks to answer eight specific questions, as it pertains to the African tower co-location business: What are the catalysts? What is the opportunity? Where is the opportunity? What’s the economic model? Can the model work in the African context? How are tower assets valued? What’s the operator business case for tower outsourcing? What’s the balance sheet case?

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Report Excerpt

African market dynamics appear to favor the emergence of a robust third party tower business. By our count, there were around 75,000 cell site towers in Sub-Saharan Africa in 2010.

We estimate that about 8,500 (or 15% of all) towers in sub-Saharan Africa are shared in some fashion, on sites managed by operators themselves or by a third party provider. Of those towers

We estimate 2010 annual tower rental revenue at about $300m,

On the basis of the above characteristics, we believe the third party tower opportunity is limited to fewer than ten markets in sub-Saharan Africa:

The tower play operational economics look fantastic ¨C when the model works. Cash flows are annuity-based, steady and predictable. The deals are long term, the business has high potential for operating leverage and barriers to entry are high.

There is nonetheless considerable risk in the model.

The outlook for the African tower business will hinge on the ability of third party tower companies to drive tenancy rates. On that front, we are mostly skeptical.

Tower valuation in African transactions has been mostly consistent with transactions in other parts of the world, if at the high-end of the range. African towers do not come cheap. Capital market valuation of tower assets is a lot more varied.

Our analysis suggests that the CapEx case is arguably the most compelling in outsourcing tower site management. operational cell site.

We find direct OpEx savings appear to be mostly moderate.

Perhaps the greatest benefit of selling tower assets (other than the CapEx gains) is the balance sheet impact.