•To trim network operating expenditure
Ben Uzor Jr
Determined to step up their game in the new business year, telecommunications companies (Telcos) have placed infrastructure sharing as top priority for 2011. Sources close to some of the networks told BusinessDay that most operators have finally found a better way of reducing the prevailing cost of doing business in Nigeria. According to the sources, the telcos intend to trim network operating expenditure, which is taking a huge toll on their profit margins, a move said to be headed in the right direction.
Analysts, who spoke with BusinessDay, affirmed that the telcos are determined to go down this path because infrastructure sharing (Collocation) allows for greater flexibility in terms of administration and implementation of services. They argued that with falling average revenue per user (ARPUs) due to heightened competition in Nigeria’s telecoms industry, operating companies are seeking to derive significant savings on capital expenditure (CAPEX) and OPEX required for site build.
This, the analysts maintained, would allow for more efficient utilisation of CAPEX to expand coverage and capacity. More importantly, scarce capital and management attention can now be diverted to key value-creating activities such as the opening up of Nigeria’s data market, which over the years, has remained untapped, the analysts noted. According to a notable industry watcher, the massive capital requirement involved in infrastructure roll out has made it quite difficult for telcos to operate profitably.
As a result, expansion plans geared towards meeting growing subscriber demands are very difficult to execute. Available statistics from the Nigerian Communications Commission (NCC) reveal that Nigeria has 84 million mobile subscriptions. Telcos have also complained at various fora about operational constraints with regard to getting approvals from local and state government authorities in the laying of transmission links such as cables, fibre and building communications towers.
Initially, telecom firms, particularly GSM operators had resisted plans by the Federal Government to make them embrace co-location to protect the environment and aesthetics of major cities in Nigeria. Former Federal Capital Territory (FCT) minister, Nasir El-Rufai had a long drawn battle with the operators in Abuja where he forced them to co-locate their equipment. However, huge operational cost has now forced them to seek for equipment use and co-location.
Undoubtedly, infrastructure sharing has become a global practice within the telecoms landscape and CDMA (Code Division Multiple Access) operator, Starcomms Plc is showing considerable leadership in this regard. Understandably, these are not the best of times for CDMAs, as a significant number of them are finding it extremely difficult to survive the stiff competition in the nation’s telecommunications industry. CDMAs have insisted that their poor performances were primarily due to the high operating cost.
Starcomms Plc recently announced that it had successfully concluded a sale and leaseback agreement with Swap Telecomms and Technologies relating to 407 of its 557 Base Station for a consideration of N12.2 billion ($81.4 million) in cash. Maher Qubain, chief executive officer, Starcomms Plc, strongly believes that leasing, rather than owning these passive infrastructure network facilities can free up capital to fund additional growth, reduce debts and operational costs in the company.
Alluding to the need for telecoms companies to adopt cutting-edge co-location models that would assist management of telecom firms focus on their core business of providing best-in-class telecoms services, Qubain revealed that $67 million of the proceeds realised from the sale will be channelled towards repayment of a sizeable portion of the company’s bank debts.
He further explained that this would significantly strengthen the balance sheet of the company and also reduce interest charges. Presently, most operators are faced with challenges that include - theft and vandalisation of equipment as well as pressure from authorities to reduce the number of towers scattered all over the country. In the estimation of analysts, sharing of such infrastructure would greatly reduce cost of operations, duplication of equipment and waste of scarce resources.
“It is incredibly important that rather than duplicate sites across the nation, it will be much more sensible if all parties were able to co-locate so that we don’t have to duplicate infrastructure. “We can also save money and reduce our costs and the cost of other operators. This will also translate to reduced costs to customers”, Steve Evans, chief executive officer, Etisalat Nigeria, maintained.
Evans, however, expressed optimism that his firm will be a leader in the area of infrastructure sharing by the end of 2011, further suggesting that all telecoms companies operating in Nigeria should aggressively implement infrastructure sharing in line with global best practices. Other telecoms companies were however rather vague on what they intend to do in the new business year with regard to infrastructure sharing. A senior executive at Helios Towers told Business Day that two GSM firms were already in talks with his organization, especially on how to initiate a sale and lease back agreement.
“I can confirm to you that we are in talks with two GSM firms on a sale and lease back deal but due to the nature of the deal, I can’t give you their names. But I assure you, telcos will embrace co-location in 2011. “Telcos will have no option but to embrace infrastructure sharing. Running of base stations constitutes a big challenge for telcos in the country. A GSM operator for instance spends an average of $5, 000 monthly to run a base station.
This expenditure include - servicing of generators, fuelling, and security among others”, a senior executive at IHS telecoms told BusinessDay. The huge financial commitment, he said, was a limitation to most providers - big or small, adding that the return on investment (ROI) is slow after huge amounts of money would have been spent on this infrastructure. He disclosed that like Swap, IHS was also working on a sale and lease deal with two telcos whose identities he declined to reveal.
It was learnt that IHS Plc and Helios Towers, two licensed infrastructure building companies together own more than 2,500 co-located sites. BusinessDay checks reveal that pioneer infrastructure building company, IHS has 1, 500 co-located sites occupied by operators whilst Helios Towers has over 1,000 of its sites already occupied.
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