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October 11, 2023
We spoke to Tom Greenwood, CEO of Helios Towers about the distinctions between operating telecoms towers in Africa and the Middle East compared to Europe, the rise of satellites, and the towerco relationship with operators.
Give us a quick outline of your trajectory over the past few years and how 2023 has been for Helios so far.
For the past three years we’ve been on a big expansion drive. Through covid, which was very soon after we did the IPO on the London Stock Exchange, we had a strategy to geographically expand and diversify. We were previously operating in five markets across Africa, with around 7000 Tower sites. We saw the need for our services in lot of other markets, and so we were able to expand through acquisitions of tower portfolios in new markets, which saw us go up to nine markets, almost double the number of markets and about 14,000 towers. So we basically doubled the size of the business in two or three years.
It also saw us move into the Middle East with a with an acquisition in Oman. So entering 2023 we closed our final acquisitions [we made] in 2022, and we moved into this year with a fully enlarged portfolio and with a big focus on organic growth, supporting our local operator customers with their rollout.
Most of our markets have very, very low mobile penetration with some as low as 40% of people… that is obviously growing exponentially each year, and so what comes with that is simply the need for more and more antennas across the country to provide coverage for people and also to provide extra capacity for large numbers of users in the more urban centres. At the same time technology is changing, 4G is now being rolled out virtually across all of Africa, and 5G is starting to be rolled out in some of our markets as well.
And so we’re seeing really two different dynamics, one of just expanding coverage to facilitate more and more people getting phones, and the second particularly for the more urban centres is to support our customers in upgrading their networks for the data side of it with 4G and now 5G starting.
So it’s been a very, very busy year for us so far. We’ve had record new tenancy rollout this year, our pipeline for the rest of the year is very strong as well and even looking now into next year. And so, our strategy this year of focusing on organic growth and supporting our existing customers is very much underway I would say.
What is unique in running a tower business in the regions you do, as opposed to more developed markets like Western Europe, or North America or Japan?
There’s a key difference in the business model in so much as so much as all tower companies across the world are basically real estate companies for mobile operators. So we own the steel tower and mobile operators put their equipment on our site. That’s the same everywhere. The added service that we offer in our markets is power. Because the grid is not prevalent everywhere in our markets – and even where it is prevalent, it doesn’t work 24 hours a day most of the time – we are effectively a power company for our customers as well. Whereby we guarantee our customers 99 point X percent – almost 100% – power uptime within what we do.
We as Helios and other tower companies in the region, of which there are not that many, need to have a power expertise as well as effectively. We have 14,000 sites, each one of them is basically a mini micro power station as well. So as well as connecting them to the grid, we have to look at other ways of keeping the lights on which can include hybrid battery setup up a bit like a Toyota Prius engine, which runs both on fuel and deep cycle batteries.
Solar we’re using more and more, and the sort of last resort and backup is usually a decent generator as well, which obviously we’re trying to phase out now because we’ve got carbon reduction targets what we’re focused on. So that’s the main difference in the business model – for us it’s real estate plus power whereas in more developed market it’s just real estate.
I’d say the other main difference, which is more of a market difference, the growth dynamics in our markets and just generally across Africa and to some extent in the Middle East is just chalk and cheese versus developed markets. Even just starting a high-level things like population growth – the population in Europe and the US is growing at a snail’s pace. In fact, in some countries, it’s even coming down a bit. If you combine that population growth in Africa with just simply the lower penetration that exists today from a mobile standpoint… far fewer people have phones, I mentioned in some of our markets it’s only 40%.
In, say, the UK its 90%. Basically everyone has a phone other than very young or very old people. And so just simply because of that low starting point, our markets are growing at a phenomenal rate in terms of new phones coming to the market, or new subscribers coming to the market. And so from a growth point of view, our markets and therefore our business offers significant growth opportunities that you just don’t get in the more mature markets around the world.
Something that’s being discussed as a solution to things like irregular power supply or other difficulties in getting connectivity online is satellites. What’s your take on that in the regions you operate?
Satellites have been around for many, many years. It’s been quite normal for a few decades in fact for mobile operators to, at very, very fringe parts of their network, to sometimes use satellite as a way of doing the backhaul. So they’ll have a tower site that will have an antenna on the tower, the user’s phone will connect to the antenna, and then that signal goes back to the mainframe system of the mobile operator, the core system. Rather than that going in either through microwave or fibre, they’d sometimes ping that up to a satellite and then the satellite gets it back down to their core network somewhere centrally. That’s been around for many years.
More recently, there’s been some more low flying satellite companies such as OneWeb and Starlink that have been in the press. They’re offering sometimes the same solution, sometimes trying a different solution. They’re offering backhaul as a service exactly the same as what I’ve just described, just using a low flying satellite rather than a medium one. That allowed for a little bit of extra capacity to get through, it also improves the latency a bit. And then you’ve satellite phones, whereby they’re trying to get the satellite to connect directly to the phone.
Now again, satellite phones have been around for 30 plus years as well. What we’re doing now is trying to get those low flying satellites to connect – and it can work in certain circumstances. The reality is the capacity on these is a fraction of what you get on ground based antenna and even though the latencies have improved a bit with using the low flying satellites, it will really serve very rural and fringe populations, and complement current networks a bit where it’s just completely uneconomical to put a site out in the middle of nowhere.
A low flying satellite can maybe deal with those situations… disaster zones as well, where you just need to get a bit of extra connectivity and where you can’t get in on the ground for various reasons. So there’s definitely a place for them, but in terms of quality usage on a long term basis, it’s all about getting the antenna as close to the phone as possible to make the quality for the end users good.
There’s so much investment, particularly in the in the LEO space going on at the moment, and there are lots of firms out there now. Sometimes the use cases put forward seem to be implying the application of satellite connectivity could be much wider than that. Is there a situation in where satellites could have more of a role? Some seem to be saying they could take over from towers in some cases.
In our view that’s definitely not the case. In fact, it goes against the laws of physics. What we’re doing with data growth, [is] very, very significant, growing up to 50% per year or whatever – and that’s in Europe by the way, just because more people are downloading movies and streaming, Instagram, Tiktok, etc. The antennas actually need to get closer to the end users. The antennas if anything need to get bigger than they were before just to be able to [handle] that amount of data coming through the network.
In terms of operators no longer owning towers in the way that they used to is, how do you see that that dynamic playing out over the years? Do you do you think operators will end up never owning towers and instead have commercial relationships with firms like yourselves?
I think that’s very much the case. That’s how our business began basically, by acquiring a tower network from a mobile operator. Whereby we acquire the towers, they do a lease back from us or they still use the towers, or at least they have their equipment on the site. Then we go around marketing those sites to other mobile operators in the in the country and that’s very tried and tested. Of the 14,000 that we have today, we built around 4000 of them. At the moment we’ve acquired around 10,000 in the way I mentioned.
What we see more and more is once a country gets to a certain point whereby maybe it’s got three or four mobile operators operating, all of them have got their own tower network that kind of covers a similar area, the actual location itself of the tower becomes less and less of a competitive advantage for them.
And actually, it’s the front side of the network, the active side of their network and their core that really becomes a differentiator from a quality of service perspective. So the steel itself and in our case the power system, the property management side of it, is less their core competency, but very much our core competency.
So by outsourcing that work to us and selling us the passive side of the network, they will basically have a much improved power of property service that we provide because we spend 24 hours a day worrying about that, whereas they’re worrying about 20 other things before they get to that.
So it’s a classic economic theory of division of labour. We do what we’re good at and they do what they’re good at. And so over the years there have been more and more tower divestments. Globally now, around 70% of towers in the world are owned by tower companies, as opposed to mobile operators. That number is way lower in Africa and the Middle East. Middle East, there it’s about 30%.
And that’s just simply because in Africa and the Middle East mobile operators started selling their towers later than they did say in the US or other parts of the world. But for mobile operators it’s a very good way to raise money because tower companies will pay a high price to buy tower networks.
And it also provides for a very easy, fixed cost per month for the mobile operator rather than paying 20 or 30 different suppliers for fuel and electricity and maintenance and security and landlords and this that and the other. We do all of that, they just pay us one amount for that per month so it’s a lot easier administratively as well.
As we look forward now, there’s a bit of a lull in the market at the moment from an M&A perspective because of the interest rates being so high. Tower valuations at the moment are lower than they were, there is a bit of a lull at the moment, but I’m sure that will move back to being busy at some point in the next two to three years.
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