Vodacom pushes for cell tower dominance

At a time when other mobile operators are moving to hive off their cellphone towers and lease them back from specialist operators and other investors, Vodacom says it sees value in running its own tower company and using that as a lever to grow revenue.

The group is hoping to use its more than 9,500 sites, including towers and rooftops, in SA to attract other operators to its sites, while updating to technology such as 5G, and investing in backup power to keep networks running during load-shedding.

SELLING

In 2022, MTN completed the sale and leaseback of its SA towers in a R6.2bn deal with Nigeria’s IHS Towers, furthering the group’s goal to exit noncore assets. The transaction — for 5,700 towers — also included the outsourcing of power and related services across MTN SA’s entire footprint of about 13,000 sites, thus incorporating an additional 7,100 third-party sites.

In a sign of the times, competitor Telkom attempted to list its masts and towers division, estimated to have been worth R13bn, as a separate company, Swiftnet, on the JSE. Volatility in financial markets caused that deal to be abandoned but the state-affiliated company is still looking for ways to realise value from this portfolio.

In this market, SA’s largest mobile operator chose to create and run its own tower business as of 2022. Vodacom boss Shameel Joosub appears bullish about the prospect.

“Here’s the story with towers,” he says. “On the one hand, towers trade at a mega multiple. And telcos are looking for revenue, right? So here’s a good business, you sell it off tomorrow, now where is the revenue going to come from?”

“What we’re doing instead is saying: let’s put focus on it, let’s run it like a business and that could [create] more opportunities if we did that — increased tenancies and so on. We can do better in terms of running like a proper business.”

SA’s four largest mobile operators — Cell C, Telkom, MTN and Vodacom — have been in business for at least two decades. As technology has shifted, operators have been working to grow earnings from areas beyond traditional voice and data, which are largely seen as legacy businesses.

While much of Vodacom’s focus has been on financial services, operating mobile payments business M-Pesa, Joosub and his team are looking to telecom infrastructure as another area of growth.

Vodacom recently inked a R13bn deal to combine its fibre assets with Remgro telecom unit Community Investment Ventures Holdings, creating a new unit called Maziv.

“We’re sitting with a lot of infrastructure assets, so I think the opportunity is to see how we can create businesses out of them. What synergies can we obtain?” Joosub said.

“The separation of the towers in SA is step one. Of course we want to do that across the markets. It does give you optionality to look at what further deals we can do to increase tenancies, those type of things, [while] optimising in each country.”

INVESTOR INTEREST

Telecoms infrastructure is enjoying growing interest from investment community and financial institutions, particularly for fibre.

Seacom recently received backing from the International Finance Corporation (IFC) in the form of a $260m loan. An affiliate of the World Bank, the IFC specialises in financing private enterprise investment in developing countries through loans and direct investment. The IFC has also made equity and debt investments in Liquid, for about $250m.

In SA, fibre network operator Metrofibre secured R5bn in funding in July 2022 from Standard Bank to increase its network to 500,000 homes by 2025. Also in 2022, Western Cape-based Octotel secured R2bn in financing from RMB to boost its network rollout, particularly in SA’s outlying parts.

Having had a disastrous start to its life on the New York Stock Exchange since listing in late 2021, IHS — in which MTN is a 25.7% shareholder — has traded up 33% so far in 2023.

“Like that, we have our financial services business, we have data centres, we’ll have fibre JVs and so on. We’ll give the market a lot more clarity so that we can see that come into the sum of the parts valuation,” Joosub said.

“We don’t want to sell the towers but we’re not opposed to bringing in partners, should that be needed down the line but purely to grow the business or can have synergies.”