The Delta Perspective

April 2009

Tower sharing in the

Middle East and Africa:
Collaborating in
competition
Authors Victor Font - managing partner: vf@deltapartnersgroup.com
Chris Datta - principal: cd@deltapartnersgroup.com
Alphonse Reddy - senior associate: ar@deltapartnersgroup.com
Shohinee Ghosh - senior researcher: sg@deltapartnersgroup.com

As markets liberalize and

competition heats up,
telecom operators realize
that their long term
competitive advantage lies in
their value proposition and
not in their networks

Infrastructure sharing is coming to MEA

Tower sharing has been one of the
telecom industry’s global hot topics
for close to a decade. The first wave
was seen in the US and Europe,
while recently, India has taken center
stage with several multi-billion dollar
asset carve-outs. With some small
exceptions, the Middle East and Africa
(MEA) region have been relatively
quiet with respect to infrastructure
sharing deals, as operators believed
that coverage advantages outweigh
the benefits of sharing. However, Delta
Partners expects activity to heat up in
the next twelve to eighteen months
with multiple deal announcements.
The timing of these expected sharing
deals is linked to several strategic
dilemmas that regional mobile operators
are currently facing. The first and
foremost driver is compression of
margins due to increased competition
and decline in price-levels. Operators
Key highlights
• Delta Partners estimates that there are
currently over 200,000 mobile telecom
towers operating in the Middle East
and Africa (MEA) region
• Tower sharing can bring significant
capex and opex savings for regional
operators. Additionally, operators can
also make substantial capital gains
by monetizing their tower assets into
seperate entities
• Towers in MEA are expected to
increase by 50% in the next five years.
However, US$8.0 billion in cumulative
tower related capex could be saved if
operators were to share towers
• Delta Partners forecasts that several
tower sharing deals will be announced
in the coming twelve to eighteen
months. These could potentially
involve some of the large pan-regional
operators
 in the Middle East are battling market
liberalization amidst fully saturated
markets, while in Africa mobile
operators in many markets are facing
“hyper competition” due to the
issuance of fourth and fifth licenses.
The second related driver is decline
in customer profitability as operators
penetrate the “bottom of the value
pyramid”. Operators are being forced
to find new ways to enhance margins
but still be able to support lower value
customers. The third and final key
driver is the rationalization of capex
budget due to tightened financing
in the current economic climate.
Regional operators are starting to look
at ways they can reduce future capital
expenditure but also unlock cash from
their existing balance sheets to finance
future projects.
Sharing brings many benefits to
emerging markets
Not long ago in more developed
markets, telecom operators considered
network related infrastructure as their
core lever for sustainable competitive
advantage. However, as markets
liberalized and competition heated
up, their networks eventually became
more of a commodity. Thus, mobile
operators shifted focus to other
elements of their value proposition to
differentiate and create value for their
customers. This allowed operators
to take advantage of many of the
strategic and financial benefits linked
to tower sharing including reduced
future capex, lower operating costs,
and potential capital gains if towers are
sold to a third party.
While some of these lessons still apply
in emerging markets such as Africa,
other factors make the case even more
compelling. One of the key differences
in Africa is the wide dispersion of
average income levels between nations.
Since operators have “cherry picked”
the most lucrative regions to roll-out
2
networks, the profitability of newer
roll-outs is not as compelling. This is
combined with the fact that remaining
rollouts are often in difficult and
expensive to reach rural areas. These
factors are currently forcing regional
operators to seriously evaluate tower
sharing options.
The size of the MEA opportunity is
enormous
The size of sharing opportunity in MEA
region is enormous. Delta Partners
estimates that there are roughly
200,000 towers currently in operation
in MEA and the number is expected
to increase by 50% in the next five
years. This expected growth is linked to
significant remaining network expansion
and continued market liberalization.
This tower forecast could be reduced
significantly if we factor in potential
for wide spread tower sharing which is
currently not the case.
Delta Partners estimates that in MEA,
US$8 billion could be saved over the
next five years in cumulative tower
related capex if a site sharing index
of 2.0 can be achieved on the newly
rolled out towers. A further US$1
billion annual opex savings on new
towers can be achieved by 2013.
However, this number could even be
higher if existing tower portfolios are
rationalized and shared.
Many stakeholders are pushing for
tower sharing
While tower sharing has clear benefits
for operators, other stakeholders
are also helping create momentum
in the industry. International tower
companies have been hovering around
the MEA region looking to expand their
tower portfolios. In parallel, both debt
and equity investors have also been
shopping for deal opportunities with
many of them allocating considerable
funds to invest in infrastructure deals.
This investment appetite stems from the
massive deals executed in other regions
and the perceived attractive risk/
return profile. Lastly, regulators across
the region have begun to realize
the positive impact of tower sharing
and assessed that it can help them
achieve their objectives of fostering
competition and improving customer
service. Increased environmental
pressure has also put tower sharing
into the spotlight and reinforced some
regulators across the region to take
proactive action.
Understanding the basics
of tower sharing models
There are two main questions that must be addressed:
which network elements should be shared and who
should own these assets?
Sharing passive versus active
infrastructure
In order to categorize different types
of infrastructure sharing, the first
question to address is which network
elements are to be shared. The
traditional infrastructure sharing model
in the telecom world has been that
of sharing passive infrastructure. This
model typically includes network
elements such as tower masts, power
units, shelters, air conditioning, and
security. These network elements
are not telecom equipment related
and are considered less strategic and
easier to share. Operators and existing
tower management companies are
experimenting with sharing active
telecom equipment components as
well. While active infrastructure sharing
is not prevalent today, it is expected to
play a more significant role in the near
future especially in places like India
where spectrum availability is a serious
concern. There have been some positive
developments recently on the active
infrastructure sharing front with the
The purpose of the paper is to examine
the different infrastructure sharing
models currently being employed
and their potential impact on the key
stakeholders in the MEA region: mobile
operators, investors and regulators.
The paper aims to identify the key
opportunities and challenges for each
of the players and discusses Delta
Partners’ expectations for the coming 12
to 24 months within the context of the
current economic and financial climate.
regulators encouraging the same. This
together with advances in technology
such as multi party antennae, we expect
that active infrastructure will slowly
gain momentum. We further expect
that operators will continue to share
transmission capacity but will likely do
so on a case-by-case basis. For the
purposes of this paper, we will only
focus on the sharing of passive tower
assets as it is expected to be the first
step operators will take in MEA region.
Tower swaps versus carve outs
Once an operator has decided which
network elements to share, the next
question to answer is who will own the
shared assets. There are three basic
models available to operators when
deciding to share towers:
1. Engaging in tower swaps
2. Setting up Joint Ventures (JVs) with
other mobile operators (“Operator-
owned Towercos”)
3. Outsourcing tower assets to
independent tower management
companies (“Pure Plays”)
3
1. Tower swaps
Tower swaps involve the simplest
form of tower sharing between
operators. This model involves a “like
for like” swap of access to towers
between two operators in the same
market. Put more simply, Operator
A gives access to Operator B on one
of its towers, and Operator B gives
access to Operator A to one of its
towers. In this model, each operator
maintains ownership and control of
their own towers.
Tower swaps are relatively simple to
implement and can offer pragmatic
solutions to operators looking to
rationalize their network capex and
opex. Unfortunately this model
typically only allows for savings on a
very small percentage of the overall
tower portfolio and full value is not
extracted. At the moment, tower
swaps are actually being executed
in MEA but on a selective basis in
certain countries.
2. “Operator-owned” Towercos
Another option available for
operators is to create an “Operator-
owned” Towerco as a separate entity
while maintaining a significant equity
stake. This new Towerco can be
formed with one or more operators
and would be responsible for the joint
EXHIBIT 1: Main advantages and disadvantages of different tower sharing models
Source: Delta Partners analysis
4
future network rollout needs of the
shareholders. Typically, operators also
carve out their existing tower assets
into the Towerco by entering into a
“sell and lease back” arrangement.
Examples of “Operator-owned”
Towercos include Bharti Infratel, Indus
Tower, Quippo – Tata Teleservices and
Reliance Infratel – all in India.
Financing for the Operator-owned
Towerco can come from either the
operators themselves or from external
equity and debt financers. In order to
minimize cash outlays, operators tend
to bring in debt financing and private
equity investors to fund the expansion
of Towerco. This helps operators to
capture value from the start and take
the first steps for a future potential
equity exit.
The Operator-owned Towerco model
offers many benefits to operators.
In the case that multiple operators
come together, it allows them to
reduce operational risk by ensuring
high site sharing indexes with
guaranteed tenants from day one.
By being shareholders, operators
also get the comfort that they will
be able to control and influence the
JV especially in the earlier stages
of the outsourcing process. By
externalizing the tower assets,
operators also position the Towerco
for a future sale or exit when more
value can be realized.
3. “Pure-play” Towercos
The third most prevalent model used
by operators is selling their tower
assets to Pure-play Towercos and
outsourcing the remaining future
network rollout as well. These Pure-
plays tend not to have operators
as shareholders and typically grow
through aggressive leverage driven
acquisition of towers. Examples of
Pure-play Towercos include American
Towers and Crown Castle in the US,
TDF in Europe, and Helios in Nigeria.
Apart from the obvious financial
benefits, a sale of assets to a Pure-
play Towerco can also bring certain
operational advantages to operators.
Depending on the region, Pure-plays
bring significant experience with
them which reduces operational risk.
By selling to Pure-plays, operators
also avoid messy negotiations with
respect to operations and governance
with other operators. On the flip
side, Pure-play Towercos will not buy
towers at their full potential market
value leaving operators with less cash
for their assets.
Implications for operators
of mobile tower sharing
Operators can benefit from improved cash flows,
better margins and shorter time to market through
tower sharing
Tower sharing brings capex and opex
reductions
One of the clearest benefits to
operators of tower sharing is reduced
future network capex. Under a simple
tower swap arrangement, operators
can split capex costs with their partner
operators on shared towers. However,
if operators decide to outsource to
Towercos, future tower capex can
then be completely eliminated. The
Towercos themselves are willing to pay
for the capex because they create value
through co-locating multiple operators
on each tower and recover their
investment through leasing fees.
Delta Partners estimates that there are
approximately 200,000 towers currently
operating in MEA and the requirement
for towers (in a non-site sharing
scenario) will increase by 50% over the
next five years. Taking an industry-wide
view and assuming a tenancy ratio of
2.0 on newly built towers, operators in
the MEA region could save upwards of
US$8 billion in cumulative capex over
the next five years.
In addition to lower future capex, tower
outsourcing should offer operators
improved operating margins. Through
the improved economics of tower
sharing, Towercos will be able to
offer attractive leasing rates to tenant
operators which will improve their
overall EBIT margins (earnings before
interest and taxes). However, in order
to extract maximum value from lower
leasing rates, operators will need to
ensure that their host Towercos are able
to secure high tenancy ratios (number
of tenants per tower) so savings can
be passed along to operators. Delta
Partners estimates that in MEA,
assuming a site sharing index of 2.0,
an annual opex savings of over US$1.0
billion is expected (12-15% savings on
passive infrastructure related opex).
Operators can unlock cash from their
balance sheets
Outsourcing tower assets can also
unlock huge amounts of cash from an
operator’s balance sheet. By carving
out tower assets or selling them into
separate entities, operators are able to
generate cash through the partial or
complete sale of these assets. Towercos
will attract both debt and equity
financing and these new investors will
value the tower assets higher than their
book value. Therefore, operators are
able to secure cash up front for the sale
of the tower assets and secure financing
for the Towercos for future roll-outs
as well. Given the current credit
crunch, leveraged operators can see
passive infrastructure outsourcing as an
opportunity to strengthen their balance
sheets and improve cash flows.
Finally, if mobile operators maintain
an equity stake in the Towercos, they
can experience significant financial
gains through the value creation of the
Towerco itself. As Towercos increase
their tenancy ratios and efficiency, the
overall risk will decrease while implicit
valuations will go up. Operators can
5
participate in this upside as shareholders
and gain more upside from the
outsourcing of their towers.
Strategic benefits include reduced
time to market and lower
environmental burden
Outsourcing of towers can provide
mobile operators with significant
strategic and operational benefits,
particularly in developing low income
markets. In countries where significant
rural roll-outs are still required, tower
sharing can decrease the time to market
for operators since they can pool their
existing assets and share towers. Tower
sharing may also increase the financial
viability of rolling out to certain rural
locations and help support universal
access initiatives.
There is also an important argument
to be made in terms of specialization
and simplification of operations for
mobile operators. Tower roll-outs and
tower management require a specific
skill set which historically has been
better managed by Towercos. For
example, roll-outs are often delayed
due to permits and licenses approval
EXHIBIT 2: Tower transactions across the globe
Source: Delta Partners analysis
6
by the local municipalities. These
types of complex processes tend to
overwhelm monolithic operators
who are already struggling to
manage growth on all fronts in their
organizations. This specialization can
be further complemented by teams
which can move from the operators
to the Towerco, as their positions are
potentially made redundant due to
outsourcing.
Finally, a recent international trend
(including MEA) is to push for tower
sharing due to its environmental
benefits. With regulators now issuing
their fourth, fifth or sixth mobility
licenses, local municipalities are feeling
the visual burden of an explosion of
tower masts. Forced tower sharing
initiatives are already taking place in
markets such as KSA, UAE and Iran
and should continue to play a more
significant role in the coming months
and years.
Governance and organizational
resistance remain the challenge
There are two main challenges for
operators in implementing tower
outsourcing initiatives. The first is
establishing appropriate governance
mechanisms and service level
agreements with partner Towercos
and the second is managing internal
organizational resistance.
In order to reduce future operational
risk, operators will need to ensure
that they have the right agreements
in place which will secure their
future roll-out needs and ensure
the appropriate level of quality.
Historically, operators have guarded
their network deployment plans as it
was considered a trade secret. Now
operators will need to negotiate
their tower needs with Towercos
to guarantee they will have the
right locations, specifications, and
even positioning compared to other
operators. None of these issues
are impossible to govern with
well thought out agreements, but
nonetheless it remains a challenge.
Organizational resistance is also
proving to be a headache within
operators in MEA. Pan-regional
operators view their deep pockets
 EXHIBIT 3: Key negotiation parameters
Source: Delta Partners analysis
as a core strength and subscribe to
the idea of “flexing their muscle”
through aggressive network roll-outs.
Regional CEOs are reluctant to give up
their edge in networks and have been
historically more focused on market
share and revenues, and therefore
are usually the first to object to tower
sharing initiatives. This resistance is
declining somewhat in the current
financial climate as financing becomes
scarce. Furthermore, some operators
are now beginning to realize that the
NPV impact of faster market share loss
may not actually be large enough to
discourage tower sharing initiatives
between incumbents and challengers.
EXHIBIT 4: NPV break-even analysis of accelerated market share loss
Source: Delta Partners analysis, African operator data
The myth of market share loss
One of the strongest arguments
against tower sharing in growing
markets such as MEA is the potential
for accelerated market share loss
resulting from giving challengers
access to an incumbent’s towers. Site
acquisition and rollout is indeed an
arduous and time consuming process
and in some emerging markets can
take challengers more than a couple of
years to catch up.
However, when analyzing the expected
impact of tower sharing, we see that
the theoretical impact may not be
that great, especially if an NPV-view
is taken. First of all, incumbents are
not giving away an indefinite network
advantage, it is only a head start.
Therefore, in any financial analysis,
the market share loss effect should
be diluted very rapidly after the first
two to three years. Second, even
when taking relatively aggressive
assumptions in the early years of tower
sharing (e.g. challenger doubles its
gross adds rate in the first two years),
the negative NPV impact is not as high
as one would expect. By combining
this with the potential capex savings
and capital gains on the sale of assets,
the result is a “no-brainer”.
7
 The opportunity for
investors
High certainty of cash flows and high growth
potential of the region, makes investing in a regional
company attractive for equity and debt investors.

Investing in the Towerco space is opportunity for private equity investors

attractive – even in the current
financial climate
There is no doubt that investing
during the current global financial
crisis can appear to be a risky
proposition. No sector or region
has been spared in the fallout and
although governments around the
world (led by the US) are taking
dramatic actions to right the course,
significant uncertainty remains in
the near term. Nonetheless, Delta
Partners remains extremely bullish
with respect to the opportunity in
Towercos space for the coming 18
months in MEA.
Towercos present a unique
opportunity
Towercos represent a unique
to invest in “start-ups” or relatively
young companies, but with stable
and guaranteed cash flows from long
term leasing contracts. Furthermore,
with increased network roll-outs and
increased potential tenants through
new licenses, Towercos offer equity
investors a significant upside on their
investments. Given the relatively
large size of Towercos, private equity
investors are also offered a legitimate
exit opportunity through an initial public
offering (IPO) on a local or international
stock exchange. This access to future
liquidity significantly reduces the exit risk
for private equity investors and makes
Towercos quite attractive.
Within the context of the current
financial climate, Delta Partners

EXHIBIT 5: Potential capital structure evolution for regional Towercos

Source: Delta Partners analysis

8
 believes that several factors make
investing in Towercos more attractive
than ever. First of all, the overall
operator sentiment towards tower
sharing in the region is evolving.
Given less availability of financing
and increased pressure on margins,
operators are looking for new ways
to improve cash flows and reduce
costs. This should bode very well for
tenancy ratio potential for Towercos.
Furthermore, as global equity markets
have been hit hard in the past year,
investors should be able to enter
tower deals at more reasonable
valuation multiples.
Less leverage means operators will
play a bigger role in the short term
One of the downsides of current
market conditions is the scarcity of debt
financing. This implies that Towercos
will not be able to leverage up as much
to improve equity returns. One of the
possible consequences of this is that
operators who decide to carve out their
towers into separate entities may need
to maintain larger equity stakes in the
short term. If this happens, interested
EXHIBIT 6: Tower economics
Source: Delta Partners analysis; Asian operator data
Note: Actual data has been indexed and expressed as percentages to protect client confidential information;
1
Costs are based on weighted average of 70% Ground Based Tower and 30% Rooftop Tower; 2 Includes cost of capital therefore is not an accounting margin
equity investors such as international
Towercos or PE funds will have access
to minority stakes only. However, Delta
Partners believes there will also be
opportunities for which both external
equity and debt will be available. In
these cases, incumbent operators
may be interested in taking a minority
position and allowing the independent
Towerco to grow the business by adding
new entrants as tenants to their towers.
Investors need to ensure they secure
high site sharing indexes from day one
Although the economics of tower
sharing are clearly positive, Delta
Partners estimates that Towerco must
achieve an average tenancy ratio of 1.5
in order to break-even. This assumes
that 68% of tower costs are fixed and
the remaining variable costs increase
as tenants increase. Furthermore,
Towercos must pay for the cost of
capital for carrying the tower assets
on their balance sheets. Overall, a 1.5
tenancy ratio is very achievable but the
best way to accomplish this is to set-up
a Towerco with two anchor tenants
from day one to reduce risk.
9
 The role of telecom
regulators in the tower
management industry
International experience to date would suggest that
regulators in the MEA region will act favourably towards
the set-up of Towercos and tower sharing in general.
As part of their overall mandate,
telecom regulators are charged with
the task of ensuring fair competition,
availability of affordable services
for customers, and incentives for
innovation. Conceptually, tower
outsourcing helps to reinforce all of
these objectives and therefore should be
promoted by telecom regulators.
One of the clearest benefits of tower
sharing, from the point of view of
regulators, is to support universal
access initiatives. Tower sharing will
help to improve the business case for
rural roll-outs and should encourage
more population coverage in low
income environments such as Africa.
A further benefit is the environmental
angle, which is not specifically part
of a telecom regulator’s mandate,
EXHIBIT 7: Stance of telecom regulators in the MENA region
Source: Telecom regulator’s website; press reports
10
but has increasingly become a hot
topic due to the explosion of mobile
towers. Regulators can take a proactive
approach as in markets such as Iran,
KSA, and UAE, and either encourage
or force operators to share towers in
certain areas.
The only area which should be a
concern for regulators is ensuring that
the establishment of Towercos do not
give an unfair competitive advantage
to specific operators. This is especially
important if operators happen to be
shareholders in Towercos. Under
this scenario, regulators may need to
intervene to ensure that Towercos give
fair and equal access to its towers to all
operators and that leasing rates are not
set in any preferential manner.
Delta Partners’ outlook for
tower outsourcing in the
MEA region in 2009/10
Delta Partners expects multiple deals to be struck
between operators in the coming 12 to 24 months and
probably starting with the African continent.
Several tower deals will be
announced across MEA
Delta Partners expects several tower
deal announcements in the next
12 to 24 months. We expect deals
between regional operators that
will want to maintain a controlling
stake in the new Towerco in the
short term, as well as “buy and lease
back” transactions led by Pure-play
Towercos with limited participation
of the operator in the new entity.
The challenges of these cases are
also unique. In the first case, the
main challenge will be to ensure rival
operators succeed in the execution of
the transaction. In the second case,
access to debt and equity financing
will be the major hurdle in closing
“buy and lease back” transactions.
An open question remains as to
whether international Towercos
will take a relevant role in these
opportunities. Regional operators
appear to favour bringing in the
operational expertise of Towercos
but are less interested in the US and
European giants due to their lack of
emerging market experience. Smaller
emerging market focused Towercos
would be the most logical candidates.
These would include the Indian players,
but they may lack the focus and
resources to look towards aggressive
expansion to MEA as they consolidate
their current footprints. Delta Partners
expects that the tower deals in 2009
will exclude international Towercos but
this trend could change from 2010 and
beyond as operators look to exit their
equity positions.
Key success factors for pioneer
Towercos in MEA
Delta Partners’ perspective is that
the following elements will play a
critical role in ensuring the success of
regional Towercos in MEA:
1. Incumbent operators should not
shy away from striking deals with
new license winners based on the
“market share loss myth”
2. Towercos must bring in outside
investors to ensure impartiality and
act as a broker between operators
3. Existing towers must be included
in any deal (not just future towers)
to allow for sufficient scale and
increase operational simplicity for
the operators
4. In order to reduce operational risk,
new Towercos need to secure a
minimum site sharing index from
the start by signing at least two
anchor tenants
11
 Delta Partners is the leading integrated management advisory and investment firm specialized in the Telecoms, Media and Technology

(TMT) sector in high growth markets, with more than 130 professionals operating across the Middle East and Africa from its offices

in Dubai and Johannesburg, and through its three highly synergetic business lines:

Advisory: Delta Partners, as the largest advisory team specialized in telecoms in the Middle East and Africa, operates in more than

25 markets in the region, partnering with C-Level executives in telecom operators, vendors and other TMT players to help them

address their most challenging strategic issues in a fast-growing and liberalizing market environment.

Private Equity: As a fund manager, Delta Partners manages a $80M private equity fund, targeting investment opportunities in the

TMT space in the Middle East and North Africa. Delta Partners private equity business unit leverages the Group’s unique TMT industry

expertise to create value for its investors throughout each stage of the investment cycle, from deal sourcing, to opportunity analysis,

and support to portfolio companies.

Corporate Finance: Delta Partners provides corporate finance services and has been involved in several telecom transactions in the

region. As true industry specialists, the firm offers a differentiated value proposition to investors and industry players in the region,

either to the seller or buyer side of the transaction. Delta Partners actively leverages its close link to Delta Partners’ private equity arm

to access the investor community as well as top-level financial talent.

At Delta Partners we deliver tangible results to clients and investors through an exclusive sector focus, and a unique approach to

services, combining strategic advice and hands-on pragmatic approach.

Copyright © 2009 Delta Partners FZ-LLC. All rights reserved.

12