OBG talks to Issam Darwish, Chief Executive Officer, IHS Towers

Interview: Issam Darwish

How can sharing infrastructure affect mobile service providers’ capital and operating costs, and do regulatory policies aid infrastructure sharing?

ISSAM DARWISH: The economic benefits for mobile network operators (MNOs) can be considerable. Capital expenditure (capex) on passive infrastructure can be eliminated, and operating costs (opex) can be reduced and made more predictable through outsourcing.

Under the full outsource business model, the independent tower company (ITC) acquires the passive infrastructure from the operator for cash or shares. The higher the acquisition price, the higher the leaseback use fee needs to be in order for the ITC to generate a return. The operator can therefore choose an economic structure that best fits its economic strategy. Following the deal, all capex on the passive network is the responsibility of the ITC and all vagaries in the opex of running the passive infrastructure, including fuel and power supply, is also at the risk of the ITC.

Regarding regulation, the ITC market is largely unregulated. ITCs offer an underlying infrastructure service to MNOs, not a service to the mass consumer market. ITCs can assist MNOs in meeting their regulatory obligations by providing a more economical network roll-out solution that frees up cash to invest in the MNO’s customers, namely in terms of new services and subsidies. Additionally, ITCs ensure a more rapid network roll-out to urban and, importantly, rural locations where network sharing makes expansion economically viable where it may not have been previously.

What factors constrain the capacity of base stations to manage demand from operators?

DARWISH: The ITC business model is based on multiple tenants on a single tower. Lease-up rate is an important performance metric. The number of tenants that can be accommodated depends on the construction of the tower and its size and strength, the space around the tower that can accommodate the transmission/switching equipment of the operator, the power supply and local planning restrictions. A competitive MNO market that encourages many MNOs to share a particular location is also a significant driver.

To what extent does the falling average revenue per user (ARPU) rate affect the investment outlook, and how can infrastructure and towers be improved?

DARWISH: Falling ARPUs for the MNOs affects every stage in the value chain of mobile service provision. It is key for MNOs to ensure that margins are preserved wherever possible. Network sharing can materially reduce the opex for an MNO and should be a powerful weapon against margin erosion.

Energy supply is a major element in running a passive infrastructure network, representing the majority of opex. Where there is no energy supply there is no signal, and subscribers and businesses lose their connectivity and business, whereas MNOs lose revenue. ITCs solve the problem of few electricity grids by installing diesel generators and batteries at each tower site to ensure there is an uninterrupted power supply. Alternative energy sources, including solar power, for example, can also help enhance output capability.

What are the main challenges in securing towers from theft and vandalism?

DARWISH: Many towers are in remote locations and therefore vulnerable to theft and vandalism. The materials used on the sites such as the steel, wiring and the solar panels are valuable in construction and thus attractive for thieves. ITCs generally surround the towers and the client’s equipment, with security fences and guards needed to ensure the integrity of the site. In some locations, a power spur will be extended outside the compound, so that rural communities have a reliable energy source to charge phones and radios. This works well as an incentive for local communities to help maintain the integrity of the site. If the tower is harmed, leading to a malfunction, then there is no mobile signal for the area, which is also an incentive to protect the asset.