Why Orange is sharing towers

Structuring deals to meet the specific requirements of each Orange affiliate - and interview with Orange's AMEA EVP, Marc Rennard.

Marc Rennard was appointed International Executive Vice-President in charge of AMEA (Africa, Middle East and Asia) in 2006. He joined Orange’s Group Executive Committee in 2010. Prior to joining Orange in 2003 Marc ran leading French towerco TDF for eleven years.

Michel Faivre reports to Marc and is responsible for defining passive infrastructure sharing strategy in the AMEA region. Orange’s AMEA division is responsible for 81m customers at Orange affiliates in 20 countries, with 21,000 staff, and global income of €5bn.

This article first appeared in TowerXchange.

TowerXchange: Why is Orange sharing their towers in Africa?

Marc Rennard, EVP, AMEA, Orange: Where passive infrastructure once represented a third of the cost of a new site, it now represents at least two thirds of the cost of a new tower. As African markets mature and ARPU continues to decline, we feel there’s an increasing necessity for Orange affiliates to share passive infrastructure with other operators. However, the way infrastructure sharing is structured in each country will be different according to the requirements in each market.

With coverage of the major cities in Africa now complete, nobody will be able to invest $150-300k to build and manage a single tenant cell site in a remote area without a sufficient concentration of population to enable a return on investment. This is why Orange is in favour of sharing towers.

TX: Please could you tell us a little about how Orange makes strategic decisions about when and how to work with towercos when sharing infrastructure –  what is the involvement of the Group strategy team at headquarters, and the involvement of the local affiliates?

MR: For the reasons that I just mentioned, Orange has given guidance to our affiliates in Africa encouraging them not to build new sites alone (there are always exceptions of course), and to consider infrastructure sharing.

Each Orange affiliate has its own momentum, its own ecosystem and environment, its own regulatory context and, crucially, each has a different position in the local market – much depends on whether they are a new entrant or market leader, and on the number of operators on the market. So each affiliate moves at its own speed. But the global trend is for everyone to move toward infrastructure sharing.

Michel Faivre runs a dedicated team, studying the different cases in each market and helping local affiliates build their own business case to share maintenance, existing towers and/or new towers. Each affiliate then presents their proposed infrastructure sharing strategy to Orange’s investment committee, and we give a red, amber or green light to their strategies. So local affiliates are empowered to implement infrastructure sharing, and the final decision will rest with that local affiliate’s board of directors.

In summary, the Group provides guidance and agreement on the investment case to share passive infrastructure. Implementation and the run period is handled by our local affiliate.

TX: Please explain what you mean by ‘run period’.

MR: For example, I just returned from Côte d’Ivoire and Cameroon, where I joined senior executives of IHS for the signature of our agreement with them. Once the infrastructure sharing agreement has been signed, the Group team’s direct involvement comes to an end and the local team takes over operations. Implementation over the ‘run period’ requires the transfer of sites and of staff, the organisation of maintenance and other contractors.  The local team handles all this.

TX: What are your objectives when outsourcing passive infrastructure to towercos, especially in markets such as Cameroon and Côted’Ivoire where 3G is in its infancy?

MR: Working with professional towercos enables us to improve Quality of Service (QoS) and reduce the costs of maintaining and managing passive infrastructure. We did not want to sell our towers in Cameroon and Côte d’Ivoire but we did want to open them to new customers, while securing an opportunity to co-locate on IHS's sites and to ask them to build new sites for us in remote areas.

So our objectives are to save opex and capex, improve QoS and extend our network.

TX: Do you feel that in markets where towercos are active, they will build most if not all the new sites, rather than the MNOs?

MR: There is no exclusivity under our agreement with IHS, we are allowed to build our own towers, but the spirit of the agreement is that the towerco builds new sites. There's no obligation to have IHS build all new sites, but it’s our intention to work with them if the price and quality of service is right.

TX: Does Orange have a preference to maintain control and ownership of towers, as opposed to selling towers and leasing them back?

MR: We will review infrastructure sharing opportunities in each country according to the specific needs of each market. It depends much on our affiliate’s competitive position, whether they are number one or number five in the market, and it also depends on the maturity of the market. In Africa, we have very different cases: for example, if you take DRC, the penetration rate is about 18%, and yet in Tunisia, it’s over 100%. Our markets are extremely diverse.

However, at this time, Orange is not engaging in a global strategy of selling our existing towers. One year ago, we chose to sell our towers in Uganda to Eaton Towers, and we are open to selling towers in other countries as well. When there is no direct need of cash, like in Côte d’Ivoire and Cameroon, we retain ownership of the assets. The deal in these countries could become a reference model for markets with similar conditions. All options remain open and we will review each country on a case by case basis.

If you are the owner of a site one day, and if you sell those towers the next day, all you do is change capex into opex. The value comes from the number of tenants on each tower.

Africa accounts for 70% of the total diesel consumption of Orange worldwide, so the real battle is to save opex in energy and maintenance.

TX: Please tell us about Orange’s commitment to reduce CO2 emissions and how infrastructure sharing and working with towercos on build-to-suite programmes helps to increase usage of renewable energy sources.

MR: Our Corporate Social Responsibility policy puts a lot of emphasis on our efforts to reduce CO2 consumption, so we are involved in several initiatives to develop and use solar energy.

Our interests are aligned with those of the towercos. For example, IHS have established a dedicated programme to reduce fuel consumption, which is a critical way to increase site level profitability for them. Telcos benefit from working with passive infrastructure professionals to help to reduce diesel generator runtime and optimise the recharging of batteries, thereby reducing CO2 emissions. We have a specific requirement for partner towercos to be ‘best in class’ when it comes to these environmental questions, as reducing emissions is key for us.

TX: Thanks Marc! Moving on to speak to Michel, who has agreed to speak to us in more detail about Orange’s latest infrastructure sharing deal with IHS. Michel, please could you introduce us to the Cameroon and Côte d’Ivoire markets to put this in context.

Michel Faivre, Directeur Programme Partage d’Infrastructure AMEA, Orange: The two markets are significantly different, with different situations when it comes to infrastructure sharing. Cameroon has only two competing operators at present and only 2G services. A new 3G license has been attributed to Viettel, and they will have 3G exclusivity for two years.

The three main players in Côte d’Ivoire are Orange, MTN and Etisalat, with two further operators covering part of the country. With five operators, the potential for co-location is larger in Côte d’Ivoire.

TX: What were Orange’s objectives in agreeing this deal?

MF: Our objective is same as for all mobile network operators; cost reduction, especially opex but also capex. Sharing towers shares renewal capex, primarily to modernise energy units, and shares the cost of new towers. Even with Orange’s large network, we are still adding sites to cover rural regions.

As Marc mentioned, we want to improve QoS, even though our QoS is not bad. In the past, competitive mobile network operators were fighting on geographical coverage, now we are fighting on QoS – and that is especially true for 3G.

In Côte d’Ivoire, Orange is more present in the South than in the North of the country, while MTN’s network (recently acquired by IHS) is stronger in the North than the South. Working with IHS therefore improves our coverage and gives us capacity for nationwide services. The development of 3G also requires us to densify the network.

Sharing infrastructure enables us to focus on other tasks such as modernising, increasing and improving capacity, rather than focusing on energy efficiency.

Eventually, we are also sensitive to government and community objectives to reduce the number of towers by adding tenants to existing towers.

TX: Should we refer to the deal structure in Cameroon and Côte d’Ivoire as an “operational lease”?

MF: We refer to our agreement with IHS as managed services with a build-to-suite programme. Orange has not sold its towers in Cameroon and Côte d’Ivoire.

TX: Are the 2000+ sites included in the deal all Orange’s towers in those two countries?

MF: In Cameroon, the deal includes all the towers, while in Côte d’Ivoire it includes all the towers on which we have mobile RAN equipment. It doesn’t include our Ivorian fixed telecom towers, although the option to negotiate their inclusion in the future remains in the contract, as we did not have time to include them in the first place.

TX: Why was IHS a good partner for Orange in Cameroon and Côted’Ivoire?

MF: IHS was very professional in the way they negotiated with us, and they understood the technical aspects of what we were trying to achieve.

However, we have no exclusive relationship with IHS elsewhere in Africa, and we will work with the right towerco for each market.

TX: What are the benefits for the development of telecoms infrastructure in Cameroon and Côte d’Ivoire, and benefits for Orange, of the same towerco managing the towers of both market leaders, Orange and MTN? As opposed to for example Ghana, where each operator partnered with a different towerco…

MF: We felt that having two towercos in Cameroon was not possible for the market. There were only two operators when we started the negotiation, so how could we share and get the benefits of co-location if we partnered with different towercos? Even with a third operator, we are still not sure if it is possible to have two towercos. On the other hand, in countries like Côte d’Ivoire with three tier one operators and five in total, we could imagine having two towercos.

Working with the same tower provider helps to shorten the process. If we had partnered with another towerco, we would need to negotiate a service management contract and build-to-suite programme with them, but we would need to negotiate another contract to co-locate on the towers IHS acquired from MTN. Working with one towerco was simpler, and resulted into a better price.

TX: What is the power grid availability like in Cameroon and Côted’Ivoire, and how important is hybrid energy in cell site efficiency?

MF: There is grid power in most places, but there is an issue with some power cuts for which we need alternative solutions.

Orange already has some solar powered base stations in Cameroon and Côte d’Ivoire, but our build-to-suite contract with IHS will increase the percentage of solar sites in these countries.

TX: Did Orange work with any advisers on the Cameroon and Côted’Ivoire deal with IHS?

MF: No, we did not appoint a bank or a legal adviser for this deal. We handled it 100% in-house – we have a very efficient team!

TX: Finally, in the press release about the deal, Marc was quoted as saying “this agreement leaves open the possibility for Orange subsidiaries elsewhere in Africa and the Middle East to look into similar partnerships.” Are there any other markets in which Orange is actively exploring infrastructure sharing? Any update on Kenya?

MF: We will implement this kind of passive infrastructure sharing contract in other countries. The competition is still open – we will work with any of the towercos according to what is best in each country.

We have started a similar project in Kenya. We are in the final stages. During the negotiation phase, we try to sort out the maximum of issues in order to decrease the risks during the migration phase.

More info: www.towerxchange.com

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