Strengthening telecoms sector’s growth through consolidation
Earlier in the year, Nigeria’s telecommunications industry woke up to the news that the last surviving Code Division Multiple Access (CDMA) operator in the country, Visafone has been acquired by MTN Nigeria in a landmark industry achievement.
Though, the news came with mixed feelings, especially because of the MTN involvement, which to competition will further give the South African firm more domineering power in the industry.
Some industry watchers, even the Nigerian Communications Commission (NCC), have come out to defend the acquisition, saying it became necessary to revive the moribund CDMA business in the country.
According to the Executive Vice Chairman of NCC, Prof. Umaru Danbatta, the commission will further encourage more of such merger, even with incentives.
Riding on that precedent, earlier in the month, two infrastructure providers, which are competitors, IHS Holding Limited and Helios Towers Nigeria (HTN) Limited agreed to merge their operations and form one company.
The deal will see IHS, which has footprints in Africa, Europe and Middle East, acquire HTN’s portfolio of 1,211 diversified tower sites throughout Nigeria. Both companies are in the business of overseeing telecoms masts for operators.
Founded in 2001, IHS provides services across the full tower value chain – colocation on owned towers, deployment and managed services. The firm owns over 23,300 towers in Nigeria, Cameroon, Côte d’Ivoire, Zambia and Rwanda.
According to industry watchers, with the focus on minimizing costs to reduce impact on margins, the move will position the operators to overcome challenging market conditions.
Industry watchers believed that apart from possible cost saving, there are other factors that fuels consolidation among operators, these include attractive valuations, availability of debt at low interest rates, among others.
With the IHS and HTN deal expected to be sealed completely by the second quarter of 2016, the terms of agreement showed that IHS will acquire the entire issued share capital of HTN from HTN Towers Plc, which is ultimately owned by Helios Investment Partners, Pembani Group, First City Monument Bank and other minority shareholders. Upon completion of the transaction, IHS will have full operational control of the underlying business and will market independent infrastructure sharing services to mobile network operators and Internet service providers in Nigeria.
Commenting on the move, London based telecoms expert, Kehinde Aluko, observed that in a highly regulated sector like telecoms, regulators have naturally a strong impact on long-term directions of the sector.
According to him, from changing technologies, convergence, over-the-top (OTT) players, and emergence of the apps ecosystem create the risk that the role of telecom operators be marginalized and that they be effectively converted to bit pipes. In addition, he said lower consumer spend has led to ever decreasing margin for operators, “in that context, regulations and associated regulatory body play a key role in controlling the M&A space.”
Aluko is optimistic that the consolidation exercise will strengthen the sector’s growth.
While urging the two firms to cooperate and seal the deal, Aluko said M&A deals bring significant IT challenges for telecommunications operators, as it can be difficult to integrate back-end, customer-facing, and operational and business support systems, throughout merged organizations.
“Combination of two different entities always presents overwhelming challenges that needs more than a just a few technology fixes. These challenges are more pronounced when two telecom operators of different pedigree decide to merge. For example when an operator with a predominant customer base of pre-paid customers merges into a larger, more complex, diversified operator an entirely new set of challenges comes up.”
The merger revealed that IHS shareholders base include global institutional investors such as Wendel, GIC, International Financial Corporation, Emerging Capital Partners and Korea Investments Corporation, and the strength of IHS’s balance sheet enhances the HTN credit profile.
The net leverage position of the combined entity is likely to be approximately 50 per cent lower than the current HTN stand-alone leverage position. In addition, there are meaningful synergies that management believes will be derived from the transaction given that a considerable part of the IHS portfolio is located in Nigeria.
The Guardian observed that with a population of nearly 180 million people, increasing smartphone penetration and limited fixed line infrastructure, Nigeria’s vibrant wireless industry is poised for a sustained period of network investment and growth. This transaction strengthens IHS’s position as the market leading Tower Company in Nigeria and provides IHS the opportunity to optimise a larger portfolio through innovative green energy solutions and delivery of market leading quality of service. IHS will work to roll out its renewable energy solutions and diesel reduction initiatives while maintaining unparalleled network uptime.
Speaking on the deal, the Chief Executive Officer of HTN, Inder Bajaj, said the company has built a unique urban-centric portfolio across Nigeria with the highest tenancy ratio in the industry and a diversified tenant mix. “IHS is the natural buyer of our business and we believe their deep knowledge and extensive experience in the sector will help to continue the strong level of customer service already being achieved by HTN,” he stressed.
Executive Vice Chairman and Group Chief Executive Officer of IHS, Issam Darwish, said: “This transaction is significant in that it combines Africa’s two original tower companies and will enable us to strengthen our service offering to our customers while focusing on their needs. “We remain committed to the Nigerian tower market where coverage levels are yet to mature and explosive data growth continues. The growing data traffic and increased smartphone use present an exciting market opportunity for IHS, with the potential for up to 40,000 more towers required to meet this demand.”