Telkom last week announced an agreement with a consortium of buyers to sell off its towers subsidiary, Swiftnet, for $356 million. Telkom said that the sale aligns with the company’s strategy to sell off non-core assets to focus on unlocking the intrinsic value of its more core operations. The company becomes the latest telco in South Africa to sell off its tower assets, following Cell C, Vodacom and MTN.

Back in 2011, Cell C sold off its 3,200 towers to American Tower Corporation for $430 million.  In June 2022, MTN sold its 5,701 towers to Nigeria’s IHS Towers for R6.4 billion (~$337 million), with the company stating that it will use the proceeds of the sale to fund the purchase of spectrum to high-demand spectrum frequencies and provide it with additional balance sheet flexibility. The following month, in July 2022, Vodacom announced that it would unbundle its over 9,000 tower assets into a separate subsidiary in which it would hold a 100% shareholding. The telco said the move was to enhance asset returns and lower communication costs. Last year, Cell C announced that it would switch off tower access and have its subscribers roam on towers owned or leased by MTN.

As these SA telcos continue to sell off their tower assets, with reasons ranging from raising funds for other investments to supposedly lowering communication costs and shifting business strategies, experts who spoke to TechCabal say there may be other reasons at play.

According to Jimmy Moyaha, founder of investment firm Lebowa Capital, telcos may be pursuing strategic goals which do not necessitate having the towers on their balance sheets. “We’re seeing telcos rather deploy their capex into more strategic things like buying spectrum and improving network capabilities,” he said. Cell C and MTN took this route as they immediately leased back the towers from their respective buyers.

Additionally, according to Moyaha, loadshedding might also be a factor in pushing telcos to move the towers off of their balance sheets. With the loadshedding situation having gotten worse over the last few years, telcos have constantly reiterated in their financial results the investment that they have had to make in backup power during blackouts.

MTN has stated in the past that loadshedding led to an increase in thefts at its towers; Vodacom has said it had to invest R1 billion (~$200 million) on backup power for its towers; and Telkom has said it had to spend over R500 million (~$100 million) on diesel for the backup generators needed to run its towers. 

“When loadshedding is severe, backup power doesn’t have enough time to recharge and replenish itself,” added Moyaha. “This then necessitates the need for additional power solutions to be deployed and that becomes a very capex-intensive undertaking.”

Yet another (possible) reason…

According to Tshepo Magagane, an investment analyst, shareholder pressure might also be a significant factor behind the selloffs. Over the last two years, when most of the sell-offs have taken place, Vodacom, MTN and Telkom have all seen their share prices tumble by 38%, 53% and 39% respectively. “Share price underperformance [has led] to pressure from shareholders which results in the companies convincing themselves that the tower assets are ‘non-core’.”

He adds that the fact that private equity firms, which emphasise cashflow generation, are buying up the assets indicates their cashflow importance. “Infrastructure assets [like towers] allow revenue prediction, stable margins, efficient working capital deployment, manageable and incremental maintenance capex to investors,” said Magagane. 

Following its acquisition of Cell C’s towers, American Tower Corporation reported significant returns from the purchase. At the time, the company stated that it was generating a return on invested capital of approximately 20%. Each tower had approximately two tenants at a lease rate of $2,500 per tenant.

According to Magagane, the prominence of such deals is likely to attract even more private equity investors to seek similar opportunities on the continent. “A consummation of deals this large should act as a catalyst for other investors to wake up to the fact that there are opportunities in South Africa and Africa,” he concluded.

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