Financing Telecoms Expansion

Nigeria

Economic News

22 Jul 2010
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Nigeria's telecommunications infrastructure has received a boost from the International Finance Corporation (IFC), which granted local group Helios Towers $250m in mezzanine financing to expand its mobile telephone tower network. Shared infrastructure will enable Nigerian wireless operators to expand nationwide without increasing their costs.



The IFC issued $50m in mezzanine financing – a hybrid of debt and equity financing that is typically used to finance the expansion of existing companies – in August and $50m in senior debt in September, while pledging an additional $150m in senior debt from other commercial institutions in the future. The African Development Bank (ADB) also contributed a $30m loan to Helios Towers in September, enabling the company to double its network to 2000 towers by the end of 2010.



The IFC and ABD chose Helios Towers, which is not affiliated with any specific mobile operator, for investment under a strategy of shared telecoms infrastructure, or collocation. At present, many individual companies maintain their own towers, which are often low-quality and prone to service interruption.



In its March 2009 Summary of Proposed Investment, the IFC wrote, "Collocation reduces the incremental cost of expanding service for all carriers, thereby allowing them to service remote and economically less-developed areas where average revenue per user (ARPU) and usage will be lower."



Consolidating telecoms infrastructure is not only more cost-effective, but also removes the visual blight of mobile towers cluttered in urban centres. Additionally, an independent tower network would enable new players to enter the market with greater ease.



In May, the Nigerian Communications Commission (NCC) urged the telecoms industry to pursue collocation as a means of solving network congestion. At a telecoms collocation forum in Lagos, the executive vice-president of the NCC, Ernest Ndukwe, said, "Operators should take collocation and infrastructure sharing very seriously and make it a policy because it will boost telecommunication in the country." Another telecoms infrastructure company, IHS Nigeria, has also been active in the collocation drive, commissioning 100 new sites in November.



Mohsen Khalil, the director for Global Information and Communication Technologies at the IFC, indicated that Nigeria's population would benefit from the improved quality and affordability of mobile services brought about by mobile network expansion. "Affordable mobile telecommunications enable access to knowledge and services, innovation across sectors, and more efficient delivery of government and business services, all of which will contribute to economic growth and opportunity creation," he said in a statement.



The shared infrastructure scheme has also been instrumental in attracting foreign investment to the telecoms sector. After the IFC's cash injection, Helios Towers received $350m in equity financing from investor consortium Global Investor Group to extend its business operations to other African countries. Involved in the consortium are Soros Strategic Partners, run by prominent US fund manager George Soros, and the investment funds of former US secretary of state Madeline Albright and Lord Rothschild, head of the UK's largest banking family.



Helios Towers director Kayode Akinola said in a press statement, "IFC's long-term investment enabled us to leverage additional funding from the capital markets, which is often not readily accessible for frontier markets." The NCC reported in October that the telecoms sector had received $18bn in investments since it was deregulated in 2001, $12bn of which came from abroad.



Nigeria has one of the world's fastest-growing telecoms sectors, with 6m new active lines in the first three quarters of 2009, according to the NCC. This brought the total number of active subscribers to 70m, making Nigeria the continent's largest mobile market. Teledensity, measured as the number of telephone lines per 100 people, stands at 50%, with the highest concentration of users in the urban centres. In rural areas, the figure is as low as 15%.



In September, the Nigerian government reiterated its target of 100% teledensity by 2020, in accordance with the Vision 2020 economic development strategy, meant to transform Nigeria into one of the 20-largest world economies. Having caught the eye of the IFC and powerful international investors with its collocation strategy, the country now has the means to greatly advance telecoms sector development.

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