Municipal wireless tower development as economic stimulus in Johannesburg

Leveraging South African Land Holdings (Particularly in the City Of Johannesburg) for Mast and Tower Wireless Communication Sites Development:
A Catalyst for Economic Development,
Infrastructure Development,
Small Enterprise Development,
Job Creation, and
Municipal Revenue Generation and Municipal Balance Sheet Enhancement



A BUSINESS CASE FOR MUNICIPALITIES (AS LARGE LANDOWNERS WHO HAVE ACCESS TO LAND IN MOST AREAS) TO STIMULATE ECONOMIC GROWTH AND ENTERPRISE DEVELOPMENT, GENERATE REVENUES AND ENHANCE THE MUNICIPAL BALANCE SHEET THROUGH TOWER / MAST BUSINESS OPPORTUNITIES WITHIN THE PRIVATE SECTOR


Table of Contents
1 Introduction 4
1.1 What is a Tower? 4
1.2 The Tower Site 4
1.3 South African Population 5
1.4 Municipality of Johannesburg Land Area 6
1.5 Current Problems Faced by South Africa 6
1.6 Solutions 6
1.7 Why This is Appropriate to South Africa 7
1.8 Communications 7
1.9 A Good Investment 8
2 The Business Model 9
2.1 Basic Business Model 9
2.2 Municipal Tower Supply Business Model Whereby Municipality Provides Land for Tower/Mast 10
2.21 Location 10
2.22 Municipal Revenue Generation Potential: 11
2.23 Average Rentals for Space on Towers 11
2.24 Tower Company Financial Feasibility 12
2.25 Short and Long-Term Enhancement of the Municipal Balance Sheet 13
3 Cost 14
3.1 Direct Cost of Operations: 14
4 Socio-Economic Benefits 16
4.1 Improved Infrastructure 16
4.2 Broad-Based Black Economic Empowerment (BBBEE) 16
4.3 Increasing Leverage 16
4.4 Adding Competition 18
5 Managing the Tower Initiative 20
5.1 On Site Management 20
5.2 On Managing Each Tenant 21
5.3 On Monitoring Systems 23
5.4 Why Tower Managers Outsource Monitoring 24
5.5 How RoI is Achieved 25
6 Where the Municipality of JHB Stands 26
6.1 The City of Joburg Property Company 26
7 Barriers to Entry 28
7.1 Location, Scale and Management 28
7.2 Capital Required 29
7.3 Site / Land Availability 29
7.4 Rezoning Requirements 29
7.5 Timeframe for Development 32
8 Cell Phone Tower Construction 33
8.1 The Process 33
8.2 Maintenance Requirements 34
9 The Time for Innovative Solutions is Now 36
9.1 When Leaders Speak, the Industry Listens 36
9.2 The Market and the Tenants 37
9.3 Operators 39
9.4 The Market is Shifting 42
9.5 Government Plans 42
9.6 Government Initiatives to Improve Rural Services 44
10 A Unique Approach 46
10.1 Have any municipalities ever developed a business case for using their own land holdings for tower / mast rollout and stimulating the economy and generating revenues for the Municipality? 46
10.2 The Benefits of a Municipality Implementing a Tower Initiative 48
10.3 Municipalities That Own Land are Better Suited to Provide Tenancies 51
10.4 On the South African ICT White Paper 52
10.5 Connect Africa: How JHB Can Make an Impact 53
11 The Benefits of Tower Sharing 56
11.1 MNOs Coming Together 56
11.2 Valuation 57
11.3 Investment Options Today 57
11.4 Growth is Now 58
11.5 Drivers of Growth and Impact on Tower Management 59
11.6 Forex Concerns 61
11.7 On Average Revenue per User (ARPU) 61
11.8 On Minimum Tower Count to Realize Economies of Scale 62
11.9 On Having an Exit Strategy 63
11.10 Working with Mobile Network Operators (MNOs) 64
11.11 10 Tips for Scaling a Towerco 65
12 Summation 66



1 Introduction
1.1 What is a Tower?
A tower is a vertical structure built on a parcel of land. A single tower can accommodate multiple wireless tenants with a range of telecommunications needs.
Tenants may utilize a variety of technologies, such as: mobile data, telephony, paging, and broadcast TV and radio.
Tenants may lease vertical space as well as portions of the parcel of land below for placing equipment.

1.2 The Tower Site
The tower site consists of the tower structure, the ground interest, and tenant equipment (such as antenna array, base stations, coaxial cabling, microwave dish, shelters, etc.).
Towers can vary by size and construction.
Common types of towers include:
1) Monopole (100-200 ft)
2) Lattice (200-400 ft)
3) Guyed (200-2000 ft)
4) Stealth (dependant on the size of the structure to which it is attached—common structures include water towers, clock towers, bell towers, etc.).

Smaller towers can be decorated or “hidden” by costuming to effect a more aesthetically pleasing veneer in communities that do not wish to see metal towers dotting the landscape. In such cases, towers can either be modified to existing structures through stealth or can be camouflaged by exterior attachments, such as trees, to blend in with more natural surroundings.
Most towers will appear like one of the following in the pictures below. The size of the tower will dictate the number and type of tenant using the tower to broadcast signals.



1.3 South African Population
54,841552[footnoteRef:1] [1: CIA Factbook. Accessed 14 Sept 2017. https://www.cia.gov/library/publications/the-world-factbook/geos/sf.html]

10 million + in Greater Johannesburg alone[footnoteRef:2] [2: Archive. Accessed 14 Sept 2017. https://web.archive.org/web/20120118083352/http://www.looking4.co.za/johannesburg.htm]


1.4 Municipality of Johannesburg Land Area
1,645 km2 (635 sq mi)[footnoteRef:3] [3: Demarcation Board. Accessed 14 Sept 2017. http://www.demarcation.org.za/site/]


Currently the Municipality of Joburg possesses an unknown number of parcels of land that are in the process of being examined for use. The City of Joburg Property Company SOC Ltd (JPC) is responsible for developing some of these parcels into revenue-streaming assets that also provide jobs for the city. Using parcels to help create a tower portfolio can be a means to a lucrative passive income for the Municipality and one that generates a number of added positive outcomes as well for the community.

1.5 Current Problems Faced by South Africa
“The government faces growing pressure from urban constituencies to improve the delivery of basic services to low-income areas, to increase job growth, and to provide university level-education at affordable prices.”[footnoteRef:4] [4: CIA Factbook. Accessed 14 Sept 2017. https://www.cia.gov/library/publications/the-world-factbook/geos/sf.html]


1.6 Solutions
Municipal ownership of towers could address each of these points:
Towers help provide basic communications services to one and all, regardless of income disparity. Indeed, Internet and wireless communications networks are more and more being viewed as a necessary utility all over the world.
Towers help link networks, which facilitates job creation and growth. Towers must be constructed, maintained, and monitored to ensure optimal service of networks.
Towers are essential tools in the transfer of information and the spread of knowledge—a bulwark of modern day Digital Era university-level education. For instance, the rise of the Internet has made off-campus schooling more affordable and attractive to many students. By supporting tower erection and network expansion, the Municipality would also indirectly be supporting educational growth/opportunities for non-traditional students.

1.7 Why This is Appropriate to South Africa
Services make up 68.7% of South Africa’s GDP.[footnoteRef:5] [5: CIA Factbook. Accessed 14 Sept 2017. https://www.cia.gov/library/publications/the-world-factbook/geos/sf.html]

By harnessing the power of towers, municipalities can harness the future and equip themselves with the tools for an extended passive revenue structure that benefits the balance sheet of municipal governments and the citizens of South Africa.

1.8 Communications
76,653,421 total mobile cellular telephones in South Africa.
141 subscriptions per 100 inhabitants.
South Africa ranks 19th in the world in terms of mobile cellular consumption.
The telephone system “consists of carrier-equipped open-wire lines, coaxial cables, microwave radio relay links, fiber-optic cable, radiotelephone communication stations, and wireless local loops; key centers are Bloemfontein, Cape Town, Durban, Johannesburg, Port Elizabeth, and Pretoria.”[footnoteRef:6] [6: CIA Factbook. Accessed 14 Sept 2017. https://www.cia.gov/library/publications/the-world-factbook/geos/sf.html]


1.9 A Good Investment
“Lease cost benchmarks depend on the amount of space, the location and its revenue potential, and on opex costs.
“Towercos in developed markets have proved to be a good investment. Opex is relatively low, markets more mature, growth more reasonable. In emerging markets the risk is higher, but the potential returns are higher too. I see towers as an ‘infrastructure’ not a ‘telecoms’ investment; it’s highly geared, and you’ve got to optimise site level profitability to get assets to produce cash flow.”[footnoteRef:7] [7: Tower Xchange, Issue 4 (2013), p. 47. https://www.towerxchange.com/wp-content/uploads/2015/08/TowerXchange_ISSUE_4.pdf]



2 The Business Model
2.1 Basic Business Model
1. The current business model of mast / tower companies in South Africa and how they grow their network of masts and towers can be described in the following terms:
a. Towercos will either be landowners or property owners themselves or will approach property owners to obtain ‘access to’ a particular site for use and erection of a mast / tower. They will typically agree on a yearly or multi-year lease at a monthly rate;
b. Towercos attend to the zoning, plan approval and Environmental Impact Assessment process;
c. They secure leases with Mobile Network Operators (MNOs) / telco’s / broadband and wireless companies, etc.
2. Tower companies purchase existing tower portfolios from existing MNOs or tower companies in order to enhance their own portfolios. Long contracts with tenants make towers more attractive to portfolio investors, and a portfolio of 300 towers with long-term, high-rate tenants may fetch upwards of 250 million USD. Preserving tower portfolios in tact is also a strategy and generates cash flow, as existing leases exist from tenants occupying space on the tower thereby generating income from the tower at a specific location;
3. Tower company secures sites (vacant land/location) via approaching various property owners and entering into land leases;
4. Tower company attends to municipal zoning requirements to facilitate erection of a mast /tower at the location/vacant site secured;
5. Tower company offers locations/sites to networks / mobile companies;
6. Tower company secures leases (tenants) for a location and thereafter proceeds with development of the tower;
7. Towercos install mast and necessary infrastructure (electricity, base station enclosure if required, perimeter fencing and entrance gate, etc.);
8. They maintain tower and infrastructure;
9. They generate revenue from tower rentals.

RoI from a high-rate tenant can average approximately R 500,000 per year.

A single tower may host 10+ tenants, which equates to an annual return of R 5 million +.


2.2 Municipal Tower Supply Business Model Whereby Municipality Provides Land for Tower/Mast

2.21 Location
Towers must be located in areas that service the requirements of various tenants (mobile phone networks, data suppliers, ISP’s, radio transmission services, etc.)—Cities, Towns and Rural Areas—all of which have municipal land holdings.
Access to available sites for MNOs, in a variety of locations, with suitable zoning is in short supply. This business model affords access to arguably the largest single landowners in the country in ‘one transaction’—namely, municipalities.

2.22 Municipal Revenue Generation Potential:
For a portfolio of 100 towers with 5 tenants conservatively priced at R 200,000 per tenant: R 100 million+ per annum. (Margins increase as the number of tenants per tower increases).

2.23 Average Rentals for Space on Towers
Lease terms can vary by customer and place. The average yearly cell phone tower lease rate per client will be approximately USD 40,000 or R 525,000. Consultation firms are available for developing contract terms.
American Tower provides the following guidance:
· Revenues Long-Term Customer Leases
· Contracts are typically non-cancellable
· Typical contract terms include an initial term of 10 years with multiple 5-year renewal periods
· Annual lease escalators in the US of approximately 3%
· Escalations in international markets are typically based on local inflation rates › Historically low annual churn of approximately 1 - 2% [footnoteRef:8] [8: “Introduction to the Tower Industry and American Tower.” American Tower, 2014. Accessed 15 Sept 2017. http://www.americantower.com/Assets/uploads/files/PDFs/investor-relations/Americantower_investorrelations_towers-101_2Q14.pdf] 2.24 Tower Company Financial Feasibility The chart below provides an illustrative example of the financial feasibility of the project, where RoI is calculated as Gross Margin divided by Construction/Upgrade Costs.

A concrete example of how this model might operate in a Municipality such as JHB: Municipality Signs Development Lease with mast developer/investor for 15 years WHEREAFTER Municipality owns all infrastructure, mast, takes over tenants lease on mast and earns all revenue etc. going forward at no additional cost; Municipality to earn either fixed (current market rentals for a ‘site / land’ on which a mast is erected is say R10 000 per site per month OR revenue share income based on say 30% of income; Cost of tower / mast, inclusive of infrastructure, R600 000.00 to R1 200 000.00 m per site; Number of sites for mast installations - 500; An average of 4 tenants per mast at a rental of R15 000 per tenant, namely R60 000 per site per month; 5 or 10 year loan from financial institution to mast / tower company investor erecting masts / towers on leased land at an interest rate of 11% (Prime plus 0.5%). Management costs, if applicable: R46 000.00

2.25 Short and Long-Term Enhancement of the Municipal Balance Sheet Municipal balance sheet enhancement both in the short term (immediate rental income) and long term (future ownership of all the assets / masts / towers due to development lease structure, affording ownership to revert to the Municipality following expiration of the development lease in which time all assets would have been paid by the mast / tower developer).

3 Cost
If Management is Outsourced: “The cost per site depends on the scope of work, but our average cost per site is USD $3,500 [R 46124.75]. However the cost varies according to what we have to cover.”[footnoteRef:9] [9: “How to Build a Separate P&L for Each Tenant.” Tower Xchange, Issue 4 (2013), pp. 58. https://www.towerxchange.com/wp-content/uploads/2015/08/TowerXchange_ISSUE_4.pdf]

While “costs of maintenance, rentals and electricity are considerably lower in SA than in other African nations,”[footnoteRef:10] there remain some considerations when gauging the capex requirements per year. American Tower supplies the following criteria for assessment: [10: Thabiso Mochiko, “Tower Sharing Benfits.” Financial Mail, 9 Sept 2016. Accessed 14 Sept 2017. https://www.businesslive.co.za/fm/fm-fox/2016-09-09-tower-sharing-benefits/] 3.1 Direct Cost of Operations: Sources

Ground rent Monitoring Insurance Real estate taxes Utilities and fuel Site maintenance Land Interest Attributes

Long-term leases: average remaining ground lease term is approximately ~12 years internationally International escalators are typically based on local inflation indexes Pass Through

Our international markets typically pass through a portion of their operating expenses to the tenant (e.g., ground rent, fuel) Fixed Cost Structure of Towers

Additional tenants result in minimal incremental operating costs[footnoteRef:11] [11: “Introduction to the Tower Industry and American Tower.” American Tower, 2014. Accessed 15 Sept 2017. http://www.americantower.com/Assets/uploads/files/PDFs/investor-relations/Americantower_investorrelations_towers-101_2Q14.pdf] Towers are not limited to their initial outlay. Height can be expanded to accommodate more tenants. Multiple antenna mounting scenarios can be devised using whips, panels, microwaves, and many other combinations through RF design. Port hole additions may be utilized to allow for more coaxial cables. Tower reinforcements can be added to provide structural strength. Foundations can be strengthened to increase the load capacity of the tower. Backup power generators can be supplied to ensure maximum productivity. Shelters can be stacked, one atop another, to maximize ground space. Ground space can be extended to accommodate maximum equipment of tenants on the tower. In short, there is no end to the variations that can be constructed to meet the needs of both tower tenants and owners.

4 Socio-Economic Benefits 4.1 Improved Infrastructure Greater tower infrastructure rollout opportunities for use by MNOs and other tenants on a scale never seen before. This would prepare municipalities for 5G- integration and superb service for all consumers.

4.2 Broad-Based Black Economic Empowerment (BBBEE) This proposal will also meet governments’ Black Economic Empowerment goals in affording historically disadvantaged people the opportunity to participate in opportunities they would usually be unable to participate in. By using land to construct towers and expand MNOs, the Municipality creates jobs particularly for BBBEE. A BEE rating certificate of level 1 could easily be obtained by the Municipality by selectively hiring or outsourcing jobs to address racial inequalities in the following ways:

Small and Medium Enterprise Development and Job Creation in terms of establishment of a service and maintenance team to maintain the towers being erected; Pre-negotiation of leases with mobile phone operators, networks, data providers etc. for various sites to facilitate easy raising of funding by Black Economic Empowerment, small enterprises or other entities who may need to raise finding for capital investments to be incurred in tower infrastructure.

4.3 Increasing Leverage Additionally, tenant leases of 5-15 years would be leveraged to raise funding, pay for the tower within the lease period, and afford a significant profit to the investor undertaking the tower development after having secured the ‘development lease’ over the land provided by the municipality.
Pre-determining the full development costs of infrastructure, supply and install prices of different types of towers in different locations (as may be required by the networks and tower tenants will give an idea of the scope of the project. This, in turn, will enable successful bidders to have an idea of the cost of the tower together with the pre-negotiated revenue (minimum) for the mast. This essentially enables the investor to merely raise funding and have the mast installed.
Leverage leads to investment which in turn leads to development and, ultimately, more leverage and investment. Market sounding (initial discussions with banks, financiers, etc.) can be conducted in terms of willingness to enter into funding arrangements for successful clients who are allocated sites. It is envisaged that the Municipality would have tested the market and essentially pre-arranged funding for successful bidders based on the strength of the ‘offers to lease letters of intent’ with the corporate tenants who wish to utilise the towers.
There is also the opportunity for municipalities to securitize (create a publicly traded entity) the tower portfolio and unlock up front value if so required. The sheer scale of the tower opportunity will create a significant opportunity for a sustainable publicly traded entity from which Municipalities could earn ongoing revenues along with unlocking up front value through sale of equity in the listed / publicly traded entity.
The opportunities to leverage the tower initiative are virtually endless.
4.4 Adding Competition
By making more towers available, price savings are ultimately passed on to consumers. The Big 4 Cell providers in SA are Vodacom, Telkom, Cell C and MTN. The map below provides a visual image of Vodacom’s 2G Network towers in and around the city of Johannesburg.[footnoteRef:12] This is but one example of coverage that exists. Similar maps can be created detailing location and number of 3G and 4G services not only of Vodacom, but also of Telkom, Cell C, MTN and other providers. [12: CellMapper. Accessed 15 Sept 2017. https://goo.gl/HFXKAj]

MNOs not only construct their own towers but also lease space to one another in order to build greater networks. There is, in other words, a spirit of friendly competition in the industry, which rests on the understanding that building networks to scale through efficient use of infrastructure is something that helps everyone.
By entering into this industry, the Municipality would help to advance the aims of free market enterprise, promote competitive pricing, and assist in the development of a much needed telecoms infrastructure expansion.



Source: CellMapper


5 Managing the Tower Initiative
5.1 On Site Management
One bonus of this industry is that overseeing monitoring, grounds upkeep, etc. can be accomplished through outsourcing to management firms. AIO Systems is one example. Here is what the firm says: “‘All in one’ site management system encompasses customers’ assets, IPMS, hybrid telemetry, security, environment and maintenance data all in one system.
“With site management, you can operate the site in a more efficient way. There are six different areas in which we deliver RoI: power source management, saver logic, extended asset lifecycles, managing network equipment as well as passive equipment, environmental and air conditioning management, and safety and security. The variables from these six data sources are gathered from our site controllers and displayed in a great table, enabling tower operators to manage the performance and prioritize investment in each asset they operate.
“For example, with our system you can manage all your power sources in a most cost efficient manner, whether it’s grid power, any solar power, AC or DC generators and batteries. As the requirements at an individual cell site change, different priorities may need to be given to each power source.
“We use saver logic to optimise fuel usage. This is a mechanism to optimise the load and to minimise fuel consumption. You don’t want to stop the DG every few minutes, because that’s inefficient.
“There are 16 parameters involved in our saver logic mechanism, and the bottom line is that we’re able to dramatically reduce fuel consumption. We are providing a dedicated saver logic service to one of Africa’s biggest cellular operators, achieving 52-59% fuel savings across the two countries in which we’re active. We achieve this by managing the load of the generator, DG running hours, the operational mode of the DG, the quality of fuel itself, managing the fuel delivery supply chain, and by managing the relevant assets that use fuel, extending the lifecycle of those assets.”[footnoteRef:13] [13: “How to Build a Separate P&L for Each Tenant.” Tower Xchange, Issue 4 (2013), pp. 56-7. https://www.towerxchange.com/wp-content/uploads/2015/08/TowerXchange_ISSUE_4.pdf]

Many alternatives exist in this space. Asher Avissar of AIO Systems provides more in-depth explanation of the space in the next section entitled “On Managing Each Tenant” and what exactly goes into the process. Understanding this can give a greater awareness of the benefits of using a management firm to oversee a tower portfolio and maintain the properties safely, effectively and cost-efficiently.

5.2 On Managing Each Tenant
Managing tenants can be an issue that must be resolved, as they will be requiring access to towers—and if multiple tenants are in and out of the site routinely, security issues inevitably arise. Asher Avissar of AIO Systems elaborates on how management of the site leads to management of the tenant and what their firm does to address the issue:
“We start at the level of individual passive and active assets; fences, security systems, radio assets, shelters et cetera. Each asset has different attributes; nominal usage profiles, acquisition cost, energy consumption, maintenance history, anticipated lifetime et cetera. Each asset is attributed to a tenant or tenants, and we combine that with the SLA between the tower operator and the tenant to build a P&L for each tenant, and a map of all the sites and the assets related to that specific tenant.
“If we can allocate each asset to a specific tenant, then we can overlay variables and create analyses. For example, identifying why one site is consuming significantly more amps of DC energy than a similar site. We can also analyse which tenant will be affected by a fault in any given asset, and inform that tenant the anticipated number of hours to repair the asset, and the reason for the fault.
“We enable towercos to charge for the diesel, grid power usage and maintenance cost of that asset to according to the specific use of each tenant, rather than having to have just a fixed charge for hosting each tenant. This information is not only used by finance and billing, but can also be used by marketing, as it shows the available capacity for potential additional tenants.
“This is how we’re able to add value by offering a service rather than just RMS boxes. Our SLAs to the tower manager enable a service-oriented business model with much more aggressive SLAs, MTTA, MTTR and sanity tests that demonstrate the RoI for the customer.
“As a result, working with AIO Systems is less of a capital outlay, but is more like engaging an opex partner – an insurance policy for the customer, covering all innovations within a site, whether it be multiple tenants sharing passive infrastructure, new generations of radio equipment, fibre or renewable energy – all aspects can be handled by AIO Systems, not just reliability and performance.
“Given our integration with RAN equipment as well as passive assets, our systems are ready to support active infrastructure sharing business models, energy as a service, or to include fibre if towercos want to get into the last mile.”[footnoteRef:14] [14: “How to Build a Separate P&L for Each Tenant.” Tower Xchange, Issue 4 (2013), pp. 56-7. https://www.towerxchange.com/wp-content/uploads/2015/08/TowerXchange_ISSUE_4.pdf]


5.3 On Monitoring Systems
Monitoring the tower systems is another important aspect of tower development. While it is essentially a low maintenance investment, some maintenance still must be maintained, depending on the tower type. One firm that provides systems management is Galooli.
“Galooli develops and manufactures software and hardware for the performance monitoring of remote assets. While one of our strongest segments is telecom monitoring and analysis, we also offer fleet management and tracking, energy metering and monitoring for construction groups.
“Concentrating on our telecom services, [there are] three major differentiators from our competitors. First, Galooli provides a holistic solution. We don’t just monitor sites, we also monitor the fuel tankers, company vehicles, compounds and the technicians themselves - all on the same platform.
“Second, we enable preventative instead of reactive maintenance. Whether you’re faced by an instance of fuel theft or a piece of equipment malfunctions, if it’s an eight hour journey to that site, you are likely to suffer downtime, which can mean losing ground to a competitor. Thanks to our analysis of the performance of all assets, we provide tools that make it easier to make good preventative maintenance decisions that prevent such incidents from happening.
“Our third differentiator is that we believe in service, not just in technology. We have the best system available in the market, but we believe in post-sales service. We’ll never make an offer in a territory where we don’t have our own local people on the ground to service the system and analyse data - in some instances those people will sit in customer premises.
“Any remote performance monitoring system without post-sales service will die after one year because no one will use it.”[footnoteRef:15] [15: “Simple Decisions You Can Make to Reduce Operational Expenses on Telecom Towers.” Tower Xchange, Issue 4 (2013), pp. 59-60. https://www.towerxchange.com/wp-content/uploads/2015/08/TowerXchange_ISSUE_4.pdf]


5.4 Why Tower Managers Outsource Monitoring
There are 3 reasons that tower management companies work with fuel monitoring firm Galooli:
“Firstly, tower monitoring in real time is not that complicated, but full monitoring coverage of the fuel cycle is critical in Africa. Fuel security is the number one problem in many countries. Because Galooli came from a fuel monitoring background in mobile assets - our first telecom project was fuel site management, not even cell sites - we are specialists at fuel monitoring. We are able to offer real visibility of fuel theft and management of the fuel cycle from the fuel station to the tankers to the cell site. A lot of fuel theft originates in the fuel station or takes place between the station and the cell site, so if you concentrate on monitoring fuel tanks at cell sites, you’re only addressing part of the problem.
“The second reason the towercos trust us is because of our reliability - our people and our service. Galooli provides reliable data, and we do what we say we’re going to do.
“Our third benefit for towercos is that if you have more than one tenant on a tower, our energy metering for each tenant means the towerco can bill the tenant according to their energy usage from the grid and from the generator.”[footnoteRef:16] [16: “Simple Decisions You Can Make to Reduce Operational Expenses on Telecom Towers.” Tower Xchange, Issue 4 (2013), pp. 60. https://www.towerxchange.com/wp-content/uploads/2015/08/TowerXchange_ISSUE_4.pdf]


5.5 How RoI is Achieved
Achieving the desired return on investment requires more than a simple blueprint. It also requires active ownership.
“The main RoI is achieved by simply making the right decisions based on information coming from the system - such as enabling the shift from reactive to preventative maintenance which I mentioned earlier.
“If you’re not monitoring your fuel cycle and your cell sites based on true data you can trust, then you’re blind to everything related to site until someone physically visits that remote site to conduct a survey. The reality is that some cell sites in Africa are in such a bad condition that QoS and uptime are seriously affected. We’ve seen sites where the generator has been partially dismantled, there are no functioning batteries, and the rectifier is virtually empty. Such sites only work occasionally when the grid is online. Once you monitor your sites, you have information on batteries, rectifiers, genset runtime, fuel quality - loads of data! Without RMS, you’re totally blind.”[footnoteRef:17] [17: “Simple Decisions You Can Make to Reduce Operational Expenses on Telecom Towers.” Tower Xchange, Issue 4 (2013), pp. 60-1. https://www.towerxchange.com/wp-content/uploads/2015/08/TowerXchange_ISSUE_4.pdf]



6 Where the Municipality of JHB Stands
6.1 The City of Joburg Property Company
Many parcels within JHB are currently under the oversight and direction of The City of Joburg Property Company.
“The City of Joburg Property Company SOC Ltd (JPC), established in 2000, is a dynamic company mandated to manage and develop the City of Johannesburg's (CoJ) property assets for the purpose of maximising both social and commercial opportunities for the Council.
“Dedicated to finding solutions to the developmental challenges facing the City of Johannesburg, the JPC utilises council-owned land assets to leverage private sector investment in public infrastructure. The JPC, on behalf of the CoJ, provides Property Asset Management, Property management (Commercial), Property Management (Social), as well as Facilities Management and Maintenance Services; and its relevant subsidiary services.
“The JPC, as an agent in support of the Council, is committed to ensuring that Johannesburg is a ‘world class African city’. Consequently, the JPC ensures that economic growth and job creation occur to address socio-economic disparities and legacies of discrimination and inequality.
“Therefore the JPC prides itself as the arm responsible for maximising the social, economic and financial value of the CoJ’s total property portfolio and enhancing its efficient use of property to drive investment, economic growth and job creation. The JPC aims to achieve its objectives by focusing on the following imperatives:
· Realising value (social, financial and economic) for the CoJ;
· Supporting economic development and aligning the CoJ property portfolio with CoJ priorities;
· Increasing the effectiveness of economically viable municipalities and social use of properties; and
· Management of risk and return with respect to the property portfolio and property
transactions for the CoJ.”[footnoteRef:18] [18: “About the Joburg Property Company.” Accessed 14 Sept 2017. http://www.jhbproperty.co.za/index.php/who-we-are/company-profile]


“Over the next three to five years, the Joburg Property Company (JPC), through its innovative land regularisation programme, will transfer some 3 700 properties across Johannesburg into the hands of local residents.”[footnoteRef:19] [19: “Land Regularisation Programme.” Accessed 14 Sept 2017. http://www.jhbproperty.co.za/index.php/projects/land-regularisation-programme]


While Joburg is engaged in giving back to the community, it is also imperative that the city make intelligent use of the land it owns and operates. Tower projects could significantly and radically enhance the city’s balance sheet and bring in much needed revenue that can in turn be used to supplement projects that support the region’s overall growth and development.


7 Barriers to Entry
7.1 Location, Scale and Management
The Mast / Tower industry is a location-based business, often with zoning restrictions. However, for a municipality, which can effectively manage zoning itself, while outsourcing management to companies like Galooli or AIO Systems, the nature of industry should not be considered a barrier in and of itself.
Likewise, while there is a high cost associated with building meaningful scale, a rich portfolio of towers can be achieved with minimal towers, as up and coming towercos have shown.[footnoteRef:20] Additionally, cost of investment is initial and not continual or reflected in upkeep and maintenance. Initial outlay may range anywhere between R 150,000.00 and R 3.5 million per tower depending on the type constructed. Outsourcing infrastructure maintenance and monitoring has helped telecom firms curb costs and would work the same for municipalities. [20: “Reflections on 2015: CXO panel report.” Tower Xchange, Africa and ME Dossier 2016, p. 48. Accessed 14 Sept 2017. https://www.towerxchange.com/wp-content/uploads/2016/09/TX_MEADossier_2016.pdf]

Landownership is a major obstacle for most towercos, as they must scramble to locate friendly tenancies to install equipment. For the Municipality, which already owns substantial amounts of parcels, landownership is not a barrier. A site can be brought from conception to completion in a relatively short amount of time.
The expertise needed to staff and maintain the tower project may be outsourced to any number of firms whose entire business is oriented towards this single objective. Outsourcing does not cut very deeply into margins and provides the tower owner with more security and less risk overall.

7.2 Capital Required
A sizeable portfolio of towers will be worth approximately R 3 to 10 billion. Tower construction estimates average at approximately R 2 million (USD 150,000). Financing construction can be simplified by having contracts with tenants signed and provided as proof positive of revenue on each tower. The proposition is no different from the purchase of real estate, in which tenancy is a major factor in recognizing and realizing income. The towers essentially pay for themselves by means of long-term contracts. The better the contracts, the more impressive and lucrative the overall portfolio of towers becomes.

7.3 Site / Land Availability
Municipalities own large parcels of land that can easily serve as grounds for tower construction to serve the needs of rapidly growing network demands. With 5G services coming soon, municipalities could be positioned better than anyone to profit from innovative technology that depends on land space to be put into action.

7.4 Rezoning Requirements
The National Building Regulations and Building Standards Act, 1977 (Act No. 103 of 1977) and the Regulations in terms of the Act provide for local authorities to determine when planning authority is needed or not.
JHB and Cape Town Municipalities provide guidance on local zoning requirements:
For stealth towers, rooftop base telecommunication station may not extend more than 3m in height above the part of the building that it is attached to. Should it extend more than the permitted 3m, prior approval of the Municipality may be required.
If a freestanding base telecommunication station is authorized as a primary use on a property, the freestanding base telecommunication station may be as high as 25m. (City of Cape Town). Environmental regulations may have to be observed if stealth equipment is installed higher than 15m.
the purpose of building, ‘Antenna’ is defined as ‘any system of wires, poles, rods, reflective surfaces or similar devices, used to transmit or receive electronic communication signals or electro – magnetic waves’. Rooftop telecommunication station is defined as ‘ a support structure attached to the roof, side or any other part of a building and used to accommodate telecommunication infrastructure for the transmitting or receiving of electronic communication signals’.
Telecommunication infrastructure is defined as ‘part of the infrastructure of a telecommunication network for radio wireless communication, including voice, data and video telecommunication, which may include antennas; and any support structure, equipment room, radio equipment or optical communications equipment (laser or infra-red) provided by cellular network operators and any other telecommunication provider; as well as ancillary structures needed for the operation of telecommunication infrastructure.’
In terms of the Zoning scheme Regulations , telecommunication stations may only be erected in certain zones – RESIDENTIAL ZONES ARE NOT LISTED UNDER THESE ZONES.
Rooftop base telecommunication stations may only be erected as a CONSENT USE in the following residential zones:
· Single Residential: Zone 1 and Zone 2
· General Residential: Zone 1 (Group Housing)
· General Residential Subzones: (GR2 to GR6)
Likewise, freestanding base telecommunication stations may only be erected as a primary use in certain zones:
· RESIDENTIAL ZONES are not listed under these zones.
FREESTANDING BASE Telecommunication stations may therefore NOT BE ERECTED in the following zones:
· Single Residential Zone 1: Conventional Housing.
· Single Residential Zone 2: Incremental Housing.
· General Residential Subzones 1: Group Housing.
· General Residential Subzones: Gr2 to Gr6.
In order for Municipalities to use land in residentially zoned regions, they must obtain a zoning amendment for use. Additionally, Section 18 of the National Building Regulations and Building Standards Act, 1977 stipulates when a local authority may allow deviation and allow exemption from national building regulations.
Both the City of Cape Town and the City of Johannesburg have Cellular Mast Policies in place.
Cape Town in its draft dated January 2011 sets out a cumbersome process for applicants to follow.
The main objective being to have the cellular masts at least 50m away from any habitable building.
Johannesburg however, sees Cellular Masts as part of infrastructure and as such tries to be accommodating towards the Cellular industry.
In other words, Joburg is highly accommodating to the needs of wireless tower users and providers—and, as such, the Municipality should have NO DIFFICULTY making use of land for this initiative.

7.5 Timeframe for Development
From finding a site to addressing zoning issues (if any should arise) to securing tenants to development of the site and conception to completion of construction achieved, can all be accomplished relatively fluidly and easily so long as the proper steps are adhered to. General time frames can be achievable within a year.
To better understand the process involved, Tower Point Capital provides the following rundown of those steps at a cost of USD 150,000 per tower or approximately R 2 million.


8 Cell Phone Tower Construction
8.1 The Process
The process from conception to completion requires several steps that must be realized fully and linearly before a tower becomes a functioning reality. This process is articulated fully by Tower Point Capital:
“Depending on the deal and regulations, it can take a year or more to begin the construction of a cell phone tower. Once cell phone tower construction begins, it can be operational in just a few short months. A cell tower has a number of important parts that must be carefully constructed to get the best signal. Here is what to expect from the construction process.
Step 1: Utilities
“Before cell phone tower construction can even begin, phone and power services must be established at the site. If these utilities don’t already exist, the property owner or the carrier will need to have them installed. Often, T-1 lines are connected, which are copper or fiber optic cables that can carry large amounts of data. Obviously, any site that has already been wired correctly will be of higher value.
Step 2: Equipment
“Each carrier who will be using the tower needs to install their transmitters, receivers and other electrical equipment nearby. The Base Transmitter Station (BTS) is usually housed on the ground nearby the tower site. Different companies use different methods to protect and camouflage their BTS. Often they are placed in cabinets or other locked structures on top of a concrete pad. This is one of the reasons why level properties are so much easier to work with.
Step 3: The Tower
“Of course, the most important part of cell phone tower construction is the tower itself. There are 4 kinds of towers: lattice towers, monopole towers, guyed towers and concealed tower. Each tower has an appropriate location and a list of pros and cons. Concealed towers are the only towers without specific guidelines, they are usually required by zoning and created to blend in better with a landscape. Monopole towers are less than 200 feet. Guyed towers can be much taller and are cheap to build. Lattice towers are 3 sided and self-supported, they can handle heavy loads.
Step 3: Antennas
“Once the tower is built, the final step in cell phone tower construction is placing the antennas. Antenna masts can handle multiple carriers. These masts are triangular so that coverage can be divided into 3 sections of 120 degrees. The number of antennas correlates directly to the network’s capacity for users. The height of the antenna affects its range, so taller antennas can cover a wider area. This is why site elevation can make a difference.”[footnoteRef:21] [21: Tower Point Capital, 2017. Accessed 15 Sept 2017. http://towerpoint.com/cell-phone-tower-construction/]


8.2 Maintenance Requirements
Fuel, security, grounds upkeep, and aesthetic issues (ensuring that the tower is not a distraction to the community) are maintenance issues that must be considered. However, all of these may be outsourced so that the Municipality is not burdened with more work than it has time to take on. For a passive income investment, outsourcing of maintenance is the most attractive solution and will still provide the tower owners with 30% margin.[footnoteRef:22] [22: How to Build a Separate P&L for Each Tenant.” Tower Xchange, Issue 4 (2013), pp. 56-7. https://www.towerxchange.com/wp-content/uploads/2015/08/TowerXchange_ISSUE_4.pdf]

Guidance from American Tower puts maintenance capex figures at a very attractive range:
Minimal maintenance capex requirements:
· Examples include: lighting system and fence repair, ground upkeep
· U.S. historical average: approximately $1,500 per year, per site
· International historical average: approximately $500 per year, per site[footnoteRef:23] [23: “Introduction to the Tower Industry and American Tower.” American Tower, 2014. Accessed 15 Sept 2017. http://www.americantower.com/Assets/uploads/files/PDFs/investor-relations/Americantower_investorrelations_towers-101_2Q14.pdf]




9 The Time for Innovative Solutions is Now
9.1 When Leaders Speak, the Industry Listens
Leaders in the tower industry speak volumes when they say that infrastructure development is needed ASAP:
“Johannesburg is South Africa’s largest city. It is also one of the most crowded and densely populated. As a result, mobile phone signal often suffers from too many people trying to connect to one cell tower. The dense built-up environment doesn’t do phone reception any favors either.
“MTN, one of Africa’s largest mobile operators, has an ingenious solution: The company is installing cell towers on streetlights in the crowded west and north and of the city. The first two streetlight-towers went up this week in Bryanston, a wealthy suburb. MTN recently won a three-year contract with City Power, Johannesburg’s electricity supplier, as part of the utility’s push to commercialize its infrastructure. Although MTN has a license to replace any of the 110,000 lampposts in the city, its initial rollout will be small, with just 100 poles planned for installation by Christmas, reports TechCentral, a tech blog. More will follow, depending on the results of the first phase.
“The installation of a new cell-enabled streetlight takes about 11 hours, making it a much faster process than building a traditional mobile base station, Eben Albertyn, MTN’s tech boss, told TechCentral. However, the lamppost-towers also have a much smaller operating radius of 400 to 600 meters (1,300-2000 feet). Traditional towers can, in theory, extend their range over 30 kilometers (18 miles), but in practice tend to be located only a couple of kilometers apart in urban areas. The smaller footprint of MTN’s streetlight means fewer people will be using the same tower, which should allow for fewer dropped calls and faster data connection.
“MTN is not the first company to think of using streetlights for other purposes. Quartz wrote in March about Sensity Systems, an American company, which is one of many with ambitious plans to turn the world’s streetlights into sensor-packed, data-gathering mobile and internet towers. MTN’s towers are more singular in their focus. But even without sensors, the internet of streetlights is well on its to becoming reality.”[footnoteRef:24] [24: Leo Mirani, “Let There be Light: South Africa’s solution to lousy mobile signal: Turn streetlights into cell towers.” Quartz, 20 Aug 2014. Accessed 14 Sept 2017. https://qz.com/252417/south-africas-solution-to-lousy-mobile-signal-turn-streetlights-into-cell-towers/]


9.2 The Market and the Tenants
Understanding the market can provide a sense of who will be the tenants. Tenancy is sought by telecoms providers who actively seek out nests and perches to place new equipment in order to more effectively reach clients. While most telecoms prefer to own the land where they place equipment, they only have so many options in regions where land is mostly already owned and developed. For Municipalities where the city owns many parcels, offering tower space to telecoms can be an attractive way of partnering with a thriving industry.
Tenants should have tenant credit: that means a tenant should possess “the size and financial strength worthy of being rated investment grade by one of three major credit agencies: Fitch, Moody’s, or Standard & Poor’s. An investment grade rating is seen as a good sign that the tenant will be able to pay rent, even in economic downturns or specific market slumps.”[footnoteRef:25] [25: “Introduction to the Tower Industry and American Tower.” American Tower, 2014, p. 11. Accessed 15 Sept 2017. http://www.americantower.com/Assets/uploads/files/PDFs/investor-relations/Americantower_investorrelations_towers-101_2Q14.pdf]

Some quick facts about the market reveals the nature of the industry as it exists in South Africa today:
“The South African market of some 30,000 towers is still dominated by the telecoms and broadcast organisations, who own over 90% of the towers.”[footnoteRef:26] [26: “Eaton Towers announces sale of tower portfolio in South Africa to ATC South Africa.” Eaton Towers, 1 June 2016. Accessed 14 Sept 2017. http://eatontowers.com/Eaton_Towers_sale_of_tower_portfolio.php]

“Towercos own just 10% of South Africa’s estimated 22,288 telecom towers, making the country the least penetrated of SSAs attractive tower markets. To date two of Africa’s ‘Big Four’ towercos control assets in the country – Eaton Towers has built over 170 towers with a pipeline of several hundred more and a tenancy ratio north of two, and American Tower markets 1,918 towers, 1,400 of which were acquired from Cell C back in 2010 in a US$430mn deal which at the time was reported to include up to 1,800 towers to be constructed, the majority of which have evidently not been built. In addition several ‘middle market’ towercos operate in the South Africa including Square1 Infrastructure and Atlas Tower.
“The South African market is one of the most attractive telecom markets in SSA with 148% SIM penetration, of which 35% are 3G and 4G (source: GSMA Intelligence, Q4 2014) and, given wireline penetration stands at just 9%, growth in data consumption is likely to occur mainly in the mobile market. ARPU is around US$8.”[footnoteRef:27] [27: “Last of the SSA land-grab; reigniting competition for South Africa’s towers.” Tower Xchange, Issue 12 (2015), p. 27. https://www.towerxchange.com/wp-content/uploads/2015/04/TowerXchange-Issue_12.pdf]


9.3 Operators
The Big 4 in the mobile network are the ones with whom the majority of business will be conducted. Therefore, it is important to obtain an understanding of their role in the market.
“Vodacom is the leading operator in South Africa with 31.5mn subscribers, supported by around 7,000 towers across the country. Leading the market in South Africa for many years, their market share has remained fairly stable despite shake ups from new market entrants. Vodacom denied interest in selling their South African towers as recently as September 2014, but if MTN or Vodacom did decide the time was right to sell towers, they’d have no shortage of bidders. Vodacom South Africa’s EBITDA margin was 37.4% in Q4 2014.
“MTN, South Africa’s second operator, currently has 28mn subscribers, and although intensifying competition in South Africa resulted in MTN’s market share declining by 2.7% over H1 2014, with revenue down 7% and EBITDA down 1.5%, negative subscriber growth has been reversed and MTN remains in a robust position. MTN South Africa’s EBITDA margin was 32.1% in Q4 2014.
“MTN stepped back from a sale to American Tower in 2013 and until recently have appeared to lack the motivation to divest their South African towers. However Telkom’s RFP may well prove to be a catalyst for MTN reassessing this choice, indeed Airtel’s African tower sale triggered MTN to bring their Nigerian towers to market. Unsourced rumours in the press suggest MTN has again received interest from American Tower in at least part of their network of 9,000 towers, believed to be valued at $1.5-$2bn, and has been holding talks with potential buyers, although a deal is unlikely to happen in 2015. It remains to be seen whether the Group will re-evaluate their timetable to get to market first if the Telkom South Africa process does culminate in the sale of their towers.
“With around 19.6mn subscribers Cell C is the fastest growing operator in the South African market, growing market share by over 100% since 2013. Their introduction of a flat call-rate of 99c / min, to any network, and the lowest data rate, of 0.15c/ MB has meant rapid growth in terms of market share and has challenged the high-margin stance of the other players in the market. Cell C has already divested around 1,400 towers to American Tower.
“Telkom, Africa’s largest fixed-line operator, has just 2mn mobile subscribers in South Africa. The company launched its mobile business in October 2010 and was privatised in 2013. However, despite Telkom’s leading role in the fixed-line market, their mobile offering has laboured to capture market share from leaders Vodacom and MTN. As a result Telkom has launched a restructuring plan to cut R5bn in costs which remains on track which remains on track with their share price better than doubling in the last 12 months. Although rumour has it that Telkom will only divest 500 of their macro towers rather than the formerly announced 3,500, the full portfolio could be worth as much as $1 billion and could free up significant capital for the operator, who are also believed to have an interest in acquiring competitor Cell C.
“Telkom has an existing agreement with MTN, signed in March 2014, which outlines intentions to conclude RAN sharing agreements. On 31st December 2014 Telkom stated: ‘Shareholders are further advised that Telkom and MTN South Africa remain in discussions regarding the potential extension of their existing roaming agreement to include bilateral roaming and outsourcing of the operation of Telkom’s radio access network, which if successfully concluded may have a material effect on the price of Telkom’s securities.’”
“According to ITWeb, MTN is investing R10bn in capex in 2015 (US$835mn), closely followed by Vodacom with R8.5bn (US$711mn) and Cell C with R5bn (US$417mn). Although three of the South African MNOs have commenced roll out of 4G (Vodacom has around 2,000 LTE base stations, Telkom has 1,300 and MTN 1,000), the main factor delaying LTE rollout is not technology or coverage but spectrum allocation.”[footnoteRef:28] [28: “Last of the SSA land-grab; reigniting competition for South Africa’s towers.” Tower Xchange, Issue 12 (2015), p. 28-9. https://www.towerxchange.com/wp-content/uploads/2015/04/TowerXchange-Issue_12.pdf]






9.4 The Market is Shifting
As market concentration and market power increase through consolidation, major players emerge as the prime candidates for partnerships. Understanding how this impacts the tower initiative is essential to solidifying the business plan, the partnership approaches, and the planned site evaluations and developments.
“A significant shift from a 17% towerco presence to independent towercos controlling almost 90% of the market (factoring in continuing organic growth) [is underway]. With planned LTE rollouts and only 9% of the market served by wireline infrastructure, South African telecoms will see a huge rise in mobile data over the next few years, creating a very attractive market for whichever towerco or towercos manage to secure the assets.
“It remains to be seen whether MTN will expedite the sale process in order to be the first to market and whether the South African market will be dominated by one player or split between two or more towercos, as we saw in Nigeria, but there is no doubt that the process will ignite the competition in the African market once again.”[footnoteRef:29] [29: Last of the SSA land-grab; reigniting competition for South Africa’s towers.” Tower Xchange, Issue 12 (2015), p. 30. https://www.towerxchange.com/wp-content/uploads/2015/04/TowerXchange-Issue_12.pdf]


9.5 Government Plans
Governments have already taken steps to bring more stability to the industry, though none to the extent that is envisioned in this proposal.
“The South African government has suggested it wants to use the next round of spectrum licensing to introduce more competition in the wireless broadband space, but this translates in the short term into a five year wait (to date) for the Independent Communications Authority of South Africa (ICASA) to assign sought-after spectrum. The result of this is that although 4G is being heavily marketed, availability is limited in most of the country. The two most likely scenarios – releasing spectrum to the existing players or the introduction of a new MNO/MVNO would both be well served by an independent towerco landscape in South Africa which could offer fast and deep penetration of the market.
“Only 10% of South Africa’s towers are managed by independent towercos, with three of the top four operators retaining their own networks. There is already widespread bi-lateral tower sharing in the market, particularly between Vodacom and MTN, meaning any tower transaction would face a complicated path to convert so many swaps into commercial leases but on the plus side, it also means tenancy ratios would likely start nearer two than one, which significantly increases the valuation that could potentially be realised from a divested portfolio.
“Towers in South Africa are operated under a simpler ‘steel and grass’ business model – towercos don’t have to get their hands dirty engaging with the energy supply chain as they do elsewhere in SSA. As such, South Africa could attract additional bidders including both International towercos and private equity and institutional funds with an appetite for this asset class. We would expect the number of bidders, should MTN’s South African towers come to market, to exceed ten. Historically MTN has favoured retaining substantial equity in joint venture towercos in their most investible markets, retaining 49% equity in joint venture towercos with American Tower in Ghana and Uganda, and an unprecedented 51% equity in their joint venture towerco with IHS in Nigeria.”[footnoteRef:30] [30: “Last of the SSA land-grab; reigniting competition for South Africa’s towers.” Tower Xchange, Issue 12 (2015), p. 29-30. https://www.towerxchange.com/wp-content/uploads/2015/04/TowerXchange-Issue_12.pdf]

“Vodacom South Africa runs what is effectively an in-house tower company, with around 9,500 towers and a tenancy ratio of around 1.8.”[footnoteRef:31] [31: “Tower portfolios of Africa’s Big Four.” Tower Xchange, Africa and ME Dossier 2016. Accessed 14 Sept 2017. https://www.towerxchange.com/wp-content/uploads/2016/09/TX_MEADossier_2016.pdf]


9.6 Government Initiatives to Improve Rural Services
“Dion Jerling, Founder, Connect Africa: There are 23 USFs in Sub Saharan Africa and 13 of these have little or no activity, according to the GSMA USF report. Universal Service Funds levy operators between 2% and 3% of pre-tax revenues to subsidise the establishment of coverage infrastructure in potentially loss-making underserved areas. Few countries do this transparently and effectively. Regulators who are often responsible for these funds are in a difficult position trying to stimulate innovation while simultaneously trying to support the incumbent MNOs who prefer the more traditional vendor solutions. Political pressure also plays a disruptive role particularly when 19 of these funds had US$400 million to disperse in 2011 – a tempting number to keep on treasury’s bottom line. This number will be significantly higher today but no-one is certain who has what.
“It is up to the MNOs, towercos and rural coverage specialists like us to lobby the USFs and encourage the support of innovative coverage solutions, not just stripped down versions of traditional solutions. A common feeling among operators is that their payment of a USF levy means they have contributed enough to underserved areas and therefore need not do any more. Another unfortunate consequence of inefficient and ineffective USF deployments is where operators are reluctantly left to manage an inferior rural infrastructure network built by an ineffective fund. This makes it virtually impossible to get a MNO to agree to work with us commercially to extend the rural network even further. The end result is a stifled rural coverage programme and millions of underserved who don’t deserve to be underserved.”[footnoteRef:32] [32: “Turning a profit connecting Rural Africa.” Tower Xchange, Africa and ME Dossier 2016, p. 180. Accessed 14 Sept 2017. https://www.towerxchange.com/wp-content/uploads/2016/09/TX_MEADossier_2016.pdf]



10 A Unique Approach
10.1 Have any municipalities ever developed a business case for using their own land holdings for tower / mast rollout and stimulating the economy and generating revenues for the Municipality?
This is a unique business proposition for South African Municipalities. To date there is no record of Municipalities engaging in the construction and leasing of towers to MNOs to enhance balance sheets, generate revenue and create jobs for the community. However, there have been studies showing that Municipalities are open to and interested in the concept.[footnoteRef:33] [33: James Collins, “Wireless Cell Towers and Antennae: Municipal and Private Relationships,” Master in Public Administration Theses, 2013. Accessed 15 Sept 2017. http://digitalcommons.pace.edu/cgi/viewcontent.cgi?article=1010&context=dyson_mpa]

In America, municipality leaders near NYC were interviewed to describe their awareness of and interest in MNOs. James Collins reported that “municipalities have enthusiastically accepted the development of wireless telecommunications as they understand the needs of their residents.” Collins also noted that, at least in America, it was important for municipalities to be apprised of and work within federal communications guidelines outlined by FCC regulations: “This relationship between the FCC and the municipalities is an example of the inter-governmental relations in action. To illustrate, every municipality has the right to guide the development of wireless infrastructure and while they can deny an application, they cannot simply prevent wireless transmission equipment from being placed within their municipalities. However, they must factor into their decision making the FCC guidelines -- specifically the Telecommunications Act of 1996 including the ‘shot clock’ law and health concern restrictions. Even with the FCC guidelines local zoning laws are still enforced and given the utmost consideration in the decision making. It is a careful balancing act for the municipality to accommodate the FCC laws and local zoning and regulation laws.”[footnoteRef:34] [34: James Collins, “Wireless Cell Towers and Antennae: Municipal and Private Relationships,” Master in Public Administration Theses, 2013, p. 64. Accessed 15 Sept 2017. http://digitalcommons.pace.edu/cgi/viewcontent.cgi?article=1010&context=dyson_mpa]

An even more important instance of a municipality taking a direct approach to wireless networks within the community is described by Joan Maybury of Mount Pleasant Municipality:
“Joan Maybury from Mount Pleasant provides an example of a municipality that enthusiastically embraces the wireless opportunity for her town. She has actively pursued developing and maintaining a relationship with the telecommunications providers. This relationship developed as result of necessity to help large areas of the town that lacked coverage. She was able to leverage these relationships by working with the providers and devise strategic ideas of where to place the towers.
It is important to develop the relationship as outlined in the paragraph above. Municipalities should have a specific contact with the cellular provider that the municipality can utilize in the event of a concern such as an outage. Invariably, despite not being a cellular point of contact, they end up receiving calls and questions from constituents. This would be useful to the municipality as they can appropriately reply to the constituent’s calls/complaints or pre-empt calls from coming to the municipality to begin with.”[footnoteRef:35] [35: James Collins, “Wireless Cell Towers and Antennae: Municipal and Private Relationships,” Master in Public Administration Theses, 2013, p. 65. Accessed 15 Sept 2017. http://digitalcommons.pace.edu/cgi/viewcontent.cgi?article=1010&context=dyson_mpa]

For Municipalities in South Africa, in particularly Johannesburg, taking a direct stake in the tower industry by not only working with wireless providers but also by actually constructing and leasing towers to providers, the Municipality could better control, direct, oversee and support an industry that is more and more being regarded as something that should be classified as a public utility service.

10.2 The Benefits of a Municipality Implementing a Tower Initiative
a. The Municipality will have access to numerous land holdings including along public roads, residential areas, commercial areas, rural areas, etc. thereby being one source for thousands of potential locations nationwide;
b. The Municipality will provide the site on a development lease basis;
c. The Municipality is the entity undertaking rezoning (if needed), etc.;
d. The Municipality attends to planning approval and Environmental Impact Assessment if required. etc;
e. The Municipality facilitates services to the site (electricity availability etc);
f. The telecommunications companies are likely already clients of the Municipality rendering the usual telephony and data services to the Municipality whether directly or indirectly;
g. The Municipality affords multiple tower / mast company market entrants opportunities (sites) for development;
h. The Municipality ‘packages’ the transaction fully, namely:
1. Appoints Turnkey Program Manager to roll out the initiative on behalf of the Municipality;
2. allocates appropriate sites to preferred bidders,
3. obtains quantity surveyor costings,
4. identifies service providers and costs to undertake mast / tower manufacturing and installations and future maintenance,
5. identifies and secures tenants for tower,
6. does ‘market sounding’ for raising of capital for tower / mast company leasing land to undertake development of mast / tower

For the purposes of conforming to NEMA (the National Environmental Management Act), the following information on the Act is provided:

The National Environmental Management Act
National Environmental Management Act 107 of 1998 as amended: Environmental Impact Assessment Regulations, 2014:
A list activity is defined as an activity identified in terms of Section 24(2) and 24D of NEMA, as one which may not commence without as environmental authorization from a competent authority and in respect of which the investigation, assessment and communication of potential impact activities must follow the procedure as described in the Regulations 26 to 35 of the Environmental Impact Assessment Regulations.
In terms of government gazette 38282, issued on 4 December 2014, Section 24(2) and 24D of NEMA, the installation of cellular networks is a listed activity:
a. The development of masts or tower of any material or type used for telecommunication broadcasting or radio transmission purposes where the masts or tower:
i. is to be placed on a site not previously used for this purpose; and
ii. will exceed 15 metres in height but excluding attachments to existing buildings and masts on rooftops.
Geographic areas based on environmental attribute:
In an estuary
Outside urban areas
b. a protected area identified in terms of NEMPAA, excluding conservancies;
c. national protected area expansion strategy focus areas;
d. sensitive areas as identified in an environmental management framework a contemplated in chapter 5 of the Act and as adopted by the competent authority;
e. sites or areas identified in terms of an international conservation;
f. critical biodiversity areas as identified in systematic biodiversity plans adopted by the competent authority or in bioregional plans;
g. core areas in biosphere reserves;
h. area which 10 kilometres from any other protected area identified in terms of NEMPAA or from the core areas of a biosphere reserve; or
i. area seawards of the development setback line or within 1 kilometre from the high-water mark of the sea if no such development setback line is determined; or
Inside Urban Areas; in
j. Areas zoned for use as public open space; or
k. areas designed for conservation use in Spatial Development Framework adopted by the competent authority or zoned for a conservation purpose.
Greenfields site, including access roads, which fall outside the thresholds listed above, will be subject to screening and evolution through the Polokwane Environmental Management Framework (EMF) process. Environmental sensitivities and/or constraints identified by the EMF may require further evaluation and assessment by the applicant and approved by the Municipal Environmental and Conservation Unit prior to the commencement of any site works.[footnoteRef:36] [36: Polokwane Zoning. Accessed 15 Sept 2017. https://www.polokwane.gov.za/City-Documents/Shared%20Documents/Policies/Telecom%20Masts%20Policy%20version%202.pdf]


10.3 Municipalities That Own Land are Better Suited to Provide Tenancies
Evidence that Municipalities are better suited to provide tenancies than towercos that must lease the parcel space is not wanting: “Escalating ground lease rates are causing significant challenges, as the price of real estate continues to rise exponentially in South Africa. One participant referenced how it was hard for the sector to keep pace with the amount of money that is filtering into real estate in the country and expected the problem to become more acute. When questioned on their appetite to own versus lease land, it was referenced that towercos will aim to buy the land when they can or aim for long term (~40 year) leases. One of the challenges in purchasing land, referenced one of the MNOs present, is that you only want a small area, however the effort that goes into portioning off a section of land often doesn’t make the exercise worth it. One of the smaller independent towercos referenced that this is where their strength really comes in. As a smaller, more nimble company, they can look at alternative use of the land that is not being used by the tower - for example, a small factory could be built on the land, thus finding further ways to monetise their investment. A towerco’s ability to do this is one of its key strengths above an MNO; flexibility is their niche.
“Participants at the table reported seeing an increasing number of approaches from ground lease aggregators in the market, whose involvement will further intensify property management challenges that MNOs and towercos are facing.”[footnoteRef:37] [37: “A shake-up of South Africa’s telecoms infrastructure.” Tower Xchange, Issue 18, 2017, p. 328. https://www.towerxchange.com/wp-content/uploads/2017/01/TowerXchange-Issue_18.pdf]


10.4 On the South African ICT White Paper
The South African Department of Telecommunications and Postal Services’ National Integrated ICT Policy White Paper calls “for radical changes in the telecommunications market, including the creation of a Wireless Open Access Network (OAN). All unassigned high-demand spectrum (essentially LTE spectrum) would be set aside for the OAN and what’s more, the paper also puts in place the suggestion that the government can take back spectrum previously assigned to the MNOs. The white paper proposes that competition will only happen at the service level and that the OAN will be managed by a consortium which will operate with ‘competitive neutrality’.
“The white paper has been met by opposition particularly amongst the larger operators who see their network as a competitive differentiator, and who have concerns about spectrum not being allocated in proportion to the number of subscribers each operator has, a move they feel which will compromise their quality of service. The announcement of the white paper on spectrum caused MNO share prices to fall, a downward trend which has persisted.
“The white paper has also held up the recent spectrum auction in South Africa, with the Independent Communications Authority of South Africa (ICASA) having made the decision to proceed with the auction, only for this to be blocked by the High Court following a challenge from the Department of Telecommunications and Postal Services.”[footnoteRef:38] [38: “A shake-up of South Africa’s telecoms infrastructure.” Tower Xchange, Issue 18, 2017, p. 329. https://www.towerxchange.com/wp-content/uploads/2017/01/TowerXchange-Issue_18.pdf]


10.5 Connect Africa: How JHB Can Make an Impact
Rural areas need to be connected—not only in South Africa but also throughout the entire continent. Ending the Digital Divide and bringing people together is a
“Why aren’t operators rolling into rural areas now?
Dion Jerling, Founder, Connect Africa answers: “‘There are several reasons. Firstly, they don’t see enough of a market there. They see ARPUs of US$1-2 a month and don’t believe it’s worth their investment against ARPUs of US$8-20 in urban areas. However we know from our experience that if you choose the right site you can get ARPUs of US$4+ where people have some cash in their pocket. It won’t be as much as what MNOs are used to in urban areas but is more than many people think and it is enough to justify a small site. Margins won’t be huge but there’s a business there.
“MNOs are also working more with the Universal Service Funds (USF). Without USF support MNO’s have a challenge to cover underserved and potentially non-profitable areas particularly when they are focused on the transition to data driven service provision, 2G licence renewals, new 4G licences and legacy 2G and 3G commitments. These distractions mean there is room for specialist rural service providers to fill the underserved gap. Operators are also understandably wary of giving their brand to new vendor solutions being rolled out by new relatively small businesses. This means we’re left with a situation where operators are unwilling to risk a rural partnership to cover rural areas and underserved communities are therefore left with no service at all – it’s a problem we are working on.
“There are a number of ways to address it. We as the specialists in rural coverage need to up our game and prove to the MNOs that we can deliver by partnering with proven technology and already established telco specialists (towercos, telco engineering specialists, traditional vendors). Technology evolution is close to delivering network solutions that do not require the current large infrastructure installations we’re all used to. This makes our initiatives even more feasible though regulators will have a challenge to manage the delicate balance between innovation and stability.
“USF supported projects are also finally gaining momentum and, while they should offer an ideal solution to the coverage of underserved areas, it is critical that these projects are managed efficiently, honestly and transparently.”[footnoteRef:39] [39: “Turning a profit connecting Rural Africa.” Tower Xchange, Africa and ME Dossier 2016, p. 180. Accessed 14 Sept 2017. https://www.towerxchange.com/wp-content/uploads/2016/09/TX_MEADossier_2016.pdf]



11 The Benefits of Tower Sharing
11.1 MNOs Coming Together
The industry leaders with whom Municipalities would be partnering would be the MNOs at the forefront of the sector today:
“Network operators such as Vodacom Tanzania, MTN, Bharti Airtel and Etisalat have recently sold some of their towers to tower management companies. Some sell towers only to lease them again.
“Others, like MTN, have sold towers to joint ventures in which they own a stake. MTN has formed joint ventures in Ghana and Nigeria and will make an income from towers it has sold to those businesses.
“Pater says telecom network operators outsource towers to focus more time on running their core business of being network operators, notproperty owners. ‘Managing passive infrastructure [like towers] is not, and should not be, a key activity of an operator,’ he says.
“‘Operators should focus on running active networks and providing services.’
Myhan Naidoo, Africa technology, media & telecommunications sector leader at EY, says the establishment of tower management companies has resulted in lower barriers to entry for smaller telecom companies and mobile virtual network operators. ‘Outsourcing to tower management companies enables faster go-to-market and means lower capex costs. Also, telecom companies can focus on core competences,’ he says.”[footnoteRef:40] [40: Thabiso Mochiko, “Tower Sharing Benfits.” Financial Mail, 9 Sept 2016. Accessed 14 Sept 2017. https://www.businesslive.co.za/fm/fm-fox/2016-09-09-tower-sharing-benefits/]


11.2 Valuation
The quality of the market will ultimately determine the valuation of the tower portfolio—but that is why working with the MNOs and industry leaders is so important: a quality market begins with quality collaboration:
“We’ve seen significant spreads of valuation in African tower transactions, from US$65,575 per tower (Eaton and MobiNil in Egypt) to US$231,915 per tower (American Tower and Airtel Nigeria), but this only emphasises how well the metrics are understood. If an operator wants to maximise opex savings, they can leverage an anchor tenant lease rate below the current market rate. Others prefer a reasonable lease rate to release some cash, while we have seen some high lease rates agreed to maximise capital released for rollout. The attractiveness of the market and the quality of the assets also affects valuation, among a myriad of other factors.”[footnoteRef:41] [41: “Reflections on 2015: CXO panel report.” Tower Xchange, Africa and ME Dossier 2016, p. 49. Accessed 14 Sept 2017. https://www.towerxchange.com/wp-content/uploads/2016/09/TX_MEADossier_2016.pdf]


11.3 Investment Options Today
Municipalities looking to diversify their holdings and take advantage of assets already well-positioned to help turn a profit should stop to consider the investment potential of the tower industry:
“The pool of capital with appetite for this sector is deepening. Near the start of the decade, the investor roadshows took in a lot less stops when towercos were raising capital. The reality is that while the opportunity will drive investment in, operational experience (and in emerging markets that’s all about managing energy) often dictates success.