[By Duncan McLeod]

First came the news that Cell C is planning to sell its national network of base stations to a third-party tower operator. Now MTN SA, looking to cut costs, may begin selling space on its towers to competitors. Why, suddenly, is infrastructure sharing all the rage?

SA’s third mobile telecommunications operator, Cell C, has never had an easy ride. It entered a market dominated by two powerful incumbents in Vodacom and MTN. It ’s never gained the sort of market share that government and the telecommunications regulator hoped it would when it was licensed nine years ago.

It’s also racked up billions of rand in debt. This debt continues to weigh heavily on its balance sheet and has made it difficult to raise the cash it needs to expand its network.

Now, at last, Cell C’s management and its shareholders are attempting to do something to address the situation. The company is understood to have put its national network of base stations up for sale, in part to help defray its long-term debt.

It ’s a risky move — one that requires ironclad agreements with whoever it chooses as its partner — but it appears to be an inevitable industry trend as margin pressures, caused by increasing levels of competition, force operators to reduce their costs.

It appears Cell C’s idea is to sell its infrastructure and then lease it back. In turn, its infrastructure partner will, one assumes, be able to use its newly acquired towers to sell capacity to other operators.

If the deal happens, it could make it easier for new operators to enter the market, as they won’t have to find their own high sites — a complex process involving environmental approvals — and up-front infrastructure investment costs will be lower.

Cell C’s towers already cover more than 80% of the country’s population, so whoever buys them will have access to a valuable network.

However, it appears the winning bidder won’t have the market all to itself. MTN SA also plans to allow competitors to rent space on its towers. MD Karel Pienaar says the company is “quite far down the line in the decision-making process” and is considering a number of models that it could apply.

Unlike Cell C, MTN has no plan to sell its network, which Pienaar describes as a “strategic advantage”. But it’s keen to reduce the high cost associated with operating a national footprint of base stations. And it wants to increase capacity utilisation on its network.

According to Pienaar, the company’s 3G network is running at 10% of capacity following recent upgrades.

Pienaar, who says he wants “two or three other operators on [MTN’s] infrastructure in the next three or four years”, says infrastructure sharing makes “absolute sense”. It reduces duplication and wastage and helps pay for the enormous costs associated with operating base stations, such as property rental and maintenance.

In a maturing and increasingly competitive market, it’s important for operators to keep their costs in check. It’s difficult for them to pass on costs to their customers, so infrastructure sharing could play an important role in helping them maintain their margins, especially in an environment where prices are falling (which, contrary to the view of many consumers, they are).

BMI-TechKnowledge MD Denis Smit recently told me that within a few years operators will not regard owning their own infrastructure as a competitive advantage. Rather, most of them will sell their networks or outsource the management of them so they can focus on competing on the basis of the services they offer.

And that, ultimately, has to be good for consumers.

• Duncan McLeod is editor of TechCentral. This column is also published in Financial Mail

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