IHS Towers spots opportunities for M&As, fiber business growth

Telecom tower company IHS Towers sees opportunities for further acquisitions and to ramp up its fiber business in some of its markets, including in Latin America, where it operates neutral fiber JV I-Systems with TIM Brasil, company executives told an earnings call.

Investments grew by 30.4% year-over-year in Q1, to US$153mn, which, according to CFO Steve Howden, was driven by increased capital deployments for I-Systems, as well as by a tower portfolio refurbishment in South Africa following a 2022 acquisition and by an expansion in Nigeria, its main global market.

"Fiber across the entire group represents 3.5%, and that is Nigeria and I-Systems combined. It remains a small part of our business," said Howden.

"We do feel like there is opportunity for the right path of fiber within IHS over the short and the medium-term. Fiber connectivity is the key to backhaul, particularly 5G, but even 4G," added the executive.

Through the I-Systems JV, IHS deploys and operates fiber infrastructure rented back to TIM Brasil, its partner and anchor client.

According to IHS, I-Systems ended 2022 with 7.5mn homes passed, of which 4.5mn were FTTH, and a total of 18,000km deployed.

CEO Sam Darwish highlighted that tower acquisitions would depend on proper valuation and good commercial conditions, but that there are good assets to grow inorganically in key geographies. 

ROLLOUTS

IHS built 198 towers worldwide and added 397 tower tenants in Q1. The company also rationalized 727 towers used by its smallest customer in Nigeria, not recognizing these revenues any longer.

In Latin America, the company deployed 29 towers, nearly all in Brazil, and built 41. The company also operates in Colombia and Peru.

"We started off with a modest number of towers built in Q1, but I can tell you that it has already accelerated in Q2. We expect to see that ramp throughout the course of the year," Howden said.

New sites constructed consist primarily of ground-based towers, although they can also include in-building solutions, distributed antenna systems, rooftop towers and other equipment. 

These new sites always begin operations with at least a single tenant, with colocation and lease amendments expected at future dates. 

According to IHS, the average cost to build a site in Africa and the Middle East is US$50,000-110,000 and in Latin America US$40,000-75,000.

PORTFOLIO

Overall, the group reported 39,104 towers in 11 countries, for an annual increase of 5,829 sites. 

Over 7,300 of its base is in Latin America, mainly Brazil, with 7,023 towers. Colombia and Peru had 228 and 54, respectively, with tower count in those countries virtually flat year-on-year.

“In Brazil, our second largest market, macro conditions were largely stable, whereas GDP growth decelerated, FX rate margins strengthened, interest rates held steady and inflation decreased,” said Howden.

Total tower base in the region grew by 3.4%, with number of tenants rising by 9% to 9,840. 

Regional revenues grew 46.2% to US$46mn, fueled by I-Systems, new colocation, new sites, and new escalators (upward revision of contractual leasing fees).

Global net revenue grew by 35.1%, to US$603mn. Considering the overall positive results, the company reiterated its 2023 revenue guidance of US$2.1-2.2bn and capex of US$601-650mn. 

It also upheld previously announced plans of building 750 towers in Brazil this year – three times the number built in 2022.

IHS claims to be the fifth global independent tower player by number of sites, behind American Tower (224,025 towers), Cellnex (135,000), GD Towers (41,500) and in line with SBA (39,430).

In Brazil, it claims to rank third. Its main clients in the country are the four largest national carriers Telefônica Brasil, Claro, TIM and Oi, the latter of which has been selling tower assets and renegotiating leasing contracts as part of a broader restructuring process.

Chief Colombia customers are Claro, Tigo and Avantel, whereas in Peru, top carrier clients are Entel and Bitel.