With a debt pile which continues to mount and insatiable demand for connectivity requiring fast, reliable networks growing by the day, European operators are finding it harder than ever to balance the books.
Added to ongoing capex in next-generation 5G, which is arguably yet to provide a substantial RoI, margins are being squeezed.
And it is for those reasons that in the last 12 months the spotlight has fallen, more so than ever, on the industry’s passive and stagnant assets.
Infrastructure divisions, and specifically telecoms towers, have become a major strategic focus across boardrooms, seen as an easy way to raise some much-needed cash.
Coupled with the fact private equity institutions and specialist infrastructure players are as keen to invest in these assets as operators are to sell, tower deals have become a hotbed of activity in the telecoms sector.
“Infrastructure assets are becoming more and more attractive to investors as they can offer a predictable return without riskier exposure to operators’ under-pressure retail divisions,” CCS Insight director, consumer and connectivity, Kester Mann told Mobile World Live (MWL).
The Cellnex case
As for investors, one in particular has stood out for rapid expansion, attracting both positive and negative attention.
Spain-based Cellnex continued its march across Europe last month, striking a deal to acquire Polkomtel Infrastruktura for €1.6 billion, the latest in a long line of acquisitions in the continent.
In the past two months alone, it agreed to buy Altice’s tower unit Hivory, struck a tower merger in the Netherlands with Deutsche Telekom and closed a deal for CK Hutchison‘s towers in Sweden.
The company recently said it now boasts a portfolio of 128,000 sites (see chart, below, click to enlarge), 75,000 already in its portfolio and the rest in the process of finalisation, including planned rollouts up to 2028.
But, despite its progress towards becoming a European infrastructure leader and a clear appetite for its services from some big hitters, not every operator in the continent is enamoured by the Cellnex model.
Orange CEO Stephane Richard publicly named Cellnex in an interview with Financial Times (FT) in November 2020, indicating simply selling up may not be the best option for his company or its European peers.
He stated “there is something smarter to do than just sell your towers to Cellnex”.
Reinventing the operator model
That “something smarter” came to light last month.
Orange took the wraps off TOTEM, an independent company to not only house its own tower assets in France and Spain initially, but perhaps even take on the Cellnex model by opening the door to hosting and deploying sites for other operators in the future.
The announcement had been in the offing for some time.
In a recent interview with MWL, the company’s deputy CEO and recently-appointed head of Europe (excluding France) Mari-Noelle Jego-Laveissiere, shed some light on its thinking, insisting it would rather keep hold of its towers rather than pursue a sale to Cellnex, with the company deeming these assets as an opportunity to develop a potential new business opportunity.
So clearly, Orange is hell-bent on holding on to what it has and, with TOTEM, it is hoping to raise much-needed cash through a towerco model, rather than divestment.
However, is going against the wider divestment trend the best option?
“Orange is not intending to sell its towers, but is open to partnering with other players. This enables it to keep control for now, whilst retaining an option to monetise at a later date,” said Mann. “However, with passive infrastructure now an attractive acquisition target for companies like Cellnex, it risks missing out on high valuations currently being placed by strategic investors.”
When deriding a potential Cellnex sale, Richard also named Deutsche Telekom and Vodafone Group as potential partners in a pan-European mobile towers play.
Is, then, the attraction reciprocated?
Well, like most, both have been active in the space. As mentioned, Deutsche Telekom has already succumbed to Cellnex’s cash in the Netherlands, however that deal may not be indicative of its wider ambitions.
Mann noted that despite a group debt load of €120 billion, CEO Timotheus Hoettges stated on its most-recent earnings call it could “raise money at any time because its very cheap”, suggesting it was also keen to retain control of assets rather than sell up.
Vodafone is also steering away from a sale, as it kicked off a formal process for a money-spinning IPO if its infrastructure business Vantage Towers this month, comprising 82,000 macro sites across ten countries.
Bloomberg estimated the float would raise €15 billion.
Looking at the other big names, Telecom Italia and Telefonica have made moves to follow the wider trend and cashed in.
The Italian operator sold a major stake in tower unit Inwit to French private company Ardian in October 2020, while Telefonica commenced 2021 with the sale of its Telxius tower subsidiary to American Tower for €7.7 billion.
Keep or sell
Long-term tower strategies therefore appear to be splitting decision makers, and there are clearly options out there.
Mann notes a sale relinquishes full operator control over parts of the network, and doing so could ultimately take important decisions “such as when and where to deploy”, out of their hands.
On the flip side, with top lines stagnant, operators are seeking to improve operational efficiency as well as cut costs.
“Selling towers can spur a sharper focus on areas such as services, tariffs, content and customer care, underpinned by new technologies such as network slicing and cloud computing, enabling operators to better distinguish themselves from rivals in ways beyond the network,” he said.
An FT report found that, despite what should be a golden age for the industry fuelled by the Covid-19 (coronavirus) demand for connectivity, the value of listed European telecoms companies dropped 20 per cent on average in 2020, with investors continuing to raise concerns over high debt, poor operational performance and unwieldy corporate structures.
So, whether it’s through a sale, an IPO or even the creation of a new independent company, the right tower strategy could be crucial to regain some much-needed confidence in the industry.
The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.