After a record year of M&A for Europe’s leading independent towerco, TowerXchange sit down with Cellnex’s CEO, Tobias Martinez to discuss the company’s prospects for further M&A, projections for 5G rollout and how Cellnex views its role in the radically evolving telecommunications industry.
TowerXchange: 2019 has been a record year for Cellnex in terms of M&A which has added significant scale to Cellnex’s portfolio [see side bar]. Could we see a similar level of activity over 2020?
Tobias Martinez, CEO, Cellnex Telecom:
2019 was indeed a very successful year in terms of M&A; we completed three major deals with Iliad and Salt across three countries, achieved scale in the UK (a very important piece of our European platform) through the acquisition of Arqiva’s telecoms division, entered two new countries through towerco acquisitions in Ireland and Portugal –the latter already at the very beginning of 2020-- and bolstered our position in the Spanish market.
In terms of M&A activity across 2020, the appetite is certainly there from Cellnex but until there are concrete opportunities on the table it is impossible to say how this will translate into signed deals. In 2018, many investors and analysts were thinking that Cellnex was reducing its M&A activity but in reality, we were busy laying the groundwork for the deals you saw throughout the course of 2019. Deal announcements are only the most visible part of the huge amount of work that goes into M&A activity.
Throughout 2019 and early 2020, we have seen a number of European telecom operators announce that they are seriously reviewing their existing outsourcing strategy and so we expect a number of opportunities to arise over the coming year. Whether we can deliver on these opportunities remains to be seen as M&A can be a tricky and lengthy process.
In terms of our priorities on the M&A side for 2020, closing the Arqiva deal in the UK is a main objective, something we don’t expect to happen before the summer break. Whilst it is great to celebrate the signing of a deal, the closing of a deal is the real thing to celebrate. A major focus will also go into the integration of 2019’s acquisitions; we’re not just acquiring assets, we’re acquiring companies and with those there are people, structures and processes that need to be integrated, this is the toughest part. Finally we will look to improve relationships with our existing customers and create long term partnerships.
TowerXchange: The deals signed over the course of 2019 have added a significant build to suit pipeline to Cellnex’s operations. What can you tell us about the shape and scale of this pipeline and its importance to Cellnex’s portfolio?
Tobias Martinez, CEO, Cellnex Telecom:
Cellnex is currently running by far the largest build to suit programme in Europe, with 9,000 sites currently contracted [see figure one]. The sites will be a combination of urban and rural, macro and microsites and the rollout will be primarily driven by densification requirements. Densification is essential not just for 5G but also for 4G, there is a real requirement to improve the quality and capacity of existing 4G networks, particularly in urban areas.
It is very important to attach these types of build to suit contracts to M&A transactions. Doing a deal is not just about the initial transaction, when you sign a deal you need to understand the future requirements of your customer, in order to become a true partner and work with them to build out and support their networks. It is also important to show the market that you have a clear cash flow and capex plan in line with customer requirements, with the agreements providing significant organic growth opportunities. Such build-to-suit programmes also give you a good opportunity to approach other potential tenants, to discuss the potential for site sharing in order to avoid duplication of infrastructure.
Figure one: Cellnex’s site count and build to suit pipeline across the European market
TowerXchange: 5G rollout is just commencing across the European market. What is Cellnex’s view on how investment in 5G networks will play out?
Tobias Martinez, CEO, Cellnex Telecom:
When looking at 5G, telecom operators will use the upper parts of frequency bands and this will necessitate the use of micro cells and small cells and significant densification; it will not be possible to provide the necessary coverage with just existing macrocells.
In urban areas, agreements with local authorities and owners of street furniture as well as access to optical fibre will be critical in delivering this densification as well as upgrading and reinforcing existing infrastructure to enable co-location of 5G equipment. Massive MIMO and beamforming will play an important role and impact the efficiency of 5G networks but it is very difficult to assess in advance what kind of impact this will have in terms of the infrastructure required. We need to get more specific information on network design to make a true assessment.
In our view, 5G rollout will begin indoors and then move outdoors as it is easier to deploy an indoor standalone 5G network. We are currently in a pre-5G phase and Cellnex is already investing heavily in indoor networks for 4G, covering big stadiums, malls, transport networks and other hotspots which will position us well for 5G.
It is clear that the rollout of 5G will require more time than much of the hype in the news would lead us to believe. Real 5G delivery will only be from 2022 onwards, and more realistically, closer to 2024 than to 2022. We are currently seeing 5G using 4G core network but delivering true 5G and its low latency requires reliability, investment in edge computing and a whole host of things that will take time to figure out and deploy.
TowerXchange: Where do Cellnex see the main use cases of 5G and how is Cellnex getting involved in exploring these?
Tobias Martinez, CEO, Cellnex Telecom:
The main use case for 5G will be in industry, for robotics, automation and augmented reality. We could see private 5G networks in manufacturing plants, although it is still to be determined what the best business model and framework for this will be. Europe’s manufacturers need to be able to keep up with their peers in Asia and the US, and private 5G networks will be critical to matching their performance and production capacity. In October last year, the German government launched the allocation of specific spectrum for the creation of industrial private 5G networks, a clear sign of the role that 5G is expected to play in the sector.
Another area, which is frequently overlooked when discussing 5G use cases, is its role in delivering ultra high speed broadband to rural areas through the provision of Fixed Wireless Access. In order to provide social cohesion and reduce the digital divide, high speed connectivity in rural as well as urban areas is critical and 5G provides an efficient way to achieve this.
A very active part of Cellnex’s innovation division is also looking at autonomous vehicles, not so much from a standalone point of view but rather looking at the interaction between cars, cities, transport routes and infrastructure and the role of 5G in a connected city.
With 5G we are seeing more vertical solutions, verticals focussed on specific sectors be it manufacturing, cyber security, transport or a large number of other things. When Cellnex explores these different areas we are always working with a telecom operator, it is not something that we are exploring on a standalone basis. We expect to see more partnerships between a host of different stakeholders to address 5G use cases in different verticals and Cellnex has the potential to be part of the solution.
TowerXchange: The role for towercos in edge computing is a topic frequently raised by the tower industry, but is a topic where there appears to be more questions than answers. How has Cellnex explored this to date and how do you see the role of towercos in providing edge computing evolving?
Tobias Martinez, CEO, Cellnex Telecom:
5G creates a clear new role for edge computing, something which was not required in 3G and 4G networks. With it being a new concept, it is an area into which Cellnex is proceeding carefully, working in close collaboration with our customers. Cellnex, and the industry at large, needs to define the business model and determine who will be doing what.
We have had the opportunity to explore edge computing in France, thanks to our agreement with one of our main customers, Bouygues Telecom [Cellnex is investing up to €250mn over the next five years to build 88 Central and Metropolitan Offices - strategic telecom centres with the capacity to house data processing capabilities]. Whilst Bouygues Telecom will be the main customer of these facilities, the project gives us the opportunity to offer the facilities to third parties. Looking into the future, one cannot imagine MNOs setting up new Metropolitan and Central Offices in all of Europe’s major cities on a standalone basis, it makes much more sense to share the infrastructure.
We see the role of the towerco as once again operating as a neutral host, providing open infrastructure and the same service to everyone. Towercos can share space, access to optical fibre and provide a neutral point of interconnection between fixed and mobile traffic and also host edge computing at a medium to high level.
As well as hosting edge computing in Central and Metropolitan Offices we could also host small data centres at macrosites, as we are doing in the Netherlands [Cellnex currently provides data centre services in 24 high telecom and data towers through the Netherlands]. If you have to provide latency of less than 10ms in a 5G network you need to rollout a grid of edge computing infrastructure, otherwise you cannot provide the low latency everywhere. Obviously it will be concentrated near industry, transport corridors and other hot spots but it is essential to design a network grid to achieve the low latency promised by 5G.
Whilst there are strong similarities with tower sharing, we are aware that when talking about edge computing, this becomes a much more sensitive part of an operator’s network and needs to be approached with caution. Partnerships such as this with Bouygues Telecom show that our customers see Cellnex as a real partner and long term investors in their networks, who can play a role beyond towers and consider new elements in a 5G network.
TowerXchange: Do you think it is inevitable that the MNO model will evolve to have separate out retail from network functions? Does Cellnex have ambitions to provide network as a service?
Tobias Martinez, CEO, Cellnex Telecom:
The industry is seeing a general movement from telecom operators to carve out and separate passive infrastructure from the core service part of the company. Whilst we have seen some operators selling majority and minority stakes in optical fibre, the trend to separate out the passive side of their networks and decouple it from the active infrastructure has been mainly about wireless infrastructure.
Over the past 12 months, we have seen clear and notable evolution in the willingness of the telecom operators to outsource passive infrastructure and we expect this trend to continue. It is however important to understand if the operators are just looking at monetisation and the sale of a minority stake (a structure most suited to a financial sponsor) or if they are looking for an industrial long term partner like Cellnex who can provide further value add.
Whilst Cellnex continue to evolve and provide further services to our customers, the provision of network as a service is not in our current plans. When you start talking about network as a service, this means gaining access to spectrum and entering into competition with our customers. If a customer were to approach us and request we gain access to wholesale spectrum and provide wholesale network as a service then it is certainly something that we would consider (following the same principles of neutrality) but it is not something that we would do on a standalone basis.
TowerXchange: How will the shift towards 5G impact the growth of different areas of Cellnex’s business?
Tobias Martinez, CEO, Cellnex Telecom:
5G will not just be about macrocells as it was in the 3G era it will be about an even greater combination of different types of infrastructure than we saw in 4G. With 5G you will have macro cells, small cells, optical fibre, edge computing, central offices and metropolitan offices, it won’t just be about partnerships with municipalities and landlords it will be about partnerships with railway stations, advertising infrastructure holders, owners of urban furniture and a host of other players. Managing the complexity of new forms of infrastructure whilst taking care of relationships with all the different stakeholders will require new expertise within our companies.
The challenges of 5G relate to its different use cases and types of services it will provide that haven’t been proven before. It is a particular challenge for MNOs as they will ultimately be the ones providing the services to the end user, towercos are the hidden part of the equation providing the underlying infrastructure. For example, 5G will be about mobility and transportation, not just along transport corridors but also in the day to day commuting of people across major cities. In London, four million people are commuting every day and 5G has to be able to provide services to those people. We believe that in the next 5-7 years public and private transport in the main cities will be managed thanks to 5G technologies.
It is difficult to put forecasts in place as we are still defining the use case of 5G and how to monetise them.This is why we are seeing more partnering on the final solutions, solutions tailored for specific industry verticals be it manufacturers, major transportation providers or other sectors, it is not just about connectivity but rather value added services. Cellnex expect to keep going on our existing trend, providing new macrocells,small cells and DAS but we will also need to provide very specific infrastructure for industry, working closely with our MNO partners.
2019 - a record of year of inorganic growth for Cellnex
Deals announced over the course of 2019 (and the first week of 2020!)
May 2019: Acquisition of Iliad and Salt portfolios in France, Italy and Switzerland
Cellnex announces deals with Iliad – in France and Italy – and with Salt in Switzerland to acquire 10,700 sites (5,700 in France, 2,200 in Italy and 2,800 in Switzerland) for a total investment of €2.7bn. The deals also include the rollout of 4,000 new sites up to 2027 (2,500 in France and 1,000 in Italy for Iliad, and 500 for Salt in Switzerland) with an overall planned investment of €1.35bn. Read more here
June 2019: Agreement to manage and market 220 BT high towers in the UK
Cellnex and BT sign a long term strategic agreement worth £100mn, allowing Cellnex the rights to operate and market 220 high towers owned by BT for the next 20 years. The agreement sees Cellnex increase the total amount of telecom sites it managed in the UK by almost 40%. Read more here
September 2019: Acquisition of Cignal in Ireland
Cellnex announces it has reached a deal to acquire Irish towerco Cignal for €210mn. The deal adds 546 sites and a 7th country to Cellnex’s portfolio. Cellnex anticipate the roll out of up to 400 new additional sites by 2026 with a further investment of c. €60mn. Read more here
October 2019: Acquisition of Arqiva’s telecom division
Cellnex reaches a deal to acquire 100% of Arqiva’s telecom division for £2bn. The deal includes c. 7,400 Arqiva owned sites as well as the rights to market an additional c. 900 sites and the concessions to use street infrastructure for telecom locations in 14 London boroughs. Read more here
December 2019: Acquisition of 1,500 Orange towers in Spain
Cellnex reaches an agreement with Orange Spain to acquire 1,500 sites (c. 20% of Orange’s total sites in the country) for €260mn, reinforcing Cellnex’s position in the Spanish market. Read more here
January 2020: Acquisition of OMTEL in Portugal
Cellnex reaches an agreement with Altice Holdings and Belmont Infra Holdings to acquire 100% of Portuguese towerco OMTEL for €800mn. The deal will add 3,000 sites and an 8th country to Cellnex’s portfolio and also includes a build to suit commitment of up to 400 new sites over the next four years. Read more here
