Fostering the growth of the independent tower industry in Europe

TowerXchange met Scott Coates, CEO one of Europe’s most entrepreneurial middle-market towercos and the driving force between the newly-formed European Wireless Industry Association, prior to his participation in the TowerXchange CXO dinner at the Mobile World Congress in Barcelona. Scott shared with us his vision for WIG’s growth in the UK and Europe and explained how the European tower industry is ripe for a coordinated organisation to help accelerate its growth.

TowerXchange: Tell us about Wireless Infrastructure Group (WIG)- how was the company formed? How have you grown?

We have existed in the UK market for over 15 years, however in 2007 the business launched itself as a towerco and that’s when WIG proper was born. At that time we were very small, we’ve built the business up through organic growth and M&A.

You get a lot of towercos built by large sale and leaseback deals but WIG has done a series of small and mid-sized deals. We’ve bought from many different sources including small towercos, MNOs, cable companies, utilities and real estate companies – we’ve been very entrepreneurial. Through this period we’ve also been organically developing the business meaning in total we’ve grown the footprint of the business tenfold in the last eight years to 2,000 active sites.

TowerXchange: Where do WIG’s ambitions lie for the future?

We want to be the leading mid-market towerco in Western Europe. Mid-market to us excludes the €500m+ deals in new markets but everything else is in-scope including larger deals in the markets we already operate in. As part of our European strategy we’ve developed a footing in the Dutch and Irish markets.  We’d like to do more in both these markets, but we’re open to acquisitions in any markets in Western Europe.  We’d look at either a mid-market towerco, a sale and leaseback deal from an MNO or maybe by buying a smaller asset and developing from there.

TowerXchange: Tell us about your shareholders and how they support your goals?

The right kind of capital to invest in these kind of assets is infrastructure capital, but the challenge is to make sure the capital can be deployed in an entrepreneurial way. It can be a challenge for some infrastructure funds to operate with the flexibility we’re looking for. Our investors, Wood Creek Capital Management, have infrastructure capital to deploy but are also willing to be more entrepreneurial. We see ourselves as an entrepreneurial infrastructure business. We need our capital to be competitive but also flexible to support the business for deals which don’t always meet the conventional infrastructure investment thesis from the outset.

TowerXchange: Abertis have said they looked at how American Tower built and financed their business for inspiration, if the European independent towerco market wants to become more entrepreneurial, how and where should they be looking for capital?

American Tower is an industry leader, and is an incredible business. They’re one of our partners in the European Wireless Infrastructure Association (EWIA) and it’s great to have them in the European market.

For certain very large deals it’s hard to compete with any of the big US towercos if they wanted to take a run at a given opportunity. However, they’re such large enterprises that deals need to be of a substantial scale to be of significance to them. That’s one reason why we’re focussed on the mid-market.

In terms of finance, the industry in Europe has evolved in the last eight years. There weren’t really any independent towercos eight years ago. You had two or three towercos operating broadcast based assets (including Arqiva and TDF) but you didn’t have independent towercos. Today you now have public companies like Abertis, American Tower and EI towers as well as a handful of independent mid-market towercos like ourselves.  As a result we now have a much broader base of private and public capital funding the sector here.

TowerXchange: How do you see the European market developing in general? What do you feel are the main drivers for this?

You’ve got a lot more liquidity in the market now. EWIA has ten members and almost all of them are in expansion mode. You have the equity and debt sources looking for deals, both private and public, resulting in a much broader financing community. You also have growing appetite from MNOs to do deals that didn’t exist previously because there was too steep a discount between what US and EU towers were selling for. The more appetite there is to invest the more liquidity there is, the more the discount versus the US will close, which will in turn encourage more transactions. We’re definitely on that upcycle now and I expect to see a lot more deals in the next four to five years.

MNO consolidation could also create some interesting opportunities – tower divestments could be a sensible remedy for regulators to have in their toolkit when they look at mergers. Historically there’s been a need for merging MNOs to dispose of spectrum and accommodate MVNOs but tower divestments should also be considered - in the hands of independent ownership towers are opened up and shared more effectively.

TowerXchange: Will European towercos follow the US model and simply provide real estate and infrastructure or will they lean more towards emerging market models and include services such as supplying power?

The European market will be more based on the US model given we have a reliable and complete power grid. The asset is the same, wireless infrastructure, European towercos will also look to provide more network services like installation services and backup power. If we look beyond ten years, we may see more parts of the mobile network value chain being outsourced to infrastructure companies, potentially towercos could see an advantage to put more wholesale assets onto their balance sheet.  This is one area where the European market may see opportunity before the US market.

TowerXchange: You have recently been involved with other towercos in setting up the European Wireless Infrastructure Association (EWIA), who are the members of EWIA so far?

Wireless Infrastructure Group, Abertis, Axion, EI Towers, FPS Towers, Open Tower Company, TowerCom, American Tower Germany, Protelindo and the PCIA. We have another large tower company in the process of joining.  You can find more information on our members at our website www.ewia.org.

We believe the formation of the association is a very important moment for the European tower industry, we’ve seen in the US that part of building momentum is starting to operate like an industry and the European market is ready for this now. EWIA represents over 90% of independently owned towers in Europe. On average 20% of towers in the seven markets in which our members operate are owned by independent towercos. We estimate that across the whole of Europe between 10-20% of towers are outsourced so there is a huge potential.  On the surface, European tower networks are well developed relative to some of the emerging markets that towercos are investing in, but in Europe most markets are experiencing very high increases in capacity needs which will drive the need for more utilisation on existing towers as well as a need for more towers.

TowerXchange: Does the EWIA have a mission statement or agenda in terms of what you aim to deliver?

There is an active telecoms agenda in Europe, including the EU’s 2020 digital agenda, and political will to increase the penetration of wireline and wireless broadband. Our industry has a fantastic story to be told in terms of investment, higher utilisation of infrastructure, and promotion of competition in the market. We created the association to tell that story and have a voice in public policy.

TowerXchange: What size could the European market be in five years time?

The interesting thing about the European market is the scale – there are around 300,000 towers in the EU. If we get to half the level of outsourcing as the US market there would be an additional 100,000 towers owned by towercos.  The opportunity also extends beyond towers – WIG for example has an active DAS business and we are looking at outdoor small cell networks for cities in the UK.  Whether it’s towers or small cells, the wholesale sector has a major role to play in the next chapter of European wireless networks.