View from the top: the UK’s biggest towerco Arqiva on rural coverage and capacity solutions

With over 60 years’ history in broadcast infrastructure, Arqiva is one of a uniquely European breed of towerco which has grown up from a solid history in television broadcasting and now owns a large chunk of both broadcast and telecommunications infrastructure in their home countries. Nicolas Ott, MD of Telecoms at Arqiva, spoke to TowerXchange to explain why he thinks the broadcast/telco infrastructure synergy works so well in Europe, how capacity solutions will be the next big area for growth, and how he sees the UK tower market developing.

TowerXchange: Please share Arqiva’s background. How was the company formed? 

Arqiva is a private company owned by pension and infrastructure funds. We have a long history in the UK starting at the beginning of the 20th century as Arqiva’s roots go back to the ITA (Independent Television Authority) in the 1950s. It’s been going through a long journey in TV infrastructure whilst developing the mobile tower business step by step. The ITA was renamed a number of times and as NTL Broadcast was bought by a Macquarie-led consortium in 2005 and renamed Arqiva. In 2007 Arqiva acquired National Grid Wireless, which was owned by Crown Castle until 2004, and which included within that business the former BBC terrestrial broadcast assets.

In the UK Arqiva does all the TV broadcasting (which is a regulated activity) and it was Arqiva who made the digital switchover two years ago, we also do most of the radio broadcasting in the UK and buy wholesale satellite capacity and resell as a service to TV channels all over the world for Turner, Al Jazeera and many big TV groups.

We also have recently formed a strong machine-to-machine division. We won the smart meter tender issued by the UK government, from Manchester to North of Scotland, making us defacto one of the biggest players in the UK. We have also invested in other technologies, for example we have exclusive rights of the SIGFOX technology in the UK for the first nationwide Internet of Things network.

In terms of telecom infrastructure we own roughly 25% market share in UK macro tower sites. We service all of the four MNOs and have around 8,600 active towers for these mobile operators. Our tenancy ratio is around 2.5 MNOs per tower on average. Our total portfolio consists of over 16,500 towers but they’re not all active either because the specific locations do not currently form part of wireless operators’ network rollout plans, are in rural locations where there is no current demand or in some cases are sites which are complex and expensive to deploy (such as electricity pylons). Either way we are the largest independent wireless infrastructure provider in the UK.

We have around 2,200 employees across the whole business and most are in the UK – we do have a handful of staff in the Republic of Ireland, France, USA and Asia but primarily we are a UK company.

TowerXchange: Would you describe Arqiva as a towerco, an infraco or something different - we’re trying to understand the language the industry uses in Europe.

We’re a communications infrastructure and media services company, operating at the heart of the broadcast, satellite and mobile communications markets in the UK.

If you want a comparison we’re similar to TDF in France or Abertis Telecoms/Cellnex in Spain or other broadcast infrastructure providers across Europe. The African model doesn’t look like Europe and the US is different again so comparisons are hard. We offer infrastructure (mobile, broadcast and satellite) and we also package up services to broadcasters and MNOs. In order to do this we need to co-ordinate who does what, so we end up doing the end to end service as a natural part of what we do.

TowerXchange: We encounter a lot more hybrid broadcast and telecom towercos in Europe than elsewhere, and we’re trying to understand why. To what extent do the telecom and broadcast tower businesses complement one another - are a lot of resources and capabilities shared across the business units, or are they really quite distinct operations? Does the relative maturity of European mobile network infrastructure make telecom towers a more typical infrastructure investment and thus more natural complement to broadcast towers than telecom towers in higher growth,  higher risk markets?

It’s a very simple, three layer answer: infrastructure, sourcing and skills.

Infrastructure; if you look at a broadcast tower it’s always a relevant structure for MNOs. If you look at our tower at Crystal Palace it does the TV broadcasting for most of London, it would be a lost opportunity not to use it for telecoms as well. These broadcast towers are so big and strong, adding a few antennas for MNOs is  easy. The majority of our broadcast towers have antennae for MNOs as well and they’re liked by our MNO clients as they are high up and stable. There’s no need to duplicate assets and investment with these towers.

In terms of sourcing, for both telcos and TV we outsource a lot to third party suppliers for maintenance and other ‘easy’ work, although we do keep the sophisticated stuff in house. We use the same suppliers for all parts of the business, so when we issue a tender we can propose a bigger scope, which means the bidder can offer us a more competitive price and service. The same applies for electricity as we buy electricity on our sites for both our MNO and broadcast customers, and by combining we get a better service and price, so our customers all benefit.

There are very demanding service level agreements (SLAs) in terms of maintenance and, because sites are everywhere across the country, putting a bigger tender makes it easier to find a supplier capable of delivering the right SLA at the right price all over the country.

When it comes to skills, we keep the most value-add functions in house. When someone wants to put an antenna on a mast you need to do fairly technical drawings, we do a lot of that in house as we have to be sure it’s done well. Also in terms of the 4G rollout right now we have about 6,000 requests for 4G upgrades, so you need huge project management capabilities to manage that. Also for TV we’re working on the next digital upgrades so we can create a much more efficient project management office by combining everyone together. And last, in terms of shared service desks, it becomes possible to provide a better service for our customers.

There are some really interesting synergies in all of these three areas.

TowerXchange: How has Arqiva’s telecoms tower mix developed?

The ITA had been renamed a number of times and was known as NTL Broadcast when it was bought by a Macquarie-led consortium in 2005 and then renamed Arqiva. Between 2005 and 2007 we acquired various satellite assets, and in 2007 we acquired National Grid Wireless, which included the BBC’s terrestrial broadcast assets. Both NTL Broadcast and Crown Castle/National Grid Wireless had developed their own telecoms mast portfolios, before both were merged into Arqiva.

After the merger, Arqiva continued with a number of smaller acquisitions, including Spectrum Interactive, the WiFi business, in 2012 and we continued to develop the telecoms mast portfolio, including outsourcing from mobile operators, to around the 8,600 active macro sites we have today. Of these, less than 1,000 are broadcast sites, a mix of former ITA/NTL Broadcast and BBC/National Grid Wireless masts. In total we have wireless infrastructure rights on around 16,500 marketable sites -  by ‘marketable’ we mean that a site is capable of accommodating  the equipment of at least one new wireless operator, but as I mentioned not all of these are attractive to use for mobile operators due to their often remote locations, but nevertheless would be available any time to deploy MNO or other wireless operator equipment on.

TowerXchange: Given unique position of the UK market with both MBNL and CTIL providing infrastructure sharing (and more) across all the operators, how does that affect Arqiva’s role as a towerco and what your tenants require from you?

For us it’s pretty straightforward. If you take the long term view, in 10 years’ time, especially in rural areas, there’s no valid reason why MNOs would keep duplicated towers.

When MNOs launched, the big USP was to construct towers faster than your competitors and market your network as a competitive advantage. Now when there’s a big spectrum auction in Europe it comes with high coverage obligations. For the MNOs coverage in rural areas won’t provide marketing differentiation any more. So at a time when MNO profitability in the UK is challenging, they’ll have to move step by step to a shared tower infrastructure. So we provide towers to all of them. MBNL and CTIL are our top two customers. We see it as Arqiva’s’ responsibility to find solutions for MBNL and CTIL to have the capacity to consolidate their network in the most efficient way.

If you take the long-term view once they complete their 4G roll out, BT will buy EE and Hutch might buy O2, so if you look to 2020 and beyond, they’ll need to consolidate where they have sites. Most sites in the UK are still owned by the MNOs themselves; you’ll often see two masts very close together as they are owned by CTIL and MBNL. Fundamentally we will find elegant solutions to help them to reduce these towers.

The UK government launched the Mobile Infrastructure Programme (MIP) which constructs brand new sites in remote areas where all four MNOs are installed. So MIP is a model of what the UK will be in five years’ time. It’s not just specific to the UK, though, every European country is in a similar situation.

TowerXchange: What are you doing in response to your clients’ long term needs?

It’s publicly available information that we have long-term contracts with MBNL and CTIL. We have the right clauses in place so the ball is in their court and for them to decide what and how they want to build. You also have to consider what their priorities are – 4G rollout is high on their agenda. We meet with them daily, I meet their CTOs every month. The day they want to put it on the agenda it will happen as it is provided for in our contracts with them which are designed to allow for future technology upgrades and growth.

TowerXchange: Where is the growth coming from in UK communications infrastructure today? For example, what’s the balance of existing and new business between macro towers and infill sites - small cells, metro cells, Wi-Fi and DAS?

This is one of the most interesting things happening in this industry at the moment. There are two main areas for growth; the first is coverage in rural areas, the second is by far the biggest growth area and that’s capacity solutions. In terms of rural coverage there is still growth; the UK government is investing in new masts in this area, some MNOs want to densify coverage in rural areas and the 4G rollout is a lot of work. There’s good growth there but it’s not game changing.

The challenges around capacity solutions, however, are very exciting. Think about London; we’re often struggling to have a decent call in congested places or indoors and the data speed isn’t always what we want. We offer a portfolio of capacity solutions to MNOs, cities and big real estate owners. It might be a rooftop, a city cell network, a distributed antenna system in a shopping mall, outdoor small cells on street infrastructure, indoor small cells or Wi-Fi. We offer everyone that portfolio of solutions, work out what problems they want to solve where and then pick the best mix to address the issue.

For example we now provide all the Wi-Fi at Heathrow. They weren’t happy with the Wi-Fi they had and wanted to provide high quality connectivity so we provide that for them. MNOs don’t always have the right indoor coverage so Arqiva can do this as an agnostic host for all four mobile operators – we did this at Canary Wharf with an indoor and outdoor distributed antenna systems. For a landlord it’s easier as they only have one company to deal with, one set of wires going in and one company coming out to do maintenance. For the MNO it’s a better price and their service is provided by a company for whom this is a core competency. We’ve been tendering for street infrastructure in several London boroughs and we’ve won almost all of them, plus contracts in Manchester. We also work in partnership with Virgin Media Business who won assets across Birmingham, Leeds and Bradford and the London Borough of Hackney, so we are the number one player in the UK to provide the best managed service for small cells to UK operators via our combined, wireless, fixed, deployment and operational  expertise. We’re in the trial phase with MNOs but it’s very promising. The roll out of small cells in Japan is hundreds of thousands, so the UK is a bit behind but we will catch up. We believe it will generate significant growth.

TowerXchange: As a growing area there doesn’t seem to be a clear precedent for who pays for a lot of this additional network capacity. How does it work for your clients?  

It’s an endless debate in the industry. You have to differentiate – outdoor small cells are always paid for by the MNO, it’s part of their coverage solution, it’s just a micro site and there’s no difference to any other site. The big debate is about the indoor solutions.

In five years from now if you enter a shopping mall or an airport you won’t go back if you don’t have phone or WiFi coverage. In fact, either you won’t go back at all, or if you go into a coffee shop with a friend who’s with another operator but your friend has coverage, and you won’t be happy with your operator so you’re more inclined to switch to the other operator with coverage.

So the long term view is that from a customer point of view the landlord has an obligation to provide coverage but the MNOs also have an obligation to provide coverage. So everyone is in the same boat! We have agreed with MNOs that if they don’t have coverage we go to see the landlord and we agree with them that everyone is contributing. It has to be a win-win; the time when the one said the other should pay everything is over.

One of the biggest London flagship department stores came to us saying their coverage wasn’t good so we went to the MNOs and three of the four agreed to contribute to the financing of the solution along with the landlord and Arqiva to implement the right solution, resulting in a good solution for everyone and satisfied customers.

TowerXchange: Does Arqiva have any ambition for expansion in mainland Europe over the next few years?

No. We don’t believe there are synergies in operating on a multi-country basis. Every EU country has its own equivalent of Arqiva, and a new entrant is destined to fail. And the multiples we see in tower acquisition of 12x to 16x EBITDA don’t make sense to us.

TowerXchange: Apart from the UK, we’ve seen relatively few substantial communications infrastructure transactions and joint ventures in recent years, the recent acquisition of Wind’s towers by Abertis notwithstanding. What are the most common drivers for the transfer of assets from MNOs and broadcasters to independent towercos and infracos in Europe, and should we expect more transactions in future?

MNOs will outsource more towers to towercos and the main driver is to generate savings. So right now they carry all the costs and capex, but when it’s outsourced they create savings.

I think that outsourcing or selling towers is a complex exercise, so you have to be sure it’s worth all the work and pain to do it, which means it has to be done on a big scale. If you want savings to be material enough to have a big benefit you’ll do it in a big chunk, not in small pieces, to make it worthwhile. So I think we will see some big divestments in future.