A new breed of European towerco

Abertis’ (referred to in this article as Cellnex following an IPO of Abertis’ tower business in May 2015) deal with Wind was announced formally in early March, during Mobile World Congress 2015. Amongst the hubbub of product launches and Silicon Valley celebrities, a deal for the acquisition of telecoms towers in Italy might not seem headline news, but if you dig deeper this announcement could well mark the beginning of something rather exciting for the European market. Thus far slow to transfer assets from operator-captive to third party towercos, Europe has lacked a truly international force to champion the towerco model which has worked with such success in the US, Africa, Asia and Latin America. While Cellnex’s plans are still in their infancy, it’s clear scope of their ambition could be a catalyst which will see significant change taking place in European telecoms infrastructure over the next few years.

TowerXchange: Cellnex Telecom has become Europe’s largest independent towerco in a little over three years. Can you tell us about how that came about?

We launched the pure tower business three years ago but before that, several years ago, we were actually going after different mobile operators’  towers in different countries (mainly in Latin America) to analyze different tower schemes. (On one hand an asset acquisition from the mobile operator and on the other hand to set up a vehicle which would have different tower assets from different markets with the same operator). We’d chased some of the towers but some of the operators took the decision to sell the towers on a country by country basis rather than all at once and as a result it became a very competitive process.

At that time we thought that instead of competing in emerging markets we should be focused on mature markets in order to deploy our tower industry proposal. We analysed and tried to learn from the profile of the main actors - our competitors too - within this market. They had a higher appetite for risk (for example going into emerging markets) and they were backed up by a strong presence in the growing US market. Once we reached this conclusion we decided to pull out and focus on Europe, which is our home ground and is more difficult for companies coming in from other regions as it’s based more on consolidation than on growth. Our model here is not based on the idea of getting three or four tenants on a tower, it’s based around the idea you can dismantle the tenants on an existing tower and transfer them to new sites. Europe is a mature market and different to any other market – European investors aren’t used to the level of risk you get in markets like Africa so you need to build up the business step by step, you can’t go all at once. We want to invest in Europe, reach a certain volume and then deploy our industrial knowledge elsewhere.

TowerXchange: Was this also the reasoning behind your IPO for Abertis’ tower business?

For Abertis, telecoms was a part of the wider business, Abertis invests heavily in the motorway side of the business as well. The drivers for the telecom business are very different from the motorways part of the business and that was the assessment by the market too.

That’s one of the reasons that drove Abertis’ decision to let Cellnex float: i.e. facilitate its ability to encompass growth opportunities in the telecom markets while having a flexible and efficient financial mechanism through being a quoted company. Now we are independent we can focus on expanding our frontiers and access to the financial markets and a specific type of investors.

TowerXchange: You say you’re keen to establish a base in Europe first, what are your plans for the European market?

Our plan in Europe is diversification. Germany is an attractive market at the moment, reducing the number of operators from four to three will shake things up. The UK is also interesting but it’s a very competitive market with strong incumbent towercos. France is a strong market with some MNO transactions in the pipeline which might drive some changes in the market. We see some good short term opportunities in Europe, not only in the countries mentioned above but also in other European countries. It doesn’t make sense to have three or even four competing networks in a market so some consolidation will need to take place to capture all the value and be shared between the different players, telecom operators and tower companies. The challenge for us there will be to protect our transactions from a possible tenant dropping out of the market.

TowerXchange: What kind of tenancy ratios do you think are achievable in Europe?

In terms of tenancy ratios in Europe, there are a lot of factors at play.

One which isn’t really an issue in places like Africa are the regulations around magnetic emissions. In Italy the restrictions are stringent and the levels limit the capacity to host tenants. It means you can’t have more than three tenants on each tower at the most but it depends on location of the towers (levels are lower close to hospitals or other critical places). These restrictions vary dramatically country to country so the effect on tenancy ratios will vary but it’s a clear consideration in Europe and should be taken into account at the time you plan a consolidation process between two different networks. Anyway, what it doesn’t make sense is to have different towers at the same place because first the value of this overdimensioned infrastructure is low and the market players burden become burdened with inefficiencies.

TowerXchange: You mentioned decommissioning earlier, is that something Cellnex is very involved in?

Decommissioning is a hot topic in Italy. In Spain there are three main MNOs and a fourth one with a small number of towers,  and Italy has four full networks (one of which has sold part of its network to Cellnex) of which the smallest has 8,000 towers. With 40,000 towers in Italy you’ll have to dismantle some of them, particularly as the towerco model grows. We are involved in the analysis of the decommissioning of overlapped towers in different countries, we could dismantle the tower and move a tenant’s equipment for them if we have a tower in a better location nearby which increases market value for them and maintains the level of quality and coverage  – MNOs right now value savings over assets and that’s what the towerco model offers them in addition to some cash in to cover different type of costs.

TowerXchange: How much of the Wind tower portfolio have you acquired?

We didn’t acquire all the Wind towers, we acquired around 60% of the total. It depends on the attractiveness of the site. In this deal Wind pre-selected the most interesting sites which were offered for sale. They originally proposed around 6,000 towers and then they increased the number of towers to make the transaction more attractive.

TowerXchange: How do you see the Wind acquisition changing the tenancy mix of your Italian portfolio (Abertis bought 300 towers from Atlantia in 2014)?

The TowerCo acquisition was completed in May 2014 so we did have assets in Italy already but it’s a very different business. TowerCo’s towers are focussed on motorways and tunnels, not typical towerco assets at all. They also manage a portfolio of real estate which is rented to operators for their own tower portfolios. TowerCo has just 300 towers so of course the acquisition of the Wind portfolio will dilute the tenancy mix significantly.

TowerXchange: How do you see the competitive landscape in Italy now?

Italy is a competitive environment and has very high mobile penetration but there’s a situation based on the fact that there are a lot of small companies with small portfolios of maybe 10-50 towers which means you have local or regional concurrence. Anyway, it gives you the chance to build an industrial project and consolidate the different existing networks.