Entrepreneurial towerco FPS expands beyond rural towers into urban rooftops

FPS was formed in 2012 by Antin Infrastructure Partners to acquire and manage just over 2,000 towers acquired from Bouygues Telecom. Since then, their ambitious growth strategy has led to the acquisition of Loxel, a rooftop management organisation, in 2015, and further plans to leverage operator consolidation and partnerships to gain market share. We spoke to the management team (Frederic Zimer, CEO, Cedric Lepolard, CFO and Pierre Cassier, Sales Director) of FPS, about how the idiosyncrasies of the French market and how FPS plans to deliver on their growth plans.

TowerXchange: Tell us about how FPS was formed and your current footprint - how did you manage to scale to over 2,000 towers and 20,000 rooftop sites in just three years?

We now have 2,051 towers which we acquired directly from Bouygues Telecom which is how the company was founded – through a sale and leaseback agreement between Antin Infrastructure Partners and Bouygues Telecom. Bouygues Telecom wanted to divest, and to create a new player in France to animate a market dominated by TDF. We can cover the whole of France but our focus on certain locations means our main offering has been in rural areas.

Now we are engaged in a two-part development plan – one focus is on working to put in place some build to suit towers. FPS sees a way to challenge our competitors because in France you have towers, rooftops, churches, water towers et cetera; you have maybe five to six main types of site which can be used for tenants. With this build to suit programme we’re planning to build towers to densify or to replace existing sites which are expensive or complicated to run, and we’re able to propose a good price for them, so in the next two to three years we expect to build several hundred new towers across France.

In order to complete our footprint in France we also have to address urban areas. Historically urban areas are a complicated area for towercos and carriers to address as there are many constraints in terms of zoning and planning. There are also aggressive reactions from people who oppose towers near to their houses, so there are a lot of complications around deployment in urban areas. We think we’ve found a good way to address this through the acquisition of a company called LOXEL which is a council for building owners and which manages the relationship between building owners and operators. For us it’s a way to quickly grow our footprint in urban areas, allowing us to instantly address 20,000 locations in urban areas.

The next step is to continue with the LOXEL offering and at the same time propose an expansion of this concept to building owners in order to put FPS between the building owners and the operators. We can both own rooftops and lease rooftops and propose long term partnerships with building owners to commercialise their rooftop real estate. We expect to transform our urban areas dramatically.

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As we go to press FPS have confirmed that Antin has acquired the remaining 15% stake in FPS from Bouygues Telecom, making Antin 100% owner of the towerco. Bouygues Telecom will remain a client of FPS, with Frederic Zimmer, CEO of FPS commenting ‘Bouygues Telecom remains an important client to FPS Towers, and the sale of their residual stake reinforces the position of neutrality that we have always had towards our clients’. This is good news for FPS and towercos in general and confirms their independence, the investability of the class and the continuing appetite for investment in Europe.

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The key difference between rural and urban sites is the relationship we have to establish with the building owners. In urban areas you generally cannot purchase the entire building, you have to enter into a good relationship with the building owners – their main business is to lease apartments, not rooftops, and that’s the argument we use when dealing with the building owners. We can manage the rooftops and quickly commercialise empty rooftops as well, you can have this model without any constraints on people. The basics are easy to understand but it’s a new approach: it’s not only two people in an office signing a lease agreement and that’s it, property owners have to focus on their main business. Our proposition is that we can take any constraints they’re facing with the rooftop, report back as much as needed and share in a long term process of 20-30 years of added value.

The building owners have the same timescales as us – these are long term commitments. The lease agreement is reassuring for building owners because they worry about entering into a short-term relationship without thought for the future.

TowerXchange: Tell us more about how the LOXEL portfolio of rooftop terraces fits into your portfolio.

Our plan for next two to three years is to continue deployment and manage our relationships with all our customers – we see this as an opportunity to gain market share from our competitors. We aim to push our development programme in both our rural and urban rooftop portfolios. FPS now employs 70 people and we are expecting gross revenue of more than €45 million for this year, representing 30% growth in the last three years. We are very aggressive in terms of development.

We want to launch this development programme because we feel that our portfolio could be better in terms of footprint and volume to allow us to grow in the ways that we would like and to respond to the increasing market needs (several thousand points of service). The more points we can propose to our customers, the more powerful your place in the market. In terms of rooftop growth, we currently manage with exclusivity around 20,000 and expect to reach 30-35,000 in the next two years. Within this number we also aim to have more than 1,000 rooftop sites owned outright. In terms of value added, we seek to own the rooftops and every site we have in our portfolio. FPS is a towerco and a towerco is an infrastructure investor and manager – we invest to grow our assets and after that it’s a cash machine. That’s why we seek to replicate our rural model in urban areas.

TowerXchange: Please introduce us to the French telecom and broadcast tower market: how is tower ownership divided between operator-captive and independent towercos? Roughly how many towers and rooftops are in the market, how has that grown and how much further growth is foreseen? What are typical tenancy ratios in France?

This is very complicated to explain because in Europe and especially in France the competitive towerco market is very new. TDF was the first independent towerco in France and has been operating without competition for a long time. The market was not really dynamic before our arrival and that’s why it’s difficult today to have clear figures in terms of sites and points of service.

FPS is a specialised telecom hosting services company, not an operator or broadcasting infrastructure provider. That’s the big difference. If you can focus on the telecom market in France you have at most 65,000 points of service – 30% (around 20,000) rooftops and the rest (around 45,000) are towers. This means in France you still have a large market share owned by the MNOs still, especially Orange and SFR and I think today Orange doesn’t have an interest in divesting their tower assets. SFR I don’t know; they have a new shareholder called Altice and we do not know what its strategy is.

In the short term we cannot see any global divestment coming from French MNOs, but what we do expect in the short term is a growth of the market due to 1) Free Mobile’s need to quickly deploy its network which means we will see that in the next two to three years there will still be a large number of points of service to create. 2) the diversification process – as the MNOs enter into new technology like 4G or even 5G to provide new standards of data, they will need to increase their price and my feeling is that they are on the way to doing this, meaning MNOs could soon have some more budget to invest in densification and in new urban points of service which is a good thing for us. If we can propose to our customers a large amount of urban points of service, we can facilitate their radio network design within our portfolio and for us that’s a strong added value to negotiate and discuss with them.

TowerXchange: With some commentators suggesting that consolidation is likely (and indeed needed) in the French market, what are the implications for tower sharing?

Today in France you have four main operators – Orange, SFR, Bouygues Telecom and Free Mobile. Free Mobile was the last to enter the market and they have yet to deploy and build their network – something which is a legal obligation but of course also necessary for them. It’s really a specificity of the French market at this time; we have a dynamic actor obliged to build a network from scratch, and that’s a very, very important point for FPS. In terms of point of presence numbers you can make a quick comparison – Orange, SFR and Bouygues have on average 15-17,000 sites each and Free Mobile has fewer than 10,000, so they need 5-7,000 more to be able to compete.

Then you also have the established operators such as Orange, which is the biggest player in the market. Orange is focussed on European consolidation but in France they’re not really dynamic in terms of mobile, they’re more focussed on fibre. Bouygues Telecom and SFR have signed a RAN sharing agreement and are at the beginning of the process. It’s a massive programme because you have to find common process and create a new team which is complicated.

Luckily for us FPS was born during the negotiation of this RAN-sharing deal so we’re protected against losing revenue in the event of consolidation or decommissioning. That means that for us this deal is an opportunity – our portfolio is secure but we can work with SFR and Bouygues to design their new common network. In order to build a common and efficient network it may be necessary to dismantle two existing towers and build a whole new tower, for example if there’s 1km between them you would build a new one in the middle. We can build some new towers from this RAN sharing effect.

If we are clearly talking about dismantling and new builds it’s possible to make a win win deal – we see ourselves very much as partners to the MNOs. Redesigning the network is necessary for the telecom industry, they need to be agile.

TowerXchange: What role will microcells and DAS play as the French network densifies for 4G?

I don’t know how the operators see the technology but in terms of responding to densification and legal constraints, I think small cells are very interesting. That’s why for us the value of the rooftops in the coming years should increase drastically.

TowerXchange: FPS is owned by Antin Infrastructure Partners, who also own other tower assets in Europe - how far does this affect your remit to extend your footprint beyond France?

Antin is a infrastructure fund today focussed on the Eurozone with several investments across infrastructure, two in towercos; FPS in France and Axion in Spain. My feeling is that we have a lot to do in France in order to grow but I think FPS is more than an investment, it’s a real company with strategic projects and a long term programme. In the short and medium term, FPS has a lot to do in France before we entertain any international ambitions - it’s important to be ‘global’ in the domestic market, by which I mean having the visibility and credibility to address deployment, BTS, solutions in urban areas, new network services, and network design services. We are a young company we want to grow quickly but we have to take one step at a time.

TowerXchange: Given the volume of transactions in France, Italy and Spain at the moment, it seems there’s a lot of tower activity in Southern Europe, do you feel this will have a knock-on impact in the rest of Europe?

I think that the consolidation process will be accelerated in the coming year. For me it’s nonsense to have three to four MNOs in each country and to have three to four towercos in each country, especially in a mature market. In Brazil or Africa you can launch a towerco relatively quickly and easily with a BTS programme because it’s a growing market, but in Europe you have good infrastructure, you have a lot of funds and I think during the last five years the difficulty has been to go beyond network rationalisation.

It’s still new to discuss long term programmes with European operators, this is the main difference between US, a mature market, and Europe; in the US it’s usual for operators to divest or to operate new points of presence with towercos In Europe, this is the beginning of the story.

Cellnex are probably the best recent example of the beginning of the story. Cellnex, active on the financial market, are clearly aiming to be the pan-European player to consolidate the market and to address all existing carriers with a common process and infrastructure relationship across Europe. I am sure that we’re now entering into a period with a lot of discussions taking place.

TowerXchange: How can smaller and ambitious towercos gain market share in markets like the UK, France and Germany, where the market is lead by large towercos with seemingly little appetite to acquire towers?

I think if you are in a dynamic market, as is now the case in France compared with the past, you have a place for everybody – for big players with process like TDF and for more entrepreneurial firms like FPS.

Our chance is that we’re in a growing market, which means you can address a new market not only to try to gain market share from your competitors, but you can profit from the global growth. Due to Free Mobile and densification in France you can have a place for global players and in the end, in terms of scale, if you want to build or manage less than 1,000 towers you can stay small with few people but if you want to grow and get over that 1,000 mark and continue to grow, you need to design an organisation with strong governance processes.

It’s important to not lose the entrepreneurial spirit as you grow. At the end of 2012 we employed fewer than 10 people, now the team is more than 70 people, but we try every day to maintain a strong relationship between the management and the rest of the team to maintain their start-up spirit and entrepreneurialism. I’m convinced that the main advantage of FPS compared with TDF is our start-up spirt, our agile processes, our capability to respond quickly and to engage people and funds if necessary. That’s the best model for a towerco: backed by strong shareholders in terms of capital and capabilities.