Why Tecnorad Italia built and sold towers in Italy

TowerXchange wanted to deepen our understanding of the independent developers who own, or owned, around 1,000 towers in Italy. As previously noted in this Journal, Europe has relatively few ‘middle market towercos’, yet several independent developers have built and sold towers in Italy. To understand the drivers, we spoke to Tecnorad Italia, a turnkey service provider who recently sold a 134 tower portfolio to EI Towers for €17mn.

TowerXchange: Please introduce Tecnorad Italia - where do you fit in the telecoms infrastructure ecosystem? What services do you provide?

Tecnorad Italia has operated since the ‘80s in the radio telecommunication industry in Italy. We were founded by two shareholders who still own the company – with no external investors we can be a genuinely independent partner to our clients. Up to 2015 the company developed two main Business Units, acting as a tower company and as a turnkey service provider.

As a tower company Tecnorad Italia built up and managed up to 140 towers, mainly in the center of Italy. The company developed the know-how to control the end-to-end process: from RF engineering to site acquisition, contract tendering, site design to permit, civil works to I&C and to O&M.

We also resell and use an RF planning tool called EDX SignalPro. Together with our deep relationships, this gives us unique insights into the expansion plans of Italy’s MNOs, which enabled us to propose sites we knew they would find interesting, and propose sites where we knew we could secure a second tenant.

As a service provider the company started in the broadcasting installation and maintenance field. Since the mid ’90s Tecnorad Italia contributed to the start up of the first privately-held MNO (Omintel Pronto Italia, now Vodafone); then in the 2000s the company worked on important wireless broadband projects, and was one of the companies involved in Italian WiMAX trials. In the last ten years Tecnorad Italia expanded its competencies into the remote control and automation field, both for controlling TLC infrastructure and for telemetry and field automation for Acea (one of the biggest multi-utility companies in Italy).

The know-how and the relationships developed as a tower company have been a competitive advantage for the service provider business and vice-versa.

TowerXchange: What is the structure of the turnkey telecom service provider market in Italy? Are there a few nationwide contractors or lots of smaller, local firms?

There are different approaches from the MNOs. Telecom Italia Mobile (TIM) and Vodafone control the RF design, project management and network development process in-house, thus assigning work packages to professional services firms (for site design and permit) and to “field companies” (for civil works and I&C). H3G and Wind have agreed big national contracts with Ericsson and Huawei respectively; Ericsson and Huawei then assign work packages to professional services firms and field companies.

Turnkey service providers in Italy are mainly regional companies; MNOs understand the importance of a profound local understanding and the importance of local relationships with public bodies for permitting, so they assign activities to the service provider who can perform best in a given area. Tecnorad Italia are particularly strong in central Italy.

O&M contracts are sometimes awarded nationwide, sometimes regional – but there is seldom a single contract covering both I&C and O&M.

TowerXchange: How has the creation of Cellnex and Inwit affected the Italian passive infrastructure supply chain?

As of today we have not experienced much difference. Galata (Cellnex’s Italian company) is still working with former Wind service partners and Inwit with former Telecom Italia service partners.

Something may change if Inwit changes ownership, particularly if Cellnex will acquire it.

Over the next years they will doubtless select their own partners.

TowerXchange: Has the entry of the towercos accelerated tower strengthening or decommissioning programmes?

Decommissioning programmes started four to five years ago, driven by early site sharing deals between TIM and Vodafone. We’ve been involved in the decommissioning process – managing the situation and proposing our higher capacity towers.

In terms of reinforcement, Tecnorad Italia made some investments in strengthening our former towers, but this is generally more frequently undertaken when a towerco needs to increase the number of tenants on a tower. If we analyse MNOs-derived towercos – many of their sites, especially the rooftops, have capacity only for one operator – so they will need to add a second pole or reinforce structures in order to propose those sites for additional tenants, and increase their tenancy ratio.

TowerXchange: How much of a limitation on co-location have the strict EMI limits in Italy proven to be?

Italy’s EMI limits are not such a problem in rural areas where there are seldom buildings nearby to a tower. However, in cities and particularly for rooftops it can be a problem. EMI limits have two consequences: either you need to raise higher poles on rooftops, which has an adverse aesthetic and environmental impact; or you simply cannot host an extra tenant as there is no more EMI space, which drives demand for new purpose-built, higher towers.

Again, it comes down to the need to know MNOs plans. Towercos in Italy may be quite small but even managing a few thousand sites it’s difficult to know the unique characteristics of each site – we know from experience that you can maximise tenancy ratios if you know and manage each tower on a site by site basis – if you know the story of each site, the local issues. It’s not just about I&C and O&M but it’s a commercial issue too – you need local knowledge and local people that can act as your ears on the territory, get information and act quickly – you have to be quicker than your competitors.

TowerXchange: Do you see the telecom tower and broadcast tower markets as quite distinct, or can a company like Tecnorad Italia meet the requirements of both segments?

For a long time telecom and broadcast towers have been two different markets, with RAI WAY and EI TOWERS focusing on the broadcast towers. RAI WAY and EI TOWERS grew up with a single customer each (RAI and Mediaset respectively). Now each has to consider multiple customers. Meanwhile, the independent telecom tower market started in Italy just one to two years ago. Now the two markets seem to be converging; broadcast towers are very valuable hub sites for MNOs microwave networks and broadcast tower companies understand the economic value of MNOs lease contracts. So broadcast towercos now diversifying to address the telecom market.

Tecnorad Italia is one of the very few companies in Italy addressing both markets: we started in the broadcast market, we have a deep knowledge of national FM radio broadcasters, we do consultancy for them; and we have known the telecom tower market for 20 years.

Our cross sector capability has been highlighted by Italian towercos, who asked for our consultancy in developing their telecom tower market proposition.

TowerXchange: We understand EI Towers recently acquired Tecnorad Italia’s 134 tower portfolio (63 owned) in a transaction that valued the enterprise at €17mn (8.5x EBITDA). What can you tell us about the origins and characteristics of that portfolio and how it compares to other small towerco portfolios in Italy?

Tecnorad Italia started to build up and manage towers in the mid ‘90s, following the startup of Omnitel Pronto Italia (now Vodafone).

Omnitel needed to rapidly rollout to achieve government coverage requirements, so were searching for sites to help them get to market quickly. Sometimes we proposed existing towers which we acquired, sometimes we proposed broadcast towers, whilst in other instances we had good relationships with local municipalities which accelerated the site search and permitting process. Tecnorad Italia deployed the capital to build towers, and Omnitel were happy to have new towers to lease quickly. Some of the very first Omnitel Sites in central Italy were hosted on Tecnorad Italia towers.

The growth of our portfolio was achieved through different key factors:

- A day-by-day and site-by-site commercial activity with all MNOs.

- Tecnorad Italia technical capabilities, e.g. RF planning helped us anticipate MNOs’ plans, thus proposing our towers with dramatic advantages in term of time and cost for MNOs.

- Our role as a service provider, giving us further insights into MNOs’ plans, letting us propose towers at the right moment to the right people.

- A profound understanding of our macro-region (central Italy), thus being able to build up towers where no one else succeeded.

All these factors contribute to us building up an extremely valuable portfolio of 134 towers, with €3mn revenues, €2mn EBITDA, and a 2x tenancy ratio.

This has been the final result of a 20-years high quality team work giving us the possibility to offer our services to the biggest tower companies in Italy. We have been a tower company for 20 years, and this is a strong differentiator from other service providers!

TowerXchange: What motivated you to sell those towers to EI Towers, and does Tecnorad Italia have appetite to build and retain any more of your own towers?

Tecnorad Italia shareholders understood that the lifecycle of tower market in Italy was moving toward to a concentration of towers into a few big tower companies. In the meantime, the number of MNOs was consolidating from four to three. In a few years Tecnorad Italia would be too small to compete and so this was simply a very good moment to monetise the asset and reinvest to let Tecnorad Italia grow as a service provider, both in the telecom market and in new markets.

We do not preclude participating in any opportunities in tower building – we have the competence and financial capability to make new investments – but we are now focusing on our proposition us as a valuable partner for tower companies and MNOs, so we’ll probably build towers for them.

TowerXchange: Can you tell us any more about the ‘middle market’ and ‘mom and pop’ towercos in Italy – we’ve heard small independent towercos could own as many as 1,000 Italian towers?

Cellnex acquired TowerCo and EI Towers has acquired many small and medium towercos in Italy in the last year. There are still a few independent developers left, some hosting multiple MNOs. Many are regional broadcast tower operators. Several are already acquisition targets. I suppose there could be as many as 1,500 between them, if one includes broadcast and telecom towers, but it’s quite a fragmented market – most remaining players have tower counts of tens and twenties, I don’t think there are any independent developers left with more than 50 towers.

TowerXchange: Please introduce us to your Teletower remote monitoring solution – how was the solution developed, what are the KPIs you monitor, and who is using it?

We started developing Teletower in the second half of 2014 as a project to revamp our old tower telemetry platform. We wanted an innovative platform, giving us the possibility to install an industrial PC in every tower, so enabling telemetry, control and field automation and, in the near future, IoT functionalities.

We designed and realised the solution in-house, so it took us longer than purchasing an “on the shelf” solution. But we wanted to customise it to meet the real needs of a tower company and we wanted to develop a deeper know-how in programming PLC, SCADA and building up a complete solution.

The innovative approach has been appreciated by the technical committee of “Forum Telecontrollo” (the main Italian event in the remote control / telemetry industry), letting us to present Teletower in a plenary speech.

Teletower is designed to monitor and control environmental, electrical, access and security parameters. It’s mainly intended for tower companies but its use can be extended to operators hosted on the towers (with separate login credentials and access permissions) and to O&M companies.

TowerXchange: What is your impression of the market for RMS among European towercos?

The bigger towercos are developing their own remote monitoring and control solutions – for example Cellnex has developed their own solution in Spain, but, as far as we know, they do not have RMS on their Italian tower portfolio yet. Larger towercos need to integrate the towers they acquire into their NOC, but acquired towers often don’t have any remote control. Acquisitions from small towercos are unlikely to have RMS, even when acquiring towers from MNOs their remote monitoring tends to focus on control of the active network, not the passive infrastructure. We believe there is room in Europe to develop and promote such services.

We looked at the many RMS vendors in the TowerXchange Journal, and noticed that most focus on Africa and Asia, few had a significant presence in Europe. Even small and medium towercos don’t have the investment capability to build their own remote monitoring and control systems – we feel Tecnorad Italia could be a service aggregator for small and medium towercos. When EI Towers saw our Document Management System (called Towerfinder) and our Remote Monitoring System (Teletower), it was the first time, since they started acquiring small-medium tower owners about ten years ago, they had seen such a document and field control solution; Teletower helped us maximise the value of the asset when we sold them our towers. RMS is a key enabler of value when small and medium towercos divest their towers – it means the buyer knows the sites are better managed, better controlled. We want to promote Teletower to European towercos, although we understand from TowerXchange research that it is a fragmented market.

TowerXchange: How proven is the Teletower RMS ?

EI Towers have Teletower on a significant percentage of the most critical towers they acquired from us, and we are proposing the solution to all the towercos in Italy. We have a business plan, developed with a LUISS Business School Executive MBA program, to expand into international markets. Teletower can enabled a single hub control room to control assets across several different countries, supported by local partnerships for maintenance and commercial activities. We program the industrial PCs ourselves. The presence of an industrial PC (and not just an RTU or PLC) gives us the capability to expand the solution in unimaginable ways, easily carrying tower companies to the IoT era.