The entrance of Cellnex into the European telecoms sector has had a transformational impact on the market. Purveyors of the two largest transactions that Europe has seen to date (4,377 towers acquired across three phases from Spain’s Telefonica and Yoigo, and 7,377 towers from Italy’s Wind in 2014 and 2015 respectively), the company set a new benchmark in the sheer scale of tower deals and has amassed a portfolio of 15,120 towers in Spain and Italy. Perhaps even more significant than the scale of their acquisitions was their listing on the Madrid stock exchange valuing the company at €3.5bn - 15x EBITDA (versus the typical 3-4x EBITDA of an MNO). This crystallised the value of towers in Europe and also equipped Cellnex with a €multi-billion war chest with which to fund acquisitions across the continent. TowerXchange were delighted to welcome Cellnex CEO, Tobias Martinez to the TowerXchange Meetup Europe where Enda Hardiman interviewed him in front of a packed auditorium.
Breaking news: In its recently announced Q1 2016 results, Cellnex reported that Q1 revenues were up 41% YoY with first quarter EBITDA growing 26% YoY to €63mn. Recurring free cash flow was up 14% to €66mn and Cellnex’s tenancy ratio across Italy and Spain rose from 1.50 (at the time of the Wind acquisition) to 1.54.
The emergence of Cellnex and the European tower industry
Cellnex (formerly Abertis Telecom) originated in the Spanish broadcasting sector. They entered the telecoms sector through their acquisition of Telefonica and Yoigo towers in Spain and then to took their first step into Italy with the 2014 acquisition of TowerCo, which managed a portfolio of 300 towers across the Italian motorway network. Whilst a relatively modest investment, the deal gave Cellnex the opportunity to understand the market dynamics in Italy and how this differed to Spain.
Commenting on the differing dynamics Martinez noted that when one looks at the European market it is important to realise it is not a single market, there are 28 countries, 28 antitrust authorities and a multitude of other differences. Getting to know the Italian market provided Cellnex with the skills and know how to participate in their most important transaction, the acquisition of almost 7,800 towers from Wind. Reflecting on the “challenging process” of the transaction, Martinez noted that Cellnex was managing the acquisition in parallel with their IPO process, whilst facing stiff competition from US companies. He put Cellnex’s success down to their ability to really understand the objectives of their customer, tailor making a solution for them, adding that the offering is not a pure sale and leaseback transaction, nor is it a pure real estate infrastructure service play - it is really a long term partnership. He feels that this attitude and approach was why they were successful even though they only had a portfolio of 300 towers in Italy at the time. Up until the acquisition and just before their IPO, Cellnex were very much an unknown entity, now they are one of the biggest names in telecoms infrastructure.
Capturing efficiencies and developing long term partnerships
Customer focus has remained central to the Cellnex business model. Martinez emphasised that capturing efficiencies on behalf of operators has to be part of the value proposition of a towerco. It is simply not enough to just deliver co-location and be creative with small cells and DAS, towercos must work as a long term partner, looking at ways to reduce costs, contribute to growth, and aid the operator in achieving a competitive advantage. This involves making huge investments and working with operators on their future strategies. As a company, Cellnex plan to remain a neutral and independent party that doesn’t enter into competition with their customers.
INWIT
Cellnex are in the final round of the process to acquire a stake in INWIT’s 11,519 towers in Italy in conjunction with F2i. From an industrial point of view, Martinez felt that the acquisition made a lot of sense. With Cellnex already running a portfolio of 7,377 towers in the market, there are huge synergies to be achieved by combining the two portfolios, which will lead to significant cost reduction.
Whilst Cellnex are fighting hard for the towers, Martinez added that the company does have its own red lines in terms of financial discipline with returns to shareholders needing to be at the forefront of their mind. The negotiations are also complex, Cellnex are bidding to acquire 100% of the available stake in the company which also means taking care of minority shareholders as well as the controlling shareholder. The Italian market currently accounts for 35% of Cellnex’s revenues but should the transaction go ahead, this figure will increase to around 55-60%.
International expansion
Beyond Cellnex’s joint offer with F2i for majority control in Telecom Italia’s INWIT, the company’s plans for growth also include expansion into new markets. After consolidating what they can in existing markets, Cellnex have an international strategy in place with the most immediate priorities being in France, the UK and Germany where the markets are largest. Whilst at present Cellnex plans to focus on countries within the European Union, Martinez added that they wouldn’t rule out exploring partnerships within countries outside the EU should the business case be right.
MNO consolidation and opportunities in decommissioning
When you look at the European market, Martinez commented, you will see 50 or so MNOs; in the US market there are five or six key players. In order to have a well functioning telecoms industry, Martinez believes that further consolidation in Europe will be necessary.
Rationalisation of the market to around 10-12 key players will create a lot of redundancy of existing infrastructure (whilst also increasing the requirements for densification in urban areas). Towercos, Martinez added, are the perfect partners for the execution of these sorts of mergers, partnering with operators to dispose of certain assets, reallocate services and increase the efficiencies of their networks.
With a history in the broadcast sector, managing both passive and active infrastructure, Cellnex brings a strong degree of engineering expertise to this area. Decommissioning of assets needs to be a way of capturing efficiencies and delivering them to customers, and it needs to be profitable for both customers and towercos. With regards to payback for towercos there is no golden rule, it is different to a site you’re continuing to operate and increase tenancy ratios on, however Cellnex see significant growth opportunities for them in the rationalisation of sites and it will form a key part of their business strategy going forward.
Diversification of the towerco business model
Martinez’s vision extended from towers to fibre and other pieces of the HetNet puzzle. The future of services will need the combination of all different types of infrastructure in order to deliver the bandwidth and service that mobile customers have come to expect. Optical fibre makes sense to connect towers and it will become a critical component of all networks. For an infraco there is the opportunity to get involved in fibre to the tower, however fibre to the home, Martinez felt, would remain an operator play.
With regards to small cells, DAS and public Wi-Fi this is something that Cellnex are already involved in. In Italy, they have deployed DAS networks inside tunnels, along motorways and on provincial state and regional roads and they have on going projects with MNOs to install systems in specific areas like football stadiums, malls and other high traffic places. In Barcelona, Cellnex are rolling out the first 4G small cell network together with Orange and with the support of the local council. Orange owns the small cells whilst Cellnex deploys and manages them, including connecting fibre to the backbone. The agreement also provides the opportunity for the small cells to be shared with other operators, further deepening the potential for infrastructure sharing and cost reduction.
To round up the interview, Martinez emphasised the critical role of telecommunications infrastructure operators as a vehicle for enabling society to enjoy all the possibilities that technology currently offers, combining rationalised macro and micro networks with improved connectivity to meet the uplink and downlink needs of a large number of simultaneous users.
“There is still a long way to go and all of us – infrastructure operators, customers who provide their services, content and applications, to end users and local authorities – must work together to achieve a fast and efficient roll-out so that such infrastructure can provide service to various network suppliers, promoting the “sharing” concept rather than the “ownership” concept.”
Read also:
How Cellnex are embracing small cells and DAS
Southern Europe: Cellnex and Inwit raising the temperature of the tower market in the Mediterranean
Cellnex IPO a landmark in the emergence of a European tower industry
