Rai Way, with 2,300 towers, is responsible for around 45% of Italy’s broadcast tower market. A failed take over by competitor EI Towers in 2015 coupled with speculation surrounding their interest in the acquisition of the Inwit portfolio thrust the company into the limelight in 2015. In this interview, Rai Way’s Head of Investor Relations, Giancarlo Benucci sheds some light on the failed EI Towers acquisition and explains why the company’s attitude towards M&A in the telecoms sector has changed since their IPO at the end of 2014.
TowerXchange: Please can you provide an introduction to Rai Way?
Giancarlo Benucci, Head of Investor Relations, Rai Way:
Rai Way is a listed Italian broadcast towerco which owns 2,300 broadcast towers used to provide broadcasting and transmission activities to RAI – the public service broadcast company in Italy. Around 850 towers also host third party equipment including MNOs, broadcasters (other than RAI) and tenants such as emergency services and wireless access operators. They are one of the two big players in the broadcast tower market in Italy and each account for around 45% of the market. The other major player is EI Towers who also owns 2,300 broadcast towers and then after that there are a number of smaller companies which account for the remaining few hundred.
TowerXchange: Rai Way has been the subject of much consolidation speculation following an interest by EI Towers in acquiring the company – what can you tell us about this and whether an acquisition still looks to be on the cards?
Giancarlo Benucci, Head of Investor Relations, Rai Way:
Talk around an acquisition of Rai Way has cooled off since earlier in the year. At the time of the offer by EI Towers, RAI, in accordance with the decree issued in the context of the IPO of Rai Way, complied with the condition to maintain a stake in Rai Way of at least 51%. There was also some preliminary indication (although not final judgment) from the Italian Anti-Competition Authority that the potential creation of dominant market positions should be investigated. Whilst a merger seems rational from an industrial perspective (as synergies certainly could be created for both businesses), we don’t expect any movement on this in the short term.
TowerXchange: EI Towers are looking at a potential acquisition of the Inwit portfolio, is this something of interest to Rai Way?
Giancarlo Benucci, Head of Investor Relations, Rai Way:
We understand that EI Towers have been invited to tender but it is not something that we are looking to get involved in. Back in September of 2015 we presented our first industrial plan following our listing on the Milan Stock Exchange. At that time we presented our strategy with regards to inorganic growth and stated that whilst we were committed to exploring M&A opportunities this was focussed on the broadcast and not the telecom sector.
When it comes to the telecom sector, in terms of small M&A we do not see many opportunities to build a portfolio and critical mass to be competitive with the likes of Cellnex and Inwit who have portfolios of thousands of towers. You could spend years building a portfolio with a few hundred towers and still not be competitive with the big portfolios. There could be some financial rationale for small M&A in the telecoms sector but it is not something that we are pushing as it’s not a strong proposition for us.
When it comes to large M&A, the narrative our company story has changed since the time of our IPO to today. Before the IPO we had said we had the ambition to consolidate in the telecoms sector and look at for example the Telecom Italia or the H3G tower portfolio. At the time of our IPO there were only two players in the market – ourselves and EI Towers – two broadcast towercos with the ambition of consolidating telecom assets. Since then we have however seen the entry of Cellnex and also Inwit as a separate entity. Competition for potential tower acquisitions in the telecom sector has become really tough. Cellnex and Inwit are much bigger in terms of market cap than us (roughly €3bn and €1bn) and they are trading at much higher multiples. This means that they have much greater firepower for consolidation which we are just not able to match.
At the time of our IPO there were only two players in the market – ourselves and EI Towers – two broadcast towercos with the ambition of consolidating telecom assets. Since then we have however seen the entry of Cellnex and also Inwit as a separate entity. Competition for potential tower acquisitions in the telecom sector has become really tough
Cellnex and Inwit have much higher synergies to achieve by acquiring towers. If you put together two or three telco tower portfolios you have a much higher overlap than putting together a tower and a broadcast portfolio. These higher synergies mean that they are willing to pay a higher price than Rai Way would be willing to pay.
The bottom line is that when it comes to M&A in the telecom space, Rai Way do not consider it compellingly in line with their strategy – which is focused on increasing the value of our broadcast portfolio.
TowerXchange: Do you foresee any changes in demand from MNOs on renting space on broadcast towers?
Giancarlo Benucci, Head of Investor Relations, Rai Way:
We expect that demand from MNOs will remain more or less stable for a couple of reasons. Firstly, MNOs in Italy are much more focused on cost optimisation than they are on expanding their network coverage. The second reason is that broadcast towers are generally in rural locations – while MNOs are focused on expanding their network in metropolitan and densely populated areas.
As to why we don’t expect a decrease in tenancies from MNOs: they tend to use broadcast networks for emergency coverage. When their networks go down, the network on broadcast towers serves as back-up so that they can continue to deliver coverage to their customers. As this is an essential service, we don’t expect tenancies to decrease.
TowerXchange: When it comes to optimising costs and levels of service to tenants what are Rai Way’s strategies?
Giancarlo Benucci, Head of Investor Relations, Rai Way:
In the telecoms sector we have no issues at all when it comes to delivering a high service level to MNOs. We offer a pure tower hosting service, providing the space, air-con and energy whilst the MNOs keep ownership of their equipment and management of their network.
TowerXchange: Is energy something that your provide or is it a pass-though?
Giancarlo Benucci, Head of Investor Relations, Rai Way:
We don’t provide it as a pass-through rather we pay the bill and the cost is recovered via fixed revenues in the tenancy payments.
TowerXchange: When it comes to monitoring and doing maintenance on sites what capabilities are kept in-house versus outsourced?
Giancarlo Benucci, Head of Investor Relations, Rai Way:
The majority of our engineering and maintenance is kept in house. If you look at one of our tower’s P&L and look at our opex maintenance costs you will see that they pretty low, lower than our peers. This is because the majority of our maintenance is carried out internally. In the broadcast sector, Rai Way is not just a pure tower hosting company, it is also responsible for all the transmission and broadcasting activity of the whole group. We own and manage the active equipment for RAI and so with this added engineering requirement, it makes sense to keep technical expertise in house.
If you look at one of our tower’s P&L and look at our opex maintenance costs you will see that they pretty low, lower than our peers. This is because the majority of our maintenance is carried out internally
TowerXchange: How healthy is the Italian broadcast sector and revenues within it? Will the telecoms sector become increasingly important to protect revenues?
Giancarlo Benucci, Head of Investor Relations, Rai Way:
The broadcast sector in Italy is stabilising - which is good news. In the past few years, advertising has decreased a lot and many regional broadcasters have had a lot of issues and have ended up either financially distressed or going bankrupt. The situation has however, now bottomed out as the economic conditions in Italy have started to improve.
We haven’t been too affected by this as before our IPO, our activity with third party broadcast tenants was pretty limited meaning that we haven’t lost revenues as these companies have gone bust.
Whilst the telecom sector will experience higher growth than the broadcasting sector, if you look at the top line growth for Rai Way we expect this to be mainly from the broadcast side. The majority of growth is expected to come through the provision of new services for RAI and will be a key focus for us going forward.
