This panel bought together Bruno Jacobfeuerborn, CEO of Deutsche Funkturm (DFMG), Alex Mestre, General Manager of Global Business at Cellnex and Pat Coxen, CEO of UK-based joint venture MBNL. With three senior heads of towercos built on totally different models, we were able to explore where they agreed (and disagreed) on how MNOs should utilise their tower assets and gain some fascinating insights into their predictions for the development of the European tower and digital infrastructure landscape.
Key players
When asked how they would describe their current status, Bruno Jacobfeuerborn termed the situation facing captive towercos a ‘drama triangle’, where they need to serve their MNOs, deliver the best network and do the best for their carved out towerco. Alex Mestre pointed out that Cellnex and TowerXchange have grown together over the last four years, and both have seen how the landscape has changed, with different ways to approach serving their customers making things more tricky. Pat Coxen described MBNL as like a ‘tightrope’, balancing a 50/50 joint venture between two stakeholders in a nearly fully vertically integrated network-as-a-service model.
The pros and cons of a carve out
MNOs are facing an increase in competition and carving out towers makes a huge difference to the multiple of the assets. Helping a CTO to get a good network for a reasonable price, adding value for shareholders, building towers to suit and then internationalising a towerco ‘makes life interesting’, according to Bruno Jacobfeuerborn. Although CTOs need to deliver a strong network and build towers to suit, ARPUs are flat, and the additional revenue needed to pay towercos for BTS can be hard to find. When DFMG build they plan in advance whether to build a tower for Deutsche Telekom or a bigger one which can be opened up for co-location, which benefits both the MNO and the shareholder. When trying to increase their tenancy ratio, Bruno claims that other MNOs simply see him as someone who has towers and builds towers, and with a new frequency auction bringing a lot of new obligations to MNOs, they need help to strengthen their networks.
Alex Mestre sees carving out towers as the first step in a longer process, but thinks it misses an important element: the capability to fully monetise the assets. The other factor which independent towercos have over captive ones is neutrality, an element which really helps tenancy ratios increase. He stated that MNOs aren’t sure if they should generate the synergies themselves or just sell their towers, and recommended that they keep some equity but leave the professionals to unlock the value, saying that the ultimate goal is to have a neutral entity capturing the synergies.
Moderator Nick Elverston asked whether the independent model, while supporting neutrality, could result in poorer relationships as MNOs realise they’re in a purely commercial agreement, and Alex stated that the most important thing was to focus on creating long-term partnerships and working collaboratively.
Captive towers
Pat Coxen said that the motivation for forming MBNL was different to the drivers for towercos today. 11 years ago T-Mobile and Three had limited networks and capital, which constrained their ability to compete on a national basis. They therefore created a ‘marriage’ with 50% inputs and 100% outputs in order to grow their ability to serve the market, allowing them to compete effectively with a cost base which gave them an advantage at the same time.
On the plus side, a captive joint venture towerco is a trusted vehicle, giving the MNO control and flexibility, and avoiding time spent working out new sets of commercial terms and conditions when a change is made. The alignment between towers and shareholder priorities is good as the towerco is only one step removed in terms of drivers, and there’s a direct link between shareholder strategy, customer strategy and value strategy.
In terms of negatives, there is the lack of ability to lease up the towers and use the balance sheet asset value, although this would be less reliable and accretive than choosing to go for a sale and leaseback. There’s also an absolute requirement to find common ground with both shareholders to ensure value creation is maximised.
Pat also highlighted the trust between MBNL and its shareholders, which is a product of transparency and performance and drives shareholders away from judging against set metrics and towards a strategy of setting outcomes and leaving it to MBNL to determine how they execute their strategy to achieve them.
When and how to monetise a carve-out
Value in a towerco is three times what it is in an MNO. Bruno Jacobfeuerborn said it is important to have a company like DFMG, firepower at hand, which can be monetised when needed, and that time will tell when that move is right for Deutsche Telekom, he’s happy to be prepared for the moment in time when it’s necessary to change, but in the meantime he will focus on the network.
Does integrating verticals compromise investment in infrastructure assets?
Pat Coxen pointed out that a tower as an asset is a very tangible, stand-alone thing, with risks, commercials and value creation in a very tried and tested market. When you start integrating services, the ability to deliver to the level of excellence required by operators is hard, and deep vertical integration becomes a risky proposition.
Alex Mestre agreed, but said that there are synergies. An incremental approach to convergence is possible, although it requires evangelisation to investors. Bruno added that if you have a certain internal rate of return of a certain level, sharing through software can work and edge cloud computing will be able to bring every operator in, although he warned that it was worth keeping a degree of separation in the business to protect the core value.
The future
Bruno cited Mario Andretti, saying ‘if everything seems under control you’re not going fast enough’, saying he is always looking for risks. Alex Mestre was more pragmatic, stating that Cellnex is here to stay, and that it’s their job to deal with these big questions. Their business case is solid and robust, and we can expect to see more densification, more small cells, and Cellnex working towards overcoming the barriers for deploying this. Pat Coxen suggested that we can expect to see more digitisation of infrastructure, getting into self-healing networks and datasets which can deliver what is needed. He sees that vertical integration will allow customers to buy packets of capability as a service.
