Capitel Inc advise on TMT infrastructure transactions across Asia, EMEA and the USA, advising on deals worth over $3bn in recent years. TowerXchange spoke with Pankaj Agrawal, a partner with Capitel who advises on TMT infrastructure transactions in Asia and EMEA markets, with a focus on identifying key strategic considerations in the transaction, risks and valuation and Ashima Kohli, a consultant with Capitel who has worked on evaluating multiple tower, fibre and data center deals in India, China, South Asia and Europe, with a focus on techno-commercial due diligence and financial modeling.
TowerXchange: Please introduce Capitel, your background and remit.
Pankaj Agrawal, Partner, Capitel Inc.:
We are a techno-commercial transaction advisory firm with a focus and specialization in the TMT infrastructure and services sector. Our clients include major Private Equity funds, hedge funds, towercos, fibercos and service providers in India, China, S Asia, Europe and U.S. We have advised on 20+ transactions with $500mn+ deal value, with some of the recent deals in the $3bn+ category.
TowerXchange: As a global company, it would be great to get your insight in the European market in a global context. What trends in communications infrastructure do you see as universal and do you see any European idiosyncrasies?
Ashima Kohli, Consultant, Capitel Inc.:
Our recent engagement experience shows that the nature of network infrastructure demand is shifting globally, especially in two ways: a) Operators are increasingly deploying networks on high frequency bands such as 2300MHz, 2600MHz, 3400MHz and beyond which is resulting into denser networks, and b) Operators are deploying higher capacity networks, with 50MHz+ spectrum on access side, which makes a fibre-based backhaul mandatory, along with network capacity solutions such as small cells. Please refer to Figure 1 for the stages of network evolution, with developed markets in the capacity stage.
Both these trends have significant implications for towercos and network infrastructure providers – the networks of future will look very different from the current macro grids. We expect to see more street furniture, wall mounts, low capex monopoles, partner sites such as ad billboards (such as Cellnex and JCDecaux in Italy and Spain), and also a lot more fibre and capacity infrastructure.
Finally, we see new entrants entering the market for 5G, small cells and fibre players who will directly compete with towercos, and we expect towercos to also look at different business models with greater ownership of fibre, active assets such as access spectrum, mm wave spectrum for backhaul and edge data centers among other areas.
We expect to see more street furniture, wall mounts, low capex monopoles, partner sites such as ad billboards (such as Cellnex and JCDecaux in Italy and Spain), and also a lot more fibre and capacity infrastructure
Europe is following China, the US and some Asian markets, although we expect the network evolution to be on similar lines. Towercos such as Cellnex are also developing offerings aligned to the shift in network demand.
Figure 1: Network infrastructure demand with increasing traffic density
TowerXchange: One fairly unique thing about Europe is the number of different models of tower ownership. Do you think MNOs looking to monetize their towers and manage opex should be looking at a sale and leaseback or a carve out and minority stake sale?
Pankaj Agrawal, Partner, Capitel Inc.:
The cost of 5G spectrum remains very high, as we just saw in the latest 5G auction in Italy. Also, the network capex for 5G is expected to be high with dense deployments. As the 5G capex intensity goes up, operators are likely to divest some of their non-core assets such as towers, fibre and data centre infrastructure, in addition to fixed line, cable broadband and DTH assets in some cases.
The structure of the transaction will depend on the specific needs of the MNO as well as the mandate of the investor, but we can expect to have more transactions and increasingly independent ownership of infrastructure assets.
TowerXchange: 5G is bringing huge change to towers globally. What do you predict will be the biggest shifts in European tower ownership and deals over the next three years?
Pankaj Agrawal, Partner, Capitel Inc.:
As we discussed above, the deployment of 5G will a) change the network architecture making it dense and capacity-oriented, b) increase independent ownership of network infrastructure assets, and c) increase partnerships among various stakeholders.
In terms of opportunity, 5G is a combination of technologies, with current use cases focused on enhanced mobile broadband, massive IoT and URLLC critical IoT. The gains to towercos and their required resources and investments will vary depending on which of these three use cases are being targeted.
Enhanced mobile broadband presents an opportunity for incremental tenancies for towercos with high frequency deployment on 3.4GHz band. Additionally, as fibre becomes an integral part of the network structure, there will be opportunities to monetize shared fibre backhaul as well.
Massive IoT leads to an increase in number of devices, with low data usage per device. As lower bands are used for massive IoT, the tenancy upside for towercos will be limited, with amendments and overlays as the primary revenue source.
Finally, URLLC (Ultra Reliable Low Latency Communication) can be a big value driver for towercos as the data processing moves from core to the edge and towercos have a clear benefit on the edge in terms of presence of passive infrastructure as well as ability to provide active equipment such as edge data centers.
Figure 2: Valuation and market evaluation framework for multi-market towercos
TowerXchange. We’re seeing increasing convergence with Cellnex acquiring small cell, fibre and data centre assets and Digital Colony moving into Europe. Tell us more about this trend and how it might develop.
Ashima Kohli, Consultant, Capitel Inc.:
These initiatives are aligned to the trend of high density and high capacity networks, and these towercos are making their networks future-proof. We are seeing a similar trend in other markets as well with towercos such as Crown Castle and Vertical Bridge investing in data centre technology and fibre as they plan to bring edge computing to their cell sites in US and other markets.
In some markets we are also witnessing the emergence of specialist small cell providers (Extetel) who are investing in fibre and competing directly with operators and towercos. We expect higher competition and larger number of infrastructure providers for 5G, and also a greater breadth of resources, skill sets and partnerships for the traditional towercos.
TowerXchange: The European tower landscape is very fragmented and ripe for consolidation. What should towercos seeking to be acquired do in order to boost their value?
Ashima Kohli, Consultant, Capitel Inc.:
In order to increase their valuation, towercos will have to demonstrate long-term stable cash flows. These cash flows will be driven by a) a future-proof product offering with access to capacity assets such as fibre b) independence and strong governance and c) geographically diversified tower portfolio. Please refer to Figure 2 for a framework for valuation of towercos, in particular the ones with multi-market portfolios.
