M&A activity in the European tower industry is at an all-time high, with a number of major tower transactions announced in recent months, new deal structures emerging and appetite from a broad base of investors. Speaking in their Q4 results, Telia became the latest European operator to announce plans to realise and enhance the value of its infrastructure portfolio, creating Telia Asset Management which is set to own, manage and secure external investment in its infrastructure assets. TowerXchange examines the operator’s tower portfolio, the monetisation options they have and who may be interested in the assets.
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In their Q4 2020 results, Telia’s CEO Allison Kirkby announced the formation of Telia Asset Management, a new business unit which would own and manage select infrastructure assets, and which would look to bring in external investment as the company looks to crystallise the value of its digital infrastructure. The move doesn’t come as a surprise, a growing list of European operators have announced or executed plans to carve out and monetise (in some capacity) their tower portfolios in the past 12 months and Telia had already begun the first steps themselves, creating towerco business units - ’Telia Towers’ - in Norway, Finland and Sweden.
Investor interest in digital infrastructure is at an all-time high; the asset class has shown its resilience during the global pandemic, delivering stable and predictable returns in the face of much macroeconomic uncertainty. Whilst digital infraco financial performance has remained strong throughout the economic downturn, mobile network operators have however felt the pinch, with financial results somewhat impacted by reduced consumer spending and drops in roaming charges. This ’pinch’ is not the same as the ’punch’ that has been felt by other sectors (such as hospitality and tourism) but with declining APRUs, heavy investment in 5G spectrum and major investment still required to tackle both coverage and capacity, mobile network operators continue to look at ways to generate the most value out of one of their most prized assets ’ their tower portfolios.
New deal structures are coming to light, with the simple sale and leaseback whereby an operator relinquishes 100% equity in their tower portfolio starting to become less prevalent. Operators are choosing to retain stakes in their tower portfolios (see Iliad’s retention of a 30% stake in the sale of 5,700 towers to Cellnex in France), securing stakes in towercos at group level (see CK Hutchison’s deal with Cellnex), forming their own towerco units in which they may monetise a minority stake (such as Vodafone’s creation of Vantage Towers) or through the creation of joint ventures (such as the combination of Vodafone and TIM’s tower portfolios under INWIT). Deutsche Telekom’s recent funding of a new vehicle in which to invest in digital infrastructure (and which holds Cellnex Netherlands as its seed asset following a merger of T-Mobile and Cellnex’ tower portfolios in the country) presents another innovative strategy pursued by one of Europe’s top operators.
Such a broad range of strategies, coupled with a growing base of interested investors gives operators optionality, enabling them to explore a deal structure or partnership which best suits their needs.
In the case of Telia, they have stated that they are starting from a point of view that they would like to own, operate and share their assets, selling a minority stake up to 49%. Whilst that is a starting point of view, the operator has said that they remain open minded and will assess what a third party could bring to them beyond capital, with operational experience of running tower portfolios being a key element they are looking for in a potential partner. For the right deal, Telia will be willing to relinquish control.
What tower assets does Telia own and which could come to the deal table first?
Swedish headquartered Telia operates in eight markets across the Nordics and Balkans, namely Denmark, Estonia, Finland, Latvia, Lithuania, Moldova, Norway and Sweden.
In the Nordics, Telia has already began the carve out of their tower portfolios into towerco business units in three markets ’ Sweden, Norway and Finland. Telia Towers Sweden has 1,600 towers, Telia Towers Norway has 2,000 and Telia Towers Finland 3,000. Telia has hinted that their Norwegian and Finnish portfolios may be the first to come to market.
In Sweden and Finland, Telia is also involved in network sharing joint ventures which further bolster the operators tower portfolios. In Sweden, Telia is in MOCN sharing JV, SUNAB, with Tele2. SUNAB owns around 6,000 towers but with the JV having been set up around 3G, and 3G being phased out in the country, the JV is expected to be wound down. In Finland, Telia is involved in a network sharing JV with DNA to cover less dense areas of the country. The JV has recently been expanded to cover new regions. In Denmark, Telia’s towers are owned and managed by TT-Networks, their 50:50 JV with Telenor which has a portfolio of 1,200 towers in the market.
In the Baltics, beyond CEO Allison Kirkby suggesting that their Latvian towers are to be transferred to Telia Asset Management, TowerXchange is not aware of any towerco business units or towerco JVs created by Telia. We estimate their tower portfolios in each country to be under 1,000 sites per country.
Tower dynamics in the Nordic and Baltic markets and who could be interested in Telia’s assets?
Whilst joint ventures have been a feature of the Nordic markets for a number of years, the presence of towercos (both independent and MNO-led) are only a recent development. Digital Colony has a presence in Finland having acquired broadcast and telecom towerco, Digita, in 2018, Cellnex recently entered Sweden and Denmark through the acquisition of CK Hutchison’s tower portfolios in each country, and Telenor has formed Telenor Infra in Norway (hinting that they may look to rollout the model in other markets).
In the Baltic markets, towerco activity to date has been even more limited. Beyond Bite and Tele2’s formation of a network sharing JV in both Lithuania and Latvia, TowerXchange is not aware of any towerco activity in the region.
The vast majority of tower M&A and towerco activity in Europe has centred around Western Europe but Europea towercos are starting to show their appetite to move further North and further East. Cellnex’ entry in Sweden and Denmark at scale demonstrates an opening up of the Scandinavian region, plus the towerco also added CEE to its footprint announcing a deal with Play in Poland. American Tower, whose recently announced deal to acquire Telxius underscores their commitment to the European market has also recently ventured further east in recent months, acquiring a modest portfolio in Poland. Both American Tower and Cellnex are likely to be interested parties in Telia’s assets, but both would look for an opportunity that would give them majority ownership and operational control.
In terms of other towerco players with M&A appetite ’ Phoenix Tower International has been making a play for the European market, having entered France, Ireland and most recently, Italy; the UK’s Wireless Infrastructure Group secured backing from Brookfield in late 2019 and spoke of this providing an opportunity to participate in large scale M&A across the continent; Digital Colony’s UK investment Freshwave is expanding geographically and its parent company already has a presence in Finland via towerco Digita, and Vodafone’s Vantage Towers has spoken of an appetite to explore M&A where there is a compelling business case.
In their Q4 results call when questioned on their tower plans, Allison Kirkby told investors ’We don’t need access to capital. This is about bringing in expertise, operational excellence, and preparing us for a world of 5G and beyond where more and more micro sites will be required’ also adding ’we do believe bringing in a partner that has real deep operational experience of running towers will bring benefit’ implying that a tie up with a towerco partner rather than a financial investor may be the most likely strategy Telia would follow.
That being said, we have seen tie ups between towercos and financial investors in recent deals ’ Cellnex partnered with Swiss Life Asset Managers and Deutsche Telekom Capital Partners to acquire Sunrise’ tower portfolio in Switzerland; American Tower teamed up with Dutch pension fund PGGM to form ATC Europe under which its European assets are held (the Telxius deal does not currently include PGGM). Should Telia explore a stake sale to a financial investor, there is likely to be no shortage of interest with investors such as KKR (which secured and is in the process of selling stakes in both Telefonica’s Telxius and SFR’s Hivory) and Morgan Stanley Infrastructure Partners (which bought a stake in OMTEL prior to its sale to Cellnex), plus an IPO presents another potential route. Another option on the table could be a tie up with another MNO infraco division ’ Vodafone and TIM recently combined their Italian towers under INWIT, Vodafone also acquired Wind Hellas’ towers in Greece which are now held under Vantage Towers Greece.
Telia reports that they have been approached by multiple parties and are currently proactively identifying the relevant parties that could ’join them on this journey’. The company expects to launch processes regarding their Finnish and Norwegian towers ’very very soon’ and TowerXchange anticipates a significant number of companies to throw their hats in the ring.
