Millicom has become the latest MNO to announce plans to carve out its tower assets into a separate business unit with a view to demonstrating, and crystallising the value of the assets that currently sit hidden on its balance sheet.
What towers does Millicom own?
Millicom currently owns c. 10,000 towers split across eight markets. 42% of its total portfolio sits in Guatemala, with Honduras and Bolivia each home to just under 20% of the operator’s total tower stock, and the remaining markets having several hundred towers each (see figure 1).
Figure 1: Millicom’s CALA tower portfolio
How does this compare to the total tower stock in those countries?
In Guatemala, Millicom owns around 48% of the country’s total tower stock. In Honduras and Bolivia this drops to 37% whilst in Nicaragua and Colombia this drops to 8% and 3% respectively, with the other markets falling somewhere in between
Figure 2: Percentage of the total tower stock owned by Millicom market by market
Who will Millicom’s new towerco compete against?
Towercos operate in each of Millicom’s markets, from the listed players American Tower, SBA Communications and IHS Towers, to Blackstone-backed Phoenix Tower International, DigitalBridge owned Andean Telecom Partners and smaller independent players such as Torrecom, Continental Towers, Innovatel and Torresec (figure 3). Having commenced operations in the past quarter, América Móvil’s towerco carve out, Sitios Latinoamerica, operates in six of Millicom’s eight markets.
Figure 3: Towercos operating in each of Millicom’s markets
CALA towerco footprint
How does the scale of Millicom’s towerco compare to its peers?
In Central and Latin America, Millicom’s new towerco will be the fifth largest towerco by tower count (see figure 4). Globally, Millicom’s towerco will come in just outside the top 30, just ahead of their former towerco investment, Helios Towers.
Figure 4: CALA tower counts of the region’s top 10 towercos
Counts represent Q3’21 figures and exclude towers outside of Central and Latin America, excludes unclosed deals including IHS Towers’ acquisition from Grupo Torresur in Brazil.
What are Millicom’s motivations to carve out their towers?
Currently, valuations of emerging markets businesses and telecom operators are at an all time low. Conversely, investor appetite for digital infrastructure continues to rise. As it stands, Millicom’s 10,000 site tower portfolio sits hidden on its balance sheet as an underappreciated asset. Carving it out and giving it a targeted management focus gives Millicom the opportunity to maximise its potential and demonstrate this to investors.
A 1.1x tenancy ratio across the portfolio shows that little emphasis has been placed to date on maximising the revenue generation potential of the towers. Starting with Millicom as a solid anchor tenant (Millicom is the leading MNO in six of its eight mobile markets), the newly created towerco would have a robust foundation to build upon, and significant headroom for growth.
Major gains can also be expected by a targeted focus on driving operational efficiencies. A large site count and a multinational footprint, coupled with a focus on optimising the way in which they operate, will enable Millicom to manage their tower portfolio in a much more industrial manner.
What are Millicom’s plans for monetisation?
Millicom has been clear from the off that they are looking for external investment in the tower business. Given the level of growth expected for the towerco, Millicom feel it is better to use external capital to fund this growth, reserving their own funds for alternative plans.
When questioned by analysts, Millicom was also clear that they wish to retain the economic upside in the tower assets. A complete sale to an independent towerco does not appear to be an option on the table, rather a minority sale to an investor, or a potential stock exchange listing look like more likely options.
What is Millicom’s history of monetising towers?
In Central and Latin America Millicom has completed a number of tower sales to independent players, having sold sites to American Tower in Colombia and Paraguay and having divested sites in El Salvador to SBA Communications.
In Africa, Millicom also has extensive experience of monetising towers – having sold towers to Helios Towers in Ghana, Tanzania and the DRC. In those deals, Millicom initially formed joint retained a 40% stake in the national towercos, a stake which was restructured a 24% shareholding at Helios Towers’ group level. Millicom exited their investment in Helios Towers following the towerco’s IPO in 2019.
Xavier Rocoplan, Millicom’s CTIO led the initiative to sell Millicom’s African towers, spearheading the way for the creation of an independent towerco market across the continent. His involvement in the upcoming tower carve out process in CALA brings a wealth of experience to the operations.
The operator carve-out trend
The trend of operators carving out and creating towercos is very much gaining momentum at present. Sticking to CALA, América Móvil’s towerco units are now operational in each of its markets, with América Móvil planning to roll-up and list the 36,000 tower, Sitios Latinoamerica on the Mexican Stock Exchange.
In Europe, there is no shortage of examples of operators following the tower carve out model, with Vodafone (having formed Vantage Towers) and Orange (having formed TOTEM) just two big operators to list.
The carve out model has also extended to APAC with Australia’s leading MNO Telstra having recently formed Amplitel.
Towercos carved out of MNOs now account for over half of the 20 largest towercos globally.
Such towercos, with their scale and strong anchor tenants, have proven themselves as attractive to investors – Vantage Towers successfully listed on the Frankfurt Stock Exchange in 2021, Telia recently sold a stake in its Swedish, Norwegian and Finnish towerco businesses to Brookfield whilst Telstra sold a 49% stake in Amplitel to an Australian investment consortium. One can assume a strong level of appetite for Millicom’s towerco unit.
