Vantage Towers: organic growth, non-macro tower opportunities and the merits of market consolidation

With over 82,000  macro towers in  10 European markets, Vantage Towers burst onto the European tower market just under two years ago as one of the continent’s most significant players. The company continues to make solid progress against its growth targets, having signed a number of important deals in the past year. TowerXchange was delighted to sit down with Vantage’s CEO, Vivek Badrinath to hear more about these deals and the importance of them to their business and discuss the outlook ahead for Vantage and the European tower market. 

 

 

We are very excited about this deal, it is a landmark deal for us. There’s been a lot of questions about what Vantage’s story is; is it just about Vodafone’s BTS, or is it also about co-tenancies? This deal clearly demonstrates that we also have a focus on the latter. 

 

1&1 is a new entrant (there are two potential new entrants in Europe this year – in Germany and Portugal) and we are excited to be supporting them, they’re a great organisation. The deal includes 3,800 new co-locations (there is a little bit of build-to-suit but for the most part it is about co-locations on existing sites) which will help 1&1 achieve the coverage obligations laid out in their license. The total number of new co-locations could go up to 5,000, with the terms and conditions of the contract allowing us to go up to that number of sites. 

 

In terms of whether there are any marked differences in rolling out 1&1’s network versus that of another operator, it is very early days. Of course, there will be some differences in kit, OpenRAN equipment has not been installed at large scale in Europe so far, but I wouldn’t say there will be anything fundamentally different from a TowerCo passive infrastructure perspective. 

 

The difference is that 1&1 has made the choice to be pretty lean in its organisation. We see such differences across Europe – there are some operators that have been in existence for a large number of years and have big technology teams and a lot of in-house or outsourced partners. Other operators have more of a lean structure. 1&1 wants to keep its team lean and so are adopting high intensity project management with a big reliance on the ecosystem of vendors – be it the equipment vendor, Rakuten, the fibre supplier, Versatel (which is part of the 1&1 family) or ourselves. It is one of those projects where everyone needs to work together very well, and the collaboration to date has been very intense and very positive. We have put some very talented people in charge of this project as it is a landmark project for us, and it is progressing well. 

 

 

 

Our assessment of this is that the initial rollout of 5G generates a lot of activity. You can see that operators across Europe are expanding their footprint, in particular with 5G standalone coming. They need to roll out a lot more equipment and take advantage of the 3.5GHz spectrum that they have acquired. There will be a higher intensity investment up until 2025 with rollout mostly using existing sites – the reason being that they are the high traffic sites that warrant the first migration to 5G.

 

Most operators tell us that they then see a level of densification of their networks taking place in the 2025-2030 period, albeit a lower level of investment than in the 2020-2025 period. They have acquired a lot of spectrum and it is a pity not to use it. As you look to focus this spectrum on a narrower area to enhance the customer experience, densification is required.  

 

Over the time period, the portion of 5G capable devices is going to continue to increase and we expect it to be at 42% by 2025. Based on the renewal cycle of devices, this will hit 50% not long after. On top of this, new B2B applications of 5G continue to be developed. With these factors at play, I don’t expect investment to taper off dramatically – there will be an ongoing gradual densification of the networks. 5G is great technology and there is a lot of spectrum to use. It has always been the case that when you give capacity to the market, applications rise to take advantage of such capacity.

 

 

 

Whilst I’m not at liberty to disclose our Q4 numbers [which will be released on 16 May], we continue to work on this with our partners and there are a lot of areas which are improving. We have put in place robust project management, tightly monitoring everything, and the programme is showing progress. That being said, it is not an easy time in the world at the moment, and the construction industry is under pressure with both the supply chain and staffing availability being impacted. The challenges we face however are manageable and we are making good progress in the face of such difficulties. 

 

 

 

Since these were new areas, when Vantage did our IPO and laid out our growth expectations, we played it safe, we considered them more as an upside rather than a core part of plan. This was fair, you can’t be selling dreams. Our success in this space has however been a pleasant surprise, there’s a lot of interest. 

 

I parse the interest into a couple of different areas, there’s the IoT players, and then there’s all the space around smart cities. Smart cities have been discussed a lot, but in essence, what it means is that cities are putting in place lots of sensors, measurement tools, cameras and other things across the urban footprint, things that transmit data that needs to be collected. We are in the right place to play a collecting role for this data – our towers are in the right locations, they have energy and they’ve got internet connectivity. 

 

We have approached these customers and our commercial team has done a great job understanding who needs what, and quickly, in a very agile way, packaged solutions for them. The opportunity is not as  big as a national rollout for an MNO, but it’s sizeable and it makes our assets more valuable. 

 

 

 

Vivek Badrinath, CEO, Vantage Towers: When it comes to DAS, we have made some good progress and we have executed important landmark deals in Germany and other geographies and see a lot of opportunities to continue working in the space. The most interesting opportunities come from very early engagement with the building owners. The building owners need connectivity, be it an office building, commercial building or a venue that attracts large crowds and we’re in a good position to be that neutral host that brings it to them.

 

When it comes to small cells, rollout across Europe has been more subdued whilst operators have focussed on 5G rollout in the macro layer. Whilst progress with small cells has been slow, street works which touch a sweet spot halfway between macro cells and small cells, are particularly exciting. With small cells, you get very little coverage and capacity from a very small footprint; street works come with a bit more cost and a bit more footprint (albeit still housed on a pole), but you get good coverage of a whole street, a real place of footfall. We have had good success in this space in Ireland and with Cornerstone in the UK and see strong potential. 

 

With things beyond this it is very early days. We have had some discussions on private networks but if you look at our focus, it is BTS, additional tenancies, non-MNO tenancies, DAS and to a certain extent small cells.

 

With mobile private networks, there will be very few sites, and these sites will be quite dispersed, making them harder to capture as business opportunities. We are looking at MPNs, but we recognise that we are only a small part of the value chain. It is not just a site, it is about the application and the core network and so on, that is where the tougher integration work is rather than finding the location for the network.

 

On the other hand, there is one specific outsized MPN opportunity which is particularly attractive and that is along the railways. Such programmes and projects have the dual dimension of offering coverage to the people that travel, and the benefit of offering connectivity for the railway specific requirements – the railway signalling for example. In this instance, obviously the scale is much bigger. These are the type of engagements that we have, either through European programmes on corridors between countries or with national railway authorities. 

 

 

It is fair to say there is a lot of speculation and whilst I can’t comment on any specific situations, I can comment on a generic level.

 

We do see benefit in some level of consolidation in this industry. There is some economy of scale to be achieved – we are procuring a very significant build to suit programme, you could procure more efficiently, you could get your processes aligned, you could get one single IT stack across Europe, you could really deliver a more efficient industrial tool to give your customers a better service. That plays in favour of trying to achieve consolidation where you can.

 

From a competition point of view, the inherent benefit of the tower model is sharing. The tower industry enables operators to get access to sites that were otherwise reserved for their competitors. Through open access sharing, towercos are in fact helping the market avoid operators having an undue advantage due to locations that they own. Regulators see that - the availability of shared towers means that a new entrant can come in. Without sharing, that would be more difficult as the operators that had been around for 20 years or more would have all the good spots. 

 

It is not as simple a regulatory conversation as you would have in the retail market about whether consolidation is good for consumers or not. Here, the question is whether it is beneficial for MNOs to have open access tower operators who can provide them with locations. I fundamentally believe that the sharing model overall is pro-competitive for the downstream market - the MNOs. The argument that tower consolidation improves competition can be made and deserves to be made. 

 

Such proposed tie-ups are, however, all complex deals where the shareholders need to find value, interest and benefit. But I do believe that there is a benefit to be found, and as such good reasons to do the deals and good things to be achieved by putting in place these combinations. 

 

For Vantage, if these types of deal happened it would be great, but at the same time it isn’t a problem if they don’t. We’re still big – we have 82,000 towers, we’re not too small to be efficient. We’re a lean organisation and so we’re not in the position that if we don’t grow, we’re going to be non-competitive as we’ve got a fixed cost base that is too high. We are not compelled to do these deals to deliver on our commitments to the market. 

 

 

 

It is already the case that in lower density areas, most operators have started to embark on some level of sharing. Tower sharing is the easiest part of network sharing, but we also support RANsharing as a policy. We believe that it is good for the industry, it is an efficient use of capital and if it is an efficient use of capital, it makes the operators stronger. This gives them the ability to invest in more places which in turn is good for our business. RANsharing also leaves more space on our towers for more operators to co-locate. 

 

If you take INWIT in Italy, or Cornerstone in the UK, RANsharing, although restricted to less dense parts of the grid currently, has naturally evolved and we welcome it. In the end it is about efficient use of capital. All operators need to use their capital efficiently. If they can save some money by co-locating or even RANsharing, it is favourable for the industry. The support of RANsharing has been one of our core beliefs since the founding of Vantage Towers. 

 

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Vivek Badrinath will be participating in a keynote fireside chat at the 2022 TowerXchange Meetup Europe, where Vantage Towers are Diamond Sponsors. To find out more, visit https://meetup.towerxchange.com/europe