The European tower market has seen something of a boom in tower carve outs and M&A in the past few years with two thirds (66%) of Europe’s towers now owned by some form of towerco. When TowerXchange started covering the European tower market back in 2016, that figure sat at just 28% (see figure 1). Whilst much of Western Europe is now reaching saturation in terms of towerco penetration, Central and Eastern Europe is starting to see its first wave of activity. Established towercos continue to change hands, adjusting the proportion of sites owned by different players in towerco-heavy markets. In this article we take a look at the history of the European tower landscape and examine the M&A outlook for the continent.
Understanding the basics: The different types of towercos
TowerXchange breaks down tower companies into three broad categories – independent towercos, operator owned towercos and JV towercos.
Operator owned towercos are those in which an MNO still owns a significant stake, independent towercos are those in which an MNO does not. Joint venture towercos are those co-owned by two operators.
How comparable the different players are is subject to debate and also varies by company. For example, some operator owned towercos have set the terms of their MSAs to be very similar to those agreed between independent players and operators. Others have provided more favourable terms to their MNO owners, although this is more common in some other international markets than it is in Europe. When it comes to joint venture towercos, some are operating commercially, whereas others are not. Whilst the broad groupings speak a little of the towerco’s business model, there are still marked differences within the categories.
A history of European tower M&A
2007 – 2012: A first wave of MNO tower divestments in Europe
Europe’s first wave of tower divestments by MNOs began in the late 2000s/ early 2010s with a handful of deals. KPN divested towers in the Netherlands over four transactions giving birth to Dutch towerco, Open Tower Company as well as American Tower and Protelindo’s European operations (Protelindo having since exited having never built upon their initial acquisition).
Eircom sold to Towercom whose robust Irish portfolio still exists today, plus in France, Bouygues Telecom divested towers to FPS Towers (who has since been acquired by American Tower). Telefonica gave Cellnex a major step from its broadcast roots, selling just under 5,000 towers in Cellnex’s home market of Spain.
The continent’s other early towercos
Whilst the above deals marked the first movement of MNO owned towers to independent hands, other towercos existed in the European market at that time, with a handful of smaller independent towercos having sprung up, rolling out sites organically and pursuing tenancies from the continent’s MNOs. Whilst their site counts numbered from the tens to the hundreds, the towercos were laying an important foundation for the development of the European tower market.
The European market was also characterised by other tower owners, those whose origins stemmed from the broadcast sector for example. Broadcast towercos had been around for decades, owning and managing the infrastructure required for the transmission of radio and TV networks, with generally one or two broadcast tower companies per country. The more forward thinking of these had established divisions focussed on driving revenue from the telecoms sector, to offset declining revenues in their traditional markets.
Additionally, a small number of joint venture infracos were a feature of the early European towerco landscape, entities formed by two operators to rollout and operate their networks more efficiently. The first of these were formed in Sweden in 2001 (3GIS and SUNAB – both of which also involved RANsharing, with the latter also involving shared spectrum). The model expanded to Denmark and the UK in 2012 with the formation of TT-Network (Denmark), Cornerstone (UK) and MBNL (UK). Such entities were not set up with the primary goal of replicating the commercial towerco model, but again served as a blueprint for things to come.
Another early trend setter was Deutsche Funkturm. Formed in 2002 by the carve out of Deutsche Telekom’s German tower portfolio, Deutsche Funkturm became Europe’s first operator owned towerco. Turkey’s Turkcell followed suit in 2006 with the formation of Global Tower.
2015: Italy kicks off the next wave of M&A
In 2015 TowerXchange began to focus more extensively on the European tower market as a new wave of activity came to the fore.
The European telecom sector was becoming more mature, and coverage was no longer being seen as a source of competitive advantage by the continent’s operators. Parallels were being drawn with the US market, with the MNO mindset shifting to focus on their core business of servicing customers. New opportunities for towercos were rising, piquing the interest of the established US towercos as well as the domestic European players.
In Italy, two operators announced plans for their towers simultaneously, each pursing a different tack. TIM replicated the Deutsche Funtkurm model, carving out its assets into the wholly owned towerco INWIT, which it subsequently listed on the Milan Stock Exchange.
Wind opted for a sale and leaseback – a deal which attracted the interest of a number of parties but in which Cellnex emerged victorious, signifying the towerco’s first major deal outside of its home market. Shortly after reaching a deal to add just under 7,500 Italian towers to its portfolio, Cellnex also made its debut on the stock exchange, listing in Madrid.
The flood gates had opened.
2016: Towerco consolidation plus new operator owned infracos
Both vying for a leading position in Europe’s burgeoning tower market, both Cellnex and American Tower announced deals to acquire some of the continent’s smaller players in 2016. American Tower swooped in on France’s FPS Towers, adding a second country to its European operations, whilst Cellnex entered the Dutch and UK markets through the acquisition of Shere Group and Protelindo’s European business.
In terms of MNO tower activity, Telefónica became the next major operator to follow in Deutsche Telekom’s and TIM’s footsteps with the formation of its own wholly owned subsidiary, Telxius. As well as including towers from its Latin American operations alongside its European tower portfolio, Telefónica also placed its subsea cabling assets into Telxius - a factor which was understood to serve as a stumbling block in Telxius’ cancelled IPO.
Whilst Telefónica had combined the carve out of its tower portfolio with the inclusion of subsea cabling in Telxius, PPF’s O2 Czech Republic went one step further, including the operator’s RAN in the formation of a new netco, CETIN, thus creating another breed of infraco in the European tower market.
Cellnex’s M&A activities ramp up a notch
Starting in 2017, Cellnex began a major M&A drive across the European continent, a drive which as of 2022 is yet to show signs of slowing. The towerco announced a spate of tower deals with Bouygues Telecom in France, inked deals with Iliad in France and Italy, whilst also announcing two Swiss tower deals. The highly acquisitive towerco also set about consolidating a number of other towercos in the market including Alticom, Cignal and Arqiva’s telecoms business. Cellnex’ M&A does not stop there, we hit a brief pause to examine another major trend beginning in parallel in 2019.
Trend watch: The operator carve out towerco
As of 2017 there were four major operator owned towercos in the European market – Deutsche Funkturm (established in 2002), INWIT (established in 2015), Telxius (established in 2016) and Global Tower (established in 2006 but complicated by Turkey’s tower ownership structure). Additionally, two netcos had been formed - CETIN (established in 2015) and Mila (established in 2007).
In 2018, Altice jumped on the bandwagon, carving out SFR Towers (subsequently renamed to Hivory following the sale of a 40% stake to KKR) in France and Towers of Portugal (subsequently renamed to OMTEL following the sale of a 75% stake to Morgan Stanley and Horizon Equity Partners) in Portugal. Following this and in relatively short succession, three further multi-country MNOs, and three of Europe’s most significant players, Vodafone, CK Hutchison and Orange, announced towerco carve out plans, whilst TDC followed the netco trend in the formation of TDC Netco.
Since then, a host of other players have carved out towercos with Telenor, Telia and more recently Telekom Austria forming multi-country players, and both Deutsche Telekom and PPF Group expanding their tower carve outs into additional markets. In Russia, MTS has also carved its tower assets into a separate towerco – Tower Infrastructure Company.
The carve out trend has, however, been complicated by some operators opting to change tack. Altice sold both Hivory and OMTEL to Cellnex, Telefónica sold Telxius to American Tower, and CK Hutchison’s plans to form a towerco were superseded by the sale of their assets to Cellnex. TIM opted to merge INWIT with Vodafone Italy’s tower portfolio, forming an enlarged JV towerco.
As of Q4 2022, there are 11 operator-owned towercos active in the European market who collectively own over 190,000 of the continent’s c. 715,000 towers (27%).
Rounding up further sale and leasebacks
In parallel with the formation of new operator owned towercos, further M&A continued across Europe. In addition to acquiring Hivory, OMTEL and CK Hutchison’s tower portfolios, Cellnex has completed a further deal in Portugal (with Nos), a deal in the Netherlands (with T-Mobile) and completed two deals in Poland, acquiring the portfolios of Play and Polkomtel (also acquiring active equipment in the latter transaction).
Phoenix Tower International has spread its wings beyond its home base in the Americas to firmly establish a presence in Europe, acquiring Eir’s portfolio in Ireland and Monaco Telecom’s tower portfolios in Malta and Cyprus. PTI has also signed a BTS contract in France and acquired EI Tower’s Towertel in Italy.
DigitalBridge has ramped up its European footprint, announcing the acquisition of tower portfolios in Iceland and Belgium alongside securing a stake in Deutsche Telekom’s GD Towers.
Plus, Russia saw Service Telecom acquire VEON’s tower portfolio, whilst MegaFon’s tower assets were acquired by Kismet Capital Group who bundled the portfolio with those of two major Russian towercos (Russian Towers and Vertical).
As of Q4 2022, independent towercos now own over 209,000 of the continent’s c. 715,000 towers (29%).
The tables in figure three summarise all the major tower M&A activity to date in Europe. But what’s next?
Figure 31(a): European MNO-towerco deals since 2007
Figure 31(a) continued: European MNO-towerco deals since 2007
Figure 31(b): European towerco M&A since 2015
Figure 31(b) continued: European towerco M&A since 2015
Figure 31(c): Major European towerco equity deals and listings since 2016
The scope for expansion of the towerco model
As aforementioned, 66% of Europe’s towers are owned by some form a towerco, with 34% of towers (over 220,000) still locked on MNO balance sheets. A look at figure 4 shows that whilst many markets in Western Europe have reached close to 100% towerco penetration, further East there is still significant room for the model to expand.
A review of the European MNO market reveals 24 companies with mobile operations in multiple countries. 16 of such players have sold towers, carved out towercos or formed towerco joint ventures in at least one country (see figure 5). Additionally, there are around 50 further MNOs with a presence in a single country. Of these, just 13 have sold towers, carved out towercos or formed joint ventures. Across all Europe’s operators however, there are over 80 country tower portfolios still locked on MNO balance sheets.
Not all these portfolios will be investible due to a variety of factors such as the creditworthiness of the operator, legislation around infrastructure sharing, the attractiveness of the telecoms market and the macroeconomic conditions of the country. Additionally, not all operators will have an appetite to carve out or sell (although the consensus that MNOs are reaching is that towers cannot sit solely as an underappreciated, under used asset on their balance sheet). There is however, still significant room for growth.
Additionally, we will see existing towerco owned tower portfolios change hands. Whilst not moving the needle in terms of towerco penetration such deals may change the penetration of the different types of towerco models and will present new M&A opportunities for existing and prospective investors in European towers.
What tower M&A activity has been confirmed or is in the rumour mill?
There is no shortage of speculation around tower carve outs andsales in the European market, some rumours with more of a solid basis than others.
In terms of more concrete activity to come, Orange has been vocal that it plans to expand TOTEM’s perimeter to further European markets. Whilst carve out plans are complicated by joint ventures in some countries, TOTEM expects to add at least one new country to its operations in the next 12 months with more to follow.
Having started reporting financials for its towerco businesses in early 2022, Telenor has confirmed that it plans to sell a minority stake in at least one of its national towercos in the next 12-24 months. Plus, Deutsche Telekom has begun carving out its tower portfolios in Czech Republic and Slovakia, although is yet to reveal its plans for the carve outs (will they look to monetise a majority stake as they did with GD Towers?).
Beyond this, Virgin Media O2 (the UK JV between Liberty Global and Telefonica) has indicated it may sell its stake in UK JV towerco, Cornerstone, Vodafone is rumoured to be selling a further stake in Vantage Towers, and Brookfield has begun proceedings to monetise its stake in TDF.
Whilst Telekom Austria has now formed towercos in five countries, very little has been said about plans for such towercos, although a monetisation of a minority stake is widely expected given the strategy in the Americas of Telekom Austria’s main shareholder, America Movil. Rumours suggest that United Group (which owns opcos in Bulgaria, Croatia and Slovenia) is exploring its options for its towers, and whilst few updates have since been shared, Tele2 had previously commented that there was an opportunity to do more in terms of sharing and separating out their infrastructure assets.
As towercos and investors continue to engage in dialogue with MNOs retaining portfolios of interest in a bid to expand their European footprint, and as MNOs continue to explore ways to best unlock the value of their prized infrastructure assets, TowerXchange expects a healthy M&A pipeline ahead in the European tower market.
