Vantage Towers has a headache is Spain following reports in Bloomberg that Zegona is negotiating a €50mn (US$54.1mn) reduction in the agreement previously signed by its Vodafone Spain subsidiary. If no renegotiation is agreed, then Zegona is threatening to re-locate its equipment onto other towercos' towers.
Bad news for towercos
The private equity group has been in negotiations for months following its acquisition of Vodafone Spain. Vantage Towers, which was carved out of Vodafone before being taken private by KKR, GIP and PIF in 2022, is in an unusual position in Spain.
Unlike Vantage Towers' other markets where its anchor tenant shares some DNA thanks to the history of shared Vodafone ownership, Zegona is approaching its leases with a fresh set of eyes.
In the original prospectus prepared by Zegona for its acquisition of Vodafone Spain it details €450mn of lease payments in the year ended March 2023, much of which would be for towers. A €50mn cut would take a major chunk out of Vantage Towers' revenues in the country.
It isn't only towers that Zegona has been renegotiating. The last months have seen Vodafone Spain form new fibrecos with Telefonica and another with MasOrange. That news was followed by the announcement of a renegotiated wholesale agreement to take force at the end of 2024.
Spain's nearly 40,000 towers are owned by Europe's four latest towercos, as well as a smaller independent. That makes for a tower market with more competitors than its mobile operator market, where the merger of MASMOVIL and Orange had left just three MNOs operating: Telefónica-owned Movistar, the newly merged MasOrange, and Zegona-owned Vodafone Spain.
Vodafone Spain is anchor tenant on the majority of the more than 6,000 towers it leases from Vantage Towers and has reportedly already approached other tower companies in Spain to determine the cost and viability of a switch.
Unprecedented no longer
That potential cost could be high for everyone involved. Once thought as being so value destructive as to be practically impossible, there have been a number of actual and threatened remove and relocates.
Ending a contract early would likely come with financial penalties for the carrier involved, as well as denying the towerco future contracted revenues and possibly leaving it owning bare steel. The construction of new towers is also a wasteful use of capex at a time of high interest rates. Local governments also typically look dimly on building new structures near exiting towers. However, the unthinkable is no longer unthinkable and many operators are making unpopular decisions in an effort to negotiate more favourable terms.
Last year, Vodafone Ghana took back control of 653 sites which had previously been managed by American Tower. Eaton Towers originally took over Vodafone’s sites on a MLL (Managed with licence to lease) arrangement in 2010. Vodafone Ghana confirmed to TowerXchange that the sites had now reverted to their original owners. This option is not open to Zegona as full ownership of the towers was transferred to Vantage Towers prior to its acquisition.
A closer comparison is the recently resolved fracas between MTN Nigeria, American Tower and IHS Towers. Last August, IHS Towers renewed and extended leases on 13,500 sites with its largest customer and shareholder MTN. A year before, MTN decided not to renew a contract with IHS Towers on 2,500 sites in Nigeria, instead opting to relocate equipment on to existing and new towers of American Tower Nigeria. In the end the operator did not go through with the re-locations as threatened, and signed a lease extension on new terms.
With American Tower already party to one attempted remove and relocate, could the towerco be interested in trying again in Spain? Or was the lesson from the last chaotic year in Nigeria that the damage to the towerco model is not worth the risk? Only time will tell.
