Cellnex and Deutsche Telekom have reached an agreement to merge their Dutch tower portfolios into Cellnex Netherlands BV, with the newly enlarged entity set to possess a portfolio of 4,310 (inclusive of a BTS commitment of 180 sites). In parallel, both companies will become anchor investors in a newly established fund, Digital Infrastructure Vehicle which will invest in European digital infrastructure, with its 38% stake in Cellnex Netherlands its first such investment. TowerXchange takes a closer look at the Dutch tower market, the deal and the implications for the European tower industry.
The Dutch tower market
There are three MNOs in the Dutch market; KPN, VodafoneZiggo (owned by Vodafone and Liberty Global), and T-Mobile (owned by Deutsche Telekom). The Netherlands holds the accolade of having hosted the first sale and leaseback transaction in the European market, with KPN divesting towers in four tranches starting in 2008. KPN sold 601 towers across two deals to Open Tower Company, 460 sites to Shere Group and 261 sites to Protelindo.
Open Tower Company (75% owned by Dutch pension fund, ABP) currently owns a portfolio of 860 sites in the country, whilst also having access to 1,000 electricity pylons. Protelindo’s Dutch portfolio and Shere Group have since been acquired by Cellnex, who entered the market in 2016 with both deals. Cellnex has also completed one further M&A deal in the Netherlands with the acquisition of Alticom and their 30 long range sites (tall towers with large equipment capacity). They have further grown their portfolio through modest BTS activity with their current portfolio in the country standing at 984 sites.
In addition to Cellnex, Brookfield backed towerco, Wireless Infrastructure Group (which also has a tower portfolio of c. 2,000 sites in the UK) marks the other tower owner of note in the Dutch market, with a portfolio of 45 sites.
Whilst Vodafone has carved out the vast majority of its European towers into Vantage Towers, VodafoneZiggo is a joint venture with Liberty Global and there are no current plans to bring their tower portfolio into the unit. As such, VodafoneZiggo’s towers remain captive on their balance sheet.
Deutsche Telekom owned T-Mobile recently followed in the footsteps of DT’s German opco, carving out their towers into a separate infraco unit which went by the name T-Infra and Telekom Infra (and most recently referred to as T-Mobile Infra). The unit, with a portfolio of 3,150 towers (of which c. 650 are ground based towers and the balance rooftops) generates revenues of around ’60mn and an EBITDAaL of c. ’30mn and had recently been consolidated on Deutsche Telekom’s balance sheet alongside Deutsche Funkturm under the GD Towers business unit.
The merger of T-Mobile’s tower unit and Cellnex will create an entity with 4,130 towers in the Netherlands,
In addition to operator and towerco owned towers, there are c. 6,000 other locations (including rooftop and electricity pylons) owned by third parties that are in use as telecom sites.
Figure one: Tower ownership in the Dutch market
The specifics of the deal
Deutsche Telekom and Cellnex have reached a deal to merge their Dutch tower businesses into Cellnex Netherlands BV whilst both becoming anchor investors of a new investment fund.
As a first step, Deutsche Telekom will transfer T-Mobile Infra, its towerco subsidiary with a portfolio of 3,150 sites to the newly established and independent managed fund, Digital Infrastructure Vehicle (DIV). In return, Deutsche Telekom will receive a ’250mn cash payment as well as a shareholding in DIV. Deutsche Telekom state that this translates as a capital commitment of ’400mn into DIV. In parallel, Cellnex has agreed to commit ’200mn in capital to DIV.
As a second step, DIV will then transfer the T-Mobile Infra business into Cellnex Netherlands BV, obtaining a 38% stake in Cellnex Netherlands BV (with Cellnex retaining the remaining 62% stake). The merger will take Cellnex Netherlands’ site count from 984 sites to 4,134 sites.
T-Mobile Netherlands will sign a 15-year MSA with Cellnex, which is automatically renewable for 10-year periods. T-Mobile Netherlands have also agreed a BTS commitment for Cellnex to rollout a further 180 sites which will take Cellnex Netherlands’ total site count to c. 4,310 sites.
DIV will be managed independently, with a team led by Vicente Vento, co-founder of Deutsche Telekom Capital Partners and will look to secure further funding from institutional investors. When the expected third-party investment is secured, Deutsche Telekom anticipates its shareholding representing about a 25% stake in DIV. Cellnex expect to have a 15-20% stake in DIV, dependent on the level of third-party financing obtained.
Additionally Cellnex and DIV have signed a dealflow agreement whereby Cellnex and DIV can partner on future transactions in the European tower sector, in which Cellnex will have the right to co-invest with a stake of 51%.
The deal is not the first transaction that Cellnex has executed with Deutsche Telekom, having partnered with Deutsche Telekom Capital Partners (and Swiss Life Asset Managers) to acquire the tower portfolio (Sunrise Towers) of Swiss operator Sunrise back in 2017 [Cellnex has since purchased DTCP’s stake in Swiss Towers].
What’s next for Cellnex, DIV and Deutsche Telekom?
Having recently just signed a ’10bn deal with CK Hutchison to acquire their 24,800-site tower portfolio across six European markets, the T-Mobile deal whereby Cellnex gains assets in return for a shareholding in their Dutch subsidiary provides an opportunity for Cellnex to grow without consuming further financial resources. Their investment in DIV and associated dealflow agreement provides further growth potential, putting in place a financial partner with which to participate in any future tower transactions in the European market.
Europe is primed for further large-scale tower carve outs and sales. Speak to Europe’s major MNOs and most of them have stated that they plan to generate more value out of their tower portfolios, be that a Vodafone-Vantage Towers style carve out, a CK-Hutchison style tower sale or something more innovative as has been the case with T-Mobile in the Netherlands. Both Cellnex and DIV are poised to act upon opportunities that may come to the fore across the entire continent, with Cellnex having shown its appetite to expand beyond Western Europe, recently signing deals that will see the company enter both the Nordics and Central & Eastern Europe. DIV will also explore opportunities in fibre and data centres in parallel, with fund head, Vicento Vento commenting on ’an exciting pipeline of projects’.
For Deutsche Telekom, there has long been speculation as to what the company will do with its prized infrastructure, with hints about a potential IPO of their German towerco, Deutsche Funkturm, and the rumoured carve out their Austrian assets into a separate towerco unit. A sale, for example, of a stake in DFMG to DIV, or potentially a sale of a tower portfolio to DIV + Cellnex could well be an option under consideration. In addition to the Netherlands, Cellnex already operates in two further DT markets - Austria and Poland ’ and has made no secret of its appetite to enter the German market; with American Tower recently announcing the acquisition of Telxius’ tower portfolio and Vodafone’s Vantage Towers now active in the market, a stake either directly, or indirectly via DIV in DFMG could be their last chance towards a meaningful position.
Digital infrastructure is now, more than ever, a much sought-after asset class by investors, the sector having shown its strength and resilience during the global pandemic as the demand for high-speed reliably connectivity has grown. Such pent-up investor demand is likely to continue to push operators to consider their options for their infrastructure and with a diverse array of interested parties and new deal structures emerging, TowerXchange forecasts 2021 to be a very exciting year for European tower deal activity.
