The sale of a large part of Telxius-Telefónica’s telecommunications towers to the American company ATC, to have them on a rental basis, or the recent agreements between Cellnex with several operators to share towers in various European countries, shows the great The interest of European telecommunications operators to get more out of their infrastructures and profitability, even though the negotiation between Orange and Free to share their 5G towers has collapsed in the end. Fiber optic cabling, another basic telecommunications infrastructure, is also part of this recent dynamic of taking more advantage of assets, as Orange has just starred.
The tendency to share telecommunications infrastructures by telecommunications operators, even incumbent or dominant ones, is increasingly pronounced. In recent months, several telecommunications tower sales operations have been carried out, initially segregated, with the operator that had the property becoming a tenant. In other cases, specialized operators have been used to increase investment in towers or agreements have been reached between operators to share mutual infrastructures in one or more countries and thus cover more territory without increasing investment.
The pandemic, as in many other cases, has only accelerated underlying trends that were unavoidable. In the case of European telecommunications operators, the pandemic has led to greater demand for fixed and mobile telecommunications services by users but, in general, it has not been accompanied by revenue growth, due to strong competition. between operators. The arrival of 5G also means that operators need to make greater investments in mobile infrastructure without it being clear yet how to monetize them.
Cellnex expects to multiply the number of sites by 15 since 2014, reaching 107,000 thanks to a series of agreements that has accelerated this January
In this context of reduced margins, one option is to revalue hidden assets. A first step for dominant operators in various European countries is to segregate part of their infrastructures from their ownership and place them on the stock market to gain market value. And a second step is to sell them to a specialized operator, going from owner to tenant of the same infrastructure, and thus obtain a significant capital gain, which goes very well to reduce leverage and debt. Another alternative and non-exclusive option is to reach agreements with other operators to share different assets.
The passive infrastructure of telecommunications towers is ideal for operations of this type, especially if it is transferred to a neutral operator, specialized in this type of infrastructure, as is usually the case, because the tenant can do the same as before and the new owner achieve greater synergies by being more focused on the business. In the United States, for example, the most common is that the vast majority of telecommunications operators’ towers are on lease. European incumbent operators, on the other hand, used to have sole ownership of their towers, as is still the case in Germany with Deutsche Funkturn, the tower subsidiary of Deutsche Telekom.
In Europe there were 426,000 mobile telecommunications towers last July, according to the estimates of the European Wireless Infrastructure Association (EWIA), with the sum of the large infrastructures on the ground and on the roofs of buildings, although not counting the small cells and distributed antenna systems (DAS). This number has been quite stable in recent years, because towers that were built again were offset by those that were dismantled as obsolete.
But in the next few years, mobile telephony is expected to cover more territory in rural areas and to further densify coverage in cities, especially with the arrival of 5G, which will increase the number of towers in Europe. The EWIA forecast is that the European tower park will grow annually between 1% and 3% in the next five years, that is, between 5,000 and 15,000 towers each year.
As indicated by the top graphic of the EWIA report, el 60 % of European towers are located in five countries, with Germany in a prominent place and Spain one of the five, with 37,000 towers. Until last year 80% of European towers were controlled, in whole or in part, by mobile operators, while 20%, some 83,000 towers, were in the hands of independent operators, specialized in mobile telecommunications towers.
This percentage of ownership of the towers is, however, highly variable. In Germany, only 3% of towers are controlled by independent operators, because Deutsche Funkturn owns and manages the vast majority, together with Telxius and Vantage, the tower companies recently segregated by Telefónica and Vodafone, respectively. and its shareholders. In Spain, last year 24% of towers were in the hands of tower companies independent of the operators, Cellnex and Axion, while in France, Italy and the United Kingdom, the percentage of independent is somewhat higher than in Spain, between 29 and 34%.
This proportion of towers controlled by independent companies, 20% in Europe, is the same as in South and Southwest Asia. In India, however, the percentage is 52% and in Central and South America 55%. In the United States, 90% of the towers are in the hands of companies independent of the operators. In 2014, the presence in Europe of towers from independent companies was much lower, 13%, and 17% in 2018. The number of towers fully controlled by operators has also been decreasing, 41% in 2018 and 23 % in 2020, as consortium operators form and transfer part of ownership control to other shareholders, as in the case of Vantage and Telxius.
Telxius towers are sold to ATC
In mid-January, ownership of the towers operated by Telefónica in Spain changed substantially, when Telxius sold its tower business to the American company American Tower Corporation (ATC) for 7.7 billion euros. ATC is a global giant in this business with some 180,000 towers in its portfolio, mainly in America, to which we now add the approximately 30,000 it has acquired from Telxius, the infrastructure subsidiary in which Telefónica, KKR and Portegadea participate. ATC has set foot in Europe with this operation, because until now it only had about 5,000 towers in Germany and France. And the situation will change much more if Vantage decides to sell its subsidiary, with 68,000 towers in nine countries, to a specialized operator and go, like Telefónica, from owner to tenant.
Telecommunications towers are characterized by being a solid and predictable business, with a relatively low but assured profitability, like real estate. When talking about telecommunications towers, it usually refers to the passive physical infrastructure, which includes the structure and the place where the tower is located, the attached antennas and the power supply system and electrical wiring, as shown in the figure below. Radio communications equipment, networks and link stations that communicate with the operator’s transport network are usually owned by the operator itself.
The passive network infrastructure, therefore, does not pose any problem for the mobile telephone operator if it decides to sell it to an operator specialized in towers, because it can continue to use it, normally under the same conditions. The specialized operator can, in turn, rent the tower to another mobile phone operator, which will be in charge of installing its own networks and link stations that will be connected to its transport network. It may also be the case that the mobile phone operator shares its network with another operator in the same tower.
Several dominant operators, especially Vodafone and Sweden’s Telia, hope to sell or share their towers, following in the footsteps of Telxius, which has sold part of its towers to ATC
The number of mobile operators that on average share a physical infrastructure is usually very low in Europe, 1.3, but with the segregation and sale of towers that is taking place, it is expected to increase to 1.5. In other words, each antenna would be used on average by an operator and a half, with the cost savings that it would represent, both for mobile operators and for owners of the physical infrastructure.
Cellnex, 107 sites in Europe
Cellnex has become in a short time, and especially this January, one of the most important passive infrastructure owners in Europe. In 2014, Cellnex had 7,000 sites, which in seven years have multiplied by fourteen, reaching 107,000 sites, as can be seen in the graph below of the company itself, which shows three recent transactions in four key markets and the opening of four new markets. Italy, when all operations are completed, is where Cellnex will have the most sites, 24,549, followed by the United Kingdom, with 14,720, France with 13,705, Poland with 11,890, Spain with 11,050 and Switzerland, Portugal, Sweden and the Netherlands with between 6,000 and 4,000 locations in each of them, plus Ireland and Denmark. In dark green, the five countries where more than one mobile operator count as customers are shown.
On January 21, Deutsche Telekom and Cellnex decided to combine their mobile infrastructures in the Netherlands and jointly support the launch of a vehicle to promote investments in telecommunications infrastructures in Europe. With the operation, Cellnex hopes to achieve a presence in the Netherlands with about 4,300 locations, “thus increasing the prospects for further organic growth in a key market,” as the company points out. The project foresees that approximately 3,150 sites will be shared initially, with a share ratio of 1.2.
Last Tuesday, Cellnex also closed the purchase of CK Hutchison’s assets in Sweden, in addition to those announced on January 8 in Austria, Denmark and Ireland. Cellnex thus has 9,700 towers and sites out of the total 24,600 that made up CK Hutchison’s portfolio in Europe. The agreement, according to the company, also foresees the deployment of up to 5,250 sites in the next eight years, with an associated investment of up to 1,400 million euros.
In November 2020, Cellnex announced an agreement to acquire the Hutchison towers and site in Austria, Ireland, Denmark, Sweden, Italy and the United Kingdom, with a global investment of 10 billion euros. In the coming months, the company expects to close deals with Italy and the United Kingdom. Once the closures have been completed in the six countries and the planned deployments have been carried out, Cellnex should have the nearly 107,000 sites indicated in the graph above.
Negotiations in Finland and failure in France
The fever to revalue telecommunications towers and expand network sharing in Europe does not stop. Also last Friday, in the presentation of the quarterly results, Allison Kirkby, head of Telia, the Swedish incumbent operator, assured that “very soon” it will update its plan to monetize its infrastructure assets and that is why a new unit has been created infrastructure management, Telia Asset Management. Also, the board said, it hopes to expand its network sharing agreements with a new agreement with Finnish operator DNA. In Finland, it would involve Telia and DNA joining their existing mobile networks in northern and eastern Finland with the southern and western parts of the country.
In recent weeks, the four French mobile phone operators have held multiple meetings to try to extend the coverage of their respective mobile networks in rural areas of the country, until now very underserved, in 4G networks and the new 5G. It seemed in the middle of last week that Orange, the main French operator, heir to the incumbent France Télécom, had reached an agreement with the also French operator Free to share part of its mobile networks, reproducing a 2014 agreement between Bouygues Télécom and SFR , the other two French mobile operators, to share their mobile phone towers in rural French areas, which account for 57% of the population.
The planned operation, however, was completely aborted last Friday. Xavier Niel, founder of Ilial-Free, had assured the day before, in a meeting with economic and financial journalists, that the negotiations with Orange had been paralyzed for the moment. A few hours later, Orange issued a statement in which it “decided to end discussions” on an agreement to share its networks with Free, “given the divergence in the deployment strategy” between the two companies.
Orange and Free were interested in sharing their 4G and 5G networks in French rural areas, but in the end their different visions of what is “true 5G” versus “false 5G” have weighed heavily. Free claims to have 8,000 towers in the less dense areas of France, compared to 10,000 in Orange. It was about sharing many of them, while dismantling others to reduce costs and thus be able to expand 5G coverage in areas where there is now very little coverage, even 4G.
The problem, according to some observers, is that Free counts as many 5G antennas that work in the 700 MHz band, also used in the neighboring country for 4G, while Orange mainly uses the 3.5 GHz band for 5G. Controversy around 5G at 700 MHz and 3.5 GHz, or “fake” and “true” 5G, respectively, has been going on for months. Orange is the operator with the most 3.5 GHz 5G antennas in France and will continue to install them at a good pace this year 2021, while Free apparently thinks more about installing 700 MHz 5G antennas, especially in rural areas, which makes it difficult to reach an agreement to share networks between the two, because their benefits are very different.
Three British mobile operators, Vodafone, O2 and Three, have just reached an agreement to share their mobile networks in rural areas. The British Government also wants to update the telecommunications law so that there are no obstacles to sharing mobile networks, now that it is outside the European Union.
A few days ago, Virgin Media reached an agreement with Vodafone to use its 5G network in one hundred locations in the country. Significantly, in the sale of the Telxius towers to ATC, British assets were left out, probably so that Telefónica’s British subsidiary could reach agreements, especially if the merger of O2 with Virgin is approved. The movements that have taken place in recent weeks in mobile infrastructures have therefore only just begun, be it for financial, coverage or regulatory reasons.