Read this article to learn:
- How Altice was built and why it is struggling with debt despite a successful 2017
- Numbers and distribution of the Altice tower assets
- More information on the French and Portuguese markets
- Who will bid for the portfolio(s)
- What the sale of Altice’s towers could mean for European infrastructure
Altice’s announcement that their tower portfolios in France and Portugal were under review as part of their plans to pay down debt has caught the interest of European tower players. Altice owns around 5,300 GBTs in France through opco SFR and a further ~3,000 in Portugal through MEO, as well as further rooftop assets and sites across both countries. Altice Europe’s CEO Dennis Okhuijsen recently confirmed that the towers Altice owns in Portugal through MEO are part of the list of non- strategic assets for sale. Plans for the French market have not yet been made known, but this latest sale and leaseback opportunity in Europe has caught the attention of Europe’s largest towercos. What is for sale and who might be making a bid for these tower assets?
Founded in 2001 by entrepreneur Patrick Drahi, Altice has spent the last 17 years growing across three continents in telecoms, content, media, entertainment and advertising. Drahi still owns the controlling stake in the business, with 15% of the business listed on Euronext Amsterdam (in January 2014) and 7% of the U.S. business listed on the NYSE in June 2017.
Drahi began building his empire in France, merging several telecoms businesses under the brand ‘Numericable’ in 2007. From 2013 the acquisition spree gathered pace, as Altice acquired Orange Dominicana, before acquiring SFR, France’s second largest operator, and Virgin Mobile France in 2014. In 2015 Altice’s ambitions moved further afield, with the acquisition of U.S. cable company Suddenlink Communications (a deal completed in conjunction with CPPIB and BC Partners) and U.S. cable provider Cablevision. In Europe, Altice further expanded its footprint with the acquisition of Portugal Telecom. Altice were also reported to have bid for both Time Warner Cable in the U.S. and Bouygues Telecom in France in 2015, although neither of these deals came to fruition.
Last year (2017), Altice acquired video ad tech firm Teads and Israeli telecoms operator HOT, and also listed part of their U.S. operations on NYSE in June; one of the biggest listings of 2017. However, by November things were looking less rosy, as disappointing quarterly results saw share prices halve and Altice’s €50bn debt pile began to cause concern. Drahi sacked CEO Michel Combes and announced the company focus would shift away from acquisitions and towards reducing debt.
Figure 1: timeline of key Altice acquisitions and developments
What’s for sale?
Altice has yet to declare a full concrete plan for tackling their debt pile, although CEO Dennis Okhuijsen recently confirmed that the towers Altice owns in Portugal through MEO are part of the list of non- strategic assets for sale, there are two further solutions which involve the sale of ‘non-core assets’: the divestment of their business in the Dominican Republic, which could raise up to €3bn; and the sale of more of their ~8,500 macro towers plus additional rooftops in France and Portugal, which optimistic estimates suggest could yield up to €4bn. While a straightforward sale and leaseback may be the quickest way to raise the cash, spinning out and floating an MNO-led towerco, as Telecom Italia did with INWIT in 2015, has not been ruled out.
Thus far, Altice has only committed to the sale of two small Swiss data centre businesses, Green.ch and Green Datacenter to InfraVia Capital Partners (owners of Irish towerco Cignal and Welsh data centre operator NGD) for around €200mn, a sum which will not make much difference to the debt pile. Some analysts have remarked that even the potential €3bn which could be raised from the sale of Altice’s Dominican Republic business may not be enough to settle the markets, so it remains to be seen which combination of assets Drahi decides to sell, and indeed whether he will choose to act quickly to reassure impatient investors or play a longer game and, as majority shareholder, ride out the storm with minimal concessions in terms of divestments.
Altice tower assets
Thus far, Altice has decided to divest its Portuguese towers, of which they own around 3,000 macro towers, the largest towers portfolio in the country. It remains to be seen what will happen with their French infrastructure. Most commentators seem to think that they won’t divest their full portfolio, or at least not all at once. The towers in France, where Cellnex, TDF and American Tower are all active, will no doubt be appealing to the market but equally the Portuguese towers would offer a towerco player the opportunity to become sole player in a European market where there is less concern about parallel infrastructure with their competitors.
Infrastructure sharing in Portugal is uncommon, even on a quid pro quo basis, meaning the tenancy ratio is close to 1x, but in France around 75% of Altice/SFR’s towers have Bouygues telecom as a second tenant already due to the two operators’ previous RANsharing deal, as well as some tenancies from Iliad’s French operator Free. Bearing this in mind, we estimate that the tenancy ratio of Altice’s French towers may already be in the region of 1.6x, however this ratio has been achieved mainly through bilateral swaps, which may or may not be readily commercialised. Altice has a total of around 20,000 sites in France, including rooftops, and is already comfortable with the independent towerco model, renting ~500 sites from American Tower (through their acquisition of FPS) and ~2,500 from TDF.
Given the high tenancy ratios in France, there is room for a buyer to increase the tenancy ratio and to monetise existing tenants quickly. However, while it’s believed that Altice are preparing for a sale and updating their asset registers as I write, the value of the French towers can vary dramatically and given the competitive nature of the French market, a ‘one size fits all’ price won’t apply, meaning the negotiations for the towers could be very complex.
The French tower market
What is the breakdown of the high sites used by the French telecom industry? And who owns them?
There are just over 25,000 ground based towers in France, of which 55% remain operator-captive. The remainder are divided among three independent towercos: broadcast-telecom hybrid TDF has 7,728 telecom towers, ATC Europe (formerly FPS Towers) has 2,472, and Cellnex have bought into the French market with 2,300 existing Bouygues towers and a further 1,200 in the pipeline.
In December 2016 American Tower announced the acquisition of FPS Towers for €697mn, a deal which closed in February 2017, gaining them a significant foothold in the market and putting them into competition with French incumbent tower owner TDF. Cellnex quietly acquired 500 towers from Bouygues Telecom in two transactions in 2016, the first of which was for 230 towers at a valuation of €80mn and the subsequent tranche for 270 towers for €697mn, and in January 2017 they signed a deal with the aforementioned governing the transfer of 1,800 existing sites and 1,200 new build towers for a total of €354mn, giving Cellnex a good presence in France and a solid anchor tenant.
There has also been recent activity in the broadcast vertical of the French market. With TDF acquiring ITAS for a reported €100mn (420 towers) and NRJ seeking a buyer willing to part with ~€300mn for their 500-tower asset Towercast.
What is the breakdown of the high sites used by the French telecom industry? And who owns them?
The Portuguese tower market
Mobile tower ownership in Portugal
The Portuguese tower market has been fairly dormant since rumors of a prospective sale and leaseback by Portugal Telecom three years ago, which resulted instead in the sale of Portugal Telecom by Brazilian Oi to Altice for €7.4bn in Q2 2015.
TowerXchange understands there to be ~6,800 towers in Portugal, with a further ~4,700 sites in use across different topographies (rooftops, street poles, utilities etc). With no known bilateral sharing agreements in place, colocation is organised on an ad-hoc basis and the tenancy ratio across the country is close to one (the only exception to this being indoor DAS projects, where one operator provides the infrastructure and shares with the other two).
Altice’s MEO have the largest tower portfolio with an estimated 3,000 traditional structures, Vodafone owns approximately 2,500 and NOS about 1,300. In addition, there are around 350 broadcast towers run by state-owned Radiotelevisão Portuguesa, although TowerXchange are not aware of any current colocation agreements with Portugal’s three MNOs.
Mobile tower ownership in Portugal
Who could buy Altice’s towers?
As yet it remains to be seen exactly how many towers will be brought to market, and whether Altice will stick with Portugal or add in towers in France as well. Certainly, the sale of Altice’s Portuguese towers in the short term does not preclude the sale of the French towers in the future, indeed, it may be beneficial for a towerco to develop a relationship with Altice before making a play for their higher value French portfolio. There’s no doubt that this sale and leaseback opportunity will garner interest from European and international towercos, particularly as Portugal is one of the last remaining western European markets with no independent towerco activity.
In a recent interview with TowerXchange, Cellnex expressed an interest in the Altice towers should they come to market. With operations in six European countries already, including neighbouring Spain, Cellnex will have come into contact with Altice/SFR already through the towers they acquired from Bouygues. There has been speculation about Cellnex’s debt capacity, which already surpasses 5x EBITDA. Spanish bank Sabadell calculates that Cellnex has a debt capacity of €2.5 billion, which would fall short of the €4bn Altice had been hoping to raise through the sale of its towers. This leaves Cellnex with three options: increasing the capitalisation of the company, staggering the purchase (as they did with Bouygues in France) or finding financial partners for the deal, as they did when acquiring the Sunrise towers in Switzerland.
Since ATC Europe was formed in 2016 following the partnership of American Tower and Dutch fund PGGM, they have completed one transaction of scale: the acquisition of French FPS Towers for €697m.
According to American Tower, this slow deal rate does not indicate a lack of interest in the European market: far from it, they intend to grow and are looking for opportunities in the form of acquisitions either from operators or of other towercos. Indeed, they have expressed an interest in acquiring the 34% stake in Cellnex currently owned by Abertis, should it become available after the latter’s acquisition is completed. American Tower, however, are a patient investor, and stick closely to their own investment thesis. They’re wary of entering into a price war in such a hot market and their global reach means there’s less pressure to acquire in any one region, but once they have identified an asset they have the time and money to make a serious impact.
Wireless Infrastructure Group / 3i
3i, through UK towerco Wireless Infrastructure Group (WIG), has a strategy to build a European mid-market tower platform driven by entrepreneurial local management teams. After recently scaling up their investment in WIG to a 90% stake worth £186mn, 3i are clearly serious about their commitment to European towers.
In 2016 they made a well publicised play for the FPS towers, highlighting the shared entrepreneurial spirit of the partners, but were ultimately pipped by ATC Europe. WIG’s small cell and DAS expertise could prove attractive to Altice’s Portuguese operations, where a highly competitive market has operators scrambling to offer packaged services in order to win market share.
Despite being linked with several European tower sales over the last two years, Digital Bridge have not yet found the right vehicle to launch their European operations. Well versed in future network technology, the Digital Bridge team could bring not only towerco expertise to the table, but also help MEO grow the micro site infrastructure needed for 5G rollout.
As with Digital Bridge, SBA Communications have operations in North, Central and South America and have shown an interest in the European market over the last few years but have not yet taken the plunge. This opportunity to become the sole operator in an investible Western European country could prove a big draw for the US based towercos.
Perhaps an outlier in this process, Turkcell-owned Global Tower has been exploring opportunities in Western Europe for the last year at least. Their existing portfolio of over 10,000 towers in Turkey, Ukraine, Belarus and North Cyprus is testament to their expertise in tower management.
Crown Castle haven’t been active in Europe since they sold the former BBC broadcast assets to National Grid in the UK in 2004, but as one of the largest towercos in the US, they have the balance sheet and expertise to act on opportunities when they arise.
Will this be a game changer?
The outcome of the Altice towers coming to market could potentially make huge waves in the European market. The entry of a new and significant player such as Digital Bridge or SBA Communications could shift the level of competition up a gear and with three large multi-national players on the continent it would certainly create a more appealing market for operators looking to divest their assets in future.
However, the Altice towers are far from the only portfolio on the market, and Altice are not the only operator exploring their monetisation options at the moment. It seems more likely that these towers will allow an existing European player to strengthen their position in the market and expand their geographical footprint into Portugal.
Past tower sale and leaseback activity from Telefonica, Wind, Sunrise, Bouygues and KPN has helped the industry to build up benchmarks of a tower’s ‘worth’ in the market, but valuation still remains a dark art and the amount a buyer is willing to pay depends not just on the location, cost base and lease up potential of any given tower, but also the strategic value for the buyer in the larger European ecosystem. We expect to see a complex process before this deal reaches a conclusion.