Scalable, replicable, successful: how the Cellnex model is rolling out across Europe

When Cellnex began operating in telecoms towers, their aim was to emulate a more ‘US-style’ towerco model in Europe. It wasn’t an easy task - not only did they need to acquire the towers and find the tenants, but the whole market had to be created from a continent of disparate and unwilling stakeholders. Five years later, Cellnex has deployed (at time of writing) around €1.5bn across five countries and is in a strong position to continue their rapid growth. TowerXchange had the opportunity to ask Tobias Martinez a few questions, and we found out more about Cellnex’s business model, partnerships and plans for the future.

TowerXchange: Since your highly successful IPO in 2015 you’ve continued to make waves in Europe – can you share Cellnex’s current vision for the company and the European tower market?

At the time of the IPO we made it clear that our project was primarily a growth driven project, rather than dividend-driven, for the next three to five years. In the last two years we’ve been able to show that we’re doing this, we have closed around €1.5bn in acquisitions, gone from one country to five countries, diversified geographical risk from 95% of revenues in one country (Spain) to 60% in 2017.

After the consolidation of our acquisitions in The Netherlands, France and the UK we will be a true European based company in terms of revenues.

Telecoms accounts for about 55% of our revenues without counting our strong broadcast franchise in Spain. Telecoms is also our main source of growth, which is why we’re not investing in broadcast outside our legacy infrastructure in Spain.

We see infrastructure outsourcing from MNOs and consolidation between tower operators as the main driving forces in our industry. We are focusing on building partnerships with our customers and MNOs, showing there’s space for a Europe-wide telco and towerco relationship. We have been paving the way for a market which did not exist in Europe four or five years ago.

Infrastructure sharing in markets like Europe, where macro tower networks overlap and are becoming redundant, support the case for triggering efficiencies in terms of revenues and to reduce pressure on ARPU. Europe is a mature market so change is not demand driven. Although build to suit projects remain; efficiency gain is the main indicator in Europe.

MNOs are focusing on creating and selling connectivity services and content rather than deploying more passive infrastructure. They have to focus on how to manage convergence, and as the main players in content delivery, they’re facing a lot of challenges and asking for more and more cash out. We think outsourcing will continue to trigger the monetisation of existing assets to help them with these challenges.

The implications of 5G will require a more dense network in urban areas. Traditional macro towers are here to stay but more cells, particularly small cells, will be needed to implement new technologies.

It’s clear the outsourcing model is here to stay and to grow.

TowerXchange: You acquired towers in France in 2016 from Bouygues, and have just agreed another deal with them. How do you see Cellnex’s role in the French market developing?

In France as well as other European countries we have two main types of projects and drivers. One is related to growth – to improve connectivity linked to LTE rollout and quality service for thousands of concurring data users. The second is related to efficiency, focused in rural areas, where clearly maintaining redundant passive infrastructure becomes costly and makes no sense for MNOs who have to phase in 4G/5G.

With regards to Bouygues Telecom, we aim to foster a long term partnership with them, as well as our other partners, and to capture opportunities as they arise. For us it’s attractive to secure a direct partnership in order to acquire towers and establish long term relationships rather than just acquire assets from an infraco company.

Each element of this value chain must be aware of its role. Ours is to provide the expected value to our customers in terms of increasing efficiency. We aim to create value and be a source of efficiencies for our customers. We see the scope for further densification of the current networks in France and demand for 4G and deployment of 5G. This is why we see outsourcing opportunities in France, and all of these opportunities are being assessed.

For us France is a key piece of our European project and Bouygues is one of the most active MNOs from an outsourcing perspective. It makes sense to establish a relationship as they’re our anchor French customer. Thus, our ambition is to create a strong French operating platform to develop relationships with market players.

TowerXchange: American Tower recently acquired FPS Towers in France, how do you feel about their gearing up to take a run at the European market?

Well, you can expect that in a growing market your potential competitors will focus on it as well. This is what is going on in Europe. This is not bad news. Maybe this is a confirmation of the opportunity available in Europe for many players and not just from the Cellnex point of view.

We’ve seen AMT on every single competitive transaction we’ve assessed in Europe in the last four years. In 2012 we saw them when we bought the first 1,000 towers from Telefónica. We’ve been competing with them this whole time. Obviously the market wasn’t the same then, but we have spent a long time educating the MNOs on outsourcing and I think the attractiveness of the European market now is higher than it was in 2012. The fact that AMT, and maybe other players, are focusing on Europe as a growth market is a confirmation of the opportunities which will continue to arise.

All in all, it’s not bad news and we don’t foresee a dramatic change in the competitive environment because of this in France or in Europe. Obviously it means that in France we will see TDF, AMT and Cellnex trying to capture as much as possible of the potential embedded in this market.

Our project is a European one and maybe with this acquisition the level of competitiveness in Europe will be higher than it was two or three years ago, but the market is growing, the MNOs are more favourable to outsource their portfolios, and we feel there’s enough space for two or three infrastructure operators with a European scope. If you look at the U.S. you will find three main towercos and if you benchmark Europe and the U.S. it seems quite reasonable following a similar trend.

TowerXchange: Your acquisition of Shere Group nicely consolidated your position in the Dutch market, and also got you a foothold in the UK. Would Cellnex be interested if a larger UK-based portfolio of towers were to come to market?

The answer is clearly yes. Even in view of Brexit, although we will need to better understand the future legal framework.

Looking at our short term plans in the UK, the idea is to replicate our international expansion model. First we try to do a small acquisition to learn the market, gain our own experience and meet customers. The second step is trying to identify opportunities to gain size and scale in the country. And the third step is consolidation in order to be able to provide nationwide coverage.

For us the UK is like France: key in order to build a European project. We are fully committed to finding and developing a UK platform medium to long term.

TowerXchange: Do you plan future growth in the Dutch market?

We like the Dutch market very much. It’s a good market in terms of broadband activity, which means more activity and investment from the MNOs and this has implications in terms of densification.

As you know we recently acquired CommsCon in Italy, a powerful and skilled engine for DAS and small cells, which means we’re able to develop small cell projects everywhere in Europe. The Netherlands is a very good market for 5G rollout in the future. It’s a very attractive market, not as much in size as a good test and track records for central and northern European markets.

TowerXchange: Cellnex has broken new ground in creating a truly cross-border towerco, the first in Europe. How much more capital can you deploy before reaching your leverage limit? What options are open to you in terms of restructuring your balance sheet?

First of all, we have three main vectors to finance our growth. In priority order these are firstly debt maximisation and optimisation. The debt markets are currently very open and historically attractive in terms of interests rates, and the duty of the company is to optimise and maximise this opportunity as much as possible. In fact this is something we have shown with the last corporate bond which we issued early January for €335mn and we had an over-subscription of 10x in our order book. This illustrates both the liquidity of the debt markets as well as the credibility of our balance structure.

The second is to identify equity partners, either by country or by project. We don’t want to stress the level of debt of the company beyond 5-6x EBITDA because we have the option to co-invest with other equity partners. In the last 18 months we’ve had different approaches from financial investors that would be willing to co-invest with us by country or by project. And is something that we have already proved when we combined our strengths with F2i in Italy in order to bid for Inwit.

Thirdly there’s always the tool of a capital increase but based on the current price of Cellnex shares, a rights issue would not be the most efficient from the shareholder value perspective. Our view is that the price of the shares doesn’t reflect the real value of the company. When we talk about a capital increase we always have to analyse the share price.

This is our point of view in terms of the tools for long term finance.

TowerXchange: Over the last few years you have acquired towers both through sale and leasebacks with operators, and through the acquisition of smaller towercos; do your future plans favour one form of acquisition over the other?

Rather than favouring one over the other, we have a path with clear milestones. We have three stages – the first is to acquire small towercos or a few assets in a market. This first platform means we can gain market knowledge and get familiar with the specificities of the domestic market.

Secondly, we pursue further growth and opportunities which allow us to gain size and capture economies of scale which we can use to share savings with our customers (this is mainly achieved through sale and leaseback).

And the third is the consolidation stage, where we reach the size to create full efficiencies for our customers and use a tool to do decommissioning and rationalisation of networks. This was the case in our first market in Spain, and has been the case in Italy too, two countries where the three stages have been accomplished. In The Netherlands and in France, we are in the second phase. In these, let’s say, advanced stages we mainly opt for MNO transactions, but in the first stage it can either be small acquisitions from MNOs or small towercos.

TowerXchange: To date you’ve been very focused on Western Europe; do you see ample opportunities for Cellnex to achieve the scale you’re aiming for in this market, or do you intend to look further afield?

Europe is clearly our main market and remains at the core of our business. We’re not currently pursuing beyond that, maybe we could in future but nowadays we’re focused on Europe.

TowerXchange: With small cells such a hot topic in network infrastructure at the moment, can you tell us a little more about Cellnex’s successes and plans in this area? How do you create and manage important relationships with municipalities?

First of all, let me say that if you benchmark with the U.S. market we would realise that the U.S. market is more developed than the European one. This is partly due to the different allocation criteria and use of the available spectrum. In Europe densification will take more time as market needs and infrastructure deployment and topology are not the same.

Small cells solutions will start to gain their momentum from 2018 onwards. Now we are seeing first approaches and tests and clearly still more focused on DAS solutions rather than on small cells. The future implications of 5G will require more points of service in urban areas, this is why we envisage small cells rolling out from 2018 and beyond. Traditional macro cells will continue to play their role in the value chain and will improve their backhauling expanding network transmission capacity. Small cells won’t substitute the current macro-cells, but will become a key component of the telecom infrastructure setting and the densification process needed to cover data transmission demand.

To respond to this emerging challenge we took action and decided to acquire CommsCon in Italy, which has a strong track record in DAS and small cells based networks, to leverage their know-how and commercial relationships. Our plan is to replicate this in all of Europe following consolidation in the markets in which we operate.

Regarding the role of the administrators you mention the local one but this is a whole ecosystem that requires to be managed. Part of our task in order to become a market leader lies in the ability to leverage and our relationships with different layers of stakeholders, from the European Commission in Brussels to local municipalities, covering national as well as regional authorities. Small cells isn’t just a relationship between MNOs and Cellnex but with municipalities, owners of venues, airports, rail stations, and other hot spot places where the demand will increase with the 5G rollout. We don’t expect a dramatic change in our P&L in 2017 based upon these new generation networks and infrastructures, but we do expect it to be more visible from 2018 onwards.

On top of that we need to consider IoT as well and massive deployments for this, which makes this technology very attractive. And DAS planning and coordination with our customers, asset owners and local administrators will be an added bonus to our existing services and P&L. It will all be a part of the portfolio of services of towercos like Cellnex.

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Images courtesy of Cellnex