The Italian market has always been at the forefront of towerco activity in the European market, and that trend looks set to continue into 2019. In the last few years we have seen one of the first European sale and leasebacks of scale, the sale of 7,377 Wind towers to Cellnex in 2015, and one of Europe’s most successful MNO tower carve outs, INWIT, successfully floated on the Milan Stock Exchange in 2015 – a feat few towercos have managed since. Over the last 12 months, deals, new market entrants and announcements have again had a huge impact on the market, in this article TowerXchange reviews the market developments which will have the biggest impact on the Italian tower landscape in 2019.
Mobile Network operators in Italy
Telecom Italia
Telecom Italia has had a rocky 2018 to date with new investor, US hedge fund Elliott, gaining control of the Telecom Italia board in May 2018 after quickly and quietly building a stake through a derivative investment known as an equity collar. Elliott have clashed with Telecom Italia’s biggest shareholders Vivendi (who had control of the board until Elliott’s move in May 2018), with CEO Amos Genish the latest senior figure to leave Telecom Italia. Elliott has been accused of short-termism, and is believed to be interested in working with the Italian government to split off Telecom Italia’s fixed line infrastructure in order to merge it with rival, Open Fiber,to create a national wholesale network which could then be re-nationalised.
With Telecom Italia’s share price dropping by a third since Elliott’s takeover in May, and debt levels remaining unaddressed, plus Telecom Italia coming under pressure from Free’s aggressive entry into the market, the Italian incumbent will continue to come under pressure in 2019.
Vodafone
Vodafone Italia’s history dates back to the launch of Omnitel in Italy in 1995, and Vodafone was the second MNO in Italy for many years prior to the merger of Wind and Three. Vodafone Italia has worked closely with Telecom Italia for several years, most recently in terms of sharing 4G towers in rural locations in Italy, as well as being a strong tenant for Telecom Italia’s towerco, INWIT. Vodafone’s new CEO, Nick Read, stated in September that he would consider the sale of Vodafone’s towers in Europe, although no firm plans have yet been announced.
Wind Tre
The merger of Wind and CK Hutchison’s Three began in 2015 and was completed in Q316, and in September 2018, CK Hutchison bought out VEON’s 50% of the newly merged entity, Wind Tre, to become sole owners. The merger allowed the number three and four operators in the market to leapfrog Vodafone and compete with Telecom Italia for the top spot in Italy. Consolidation in the market also catalysed the Italian regulator to grant a licence to a new operator, French disruptor Iliad.
Free
Following the meger of Wind and Three in Italy, the regulator granted a new licence to a fourth operator, and Iliad entered the Italian market in May 2018, signing up a million subscribers in its first month. Driving growth through low subscriptions and an infrastructure-light model, Iliad’s Italian operation had reached 2.23m subscribers by Q318.
Figure one: Italian mobile market share (by subscribers) Q218
5G plans and spectrum auctions
Italian spectrum auctions took place in September 2018, raising far more than the initial €2.5bn which the government expected to achieve and ending up at €6.55bn.
The largest packets of frequencies in the most sought-after licences, the 3600MHz-3800MHz band, were won by Telecom Italia and Vodafone, with Wind Tre and Iliad acquiring smaller allocations. Telecom Italia, Vodafone and Iliad also acquired spectrum in the 700Mhz band, and all four mobile network operators (as well as ISP Fastweb) won spectrum in the 26GHz band.
The high prices paid will no doubt be a bonus for the Italian government, but many operators and industry experts have expressed concern about the financial burden of these auctions, particularly in a country where the mobile network operators are struggling with debt and competing hard on price following Iliad’s entry into the market. Telecom Italia has already mooted the idea of selling non-core assets to cope with 5G spending, and Vodafone and Wind Tre have also talked about offloading towers to reduce unmanageable levels of debt. Ironically, the pressures of paying for 5G spectrum may well inhibit operators’ ability to roll out the infrastructure they need to support 5G rollout across Italy.
Telecom Italia and Vodafone had been rumoured to have entered into talks to roll out 5G infrastructure together, signing a non-disclosure agreement with a view to reaching an agreement in early 2019. This deal could include towers, radio equipment and access to spectrum, although the dismissal of Telecom Italia CEO Amos Genish only 24 hours after this deal was reported could have thrown doubt on whether and how this deal will proceed.
Figure two: Who paid what in the Italian spectrum auctions?
Italian towercos
Cellnex
Spanish Cellnex are highly committed to the Italian market, having acquired 7,377 Wind towers from VEON in 2015 and small cell and DAS provider CommsCon in 2016. Cellnex currently has 8,057 towers in Italy, and is aligning itself to build a significant number more for Iliad once their network needs are defined. As the only independent dedicated telecoms infrastructure owner in the Italian market, Cellnex are focussing on organic growth, creating value through decommissioning towers and working with partners to prepare Italy for 5G rollout. Having said that, they have the funds and the appetite for an acquisition and will certainly be following the changes in the Italian market closely in order to assess any portfolios which come to market – be that through another sale and leaseback, or through the acquisition of a carved out entity.
INWIT
Telecom Italia carved out INWIT in 2015, creating a towerco which incorporated all of Telecom Italia’s Italian towers and which listed very successfully on the Milan Stock Exchange in 2015. Since then, TIM came close to selling their remaining 60% stake in 2016, with Cellnex and F2i believed to have been close to acquiring the asset. After announcing that they planned to build more value before selling, INWIT cancelled the process and focussed on leasing up their towers, improving their network and rolling out small cells. In April 2018, INWIT CEO Oscar Cicchetti left the company and since the appointment of new CEO Giovanni Ferigo the infrastructure company has kept a lower profile in terms of its plans for growth or a possible sale. With significant changes at the top in TIM and a tussle between US investor Elliott and French stakeholders Vivendi, it remains to be seen which direction INWIT will take from here.
EI Towers
The other key player in the Italian market is broadcast towerco, EI Towers, whose telecom-focused subsidiary TowerTel has built and acquired a portfolio of 1,000 telecom towers with an aggregate EV of up to €55mn, ~500 of which have been added through several small acquisitions. In October 2018, EI Towers delisted from the Milan stock exchange through an acquisition by F2i and Mediaset through JV 2i. TowerXchange believes this delisting was completed as a result of EI’s desire to acquire Italy’s other broadcast towerco, RaiWay.
HighTel Towers
Italian HighTel Towers was keen for both domestic growth through BTS activity and growth through acquisition in the Balkan region. HighTel has around 350 towers in Italy and 12 DAS sites.
Rai Way
Rai Way is 65% owned by the Italian government and 35% listed on the Boursa Italiana, owns 2,300 towers delivering 99% coverage. Rai Way manages both active and passive infrastructure for their broadcast clients and report having MNO tenants on ~700 of their sites, as well as a towerco’s usual “non-traditional MNO” tenants: emergency services and fixed wireless access operators.
Possible scenarios in the Italian market
5G collaboration: As already mentioned, the day before Amos Genish left Telecom Italia, Bloomberg leaked the news that TIM and Vodafone has been in talks about a fairly deep collaboration on 5G rollout, including passive and active equipment as well as spectrum. The likelihood of this deal going ahead is as yet unclear given the uncertainty around the TIM board at present, but if this collaboration were to come off, it could prove a catalyst for Italy’s two biggest spenders in the spectrum auction to really press home their advantage.
EI acquiring RaiWay: With many political hurdles still to overcome, EI’s ambition to acquire counterpart RaiWay still has a long way to go before it looks like a reality. However, having one organisation control Italy’s broadcast assets would could make the network more efficient and help EI manage risk more comfortably. EI’s track record with telecom tenants could also mean more high towers across Italy opening up for colocation.
Vodafone creating a towerco: Nick Read, Vodafone’s new CEO, has stated his intention to carve out Vodafone’s European towers into a stand-alone entity, with the sale of a minority stake looking likely. The creation of a new carve out towerco in Italy (and another 8,933 towers available for commercial colocation) could drive efficiencies across the market, but would also add another layer of competition in a highly competitive market.
Wind Tre selling their towers: Wind Tre are rumoured to be selling their ~8,000 towers in Italy. Cellnex will no doubt evaluate these towers if they come to market, but it’s unlikely that INWIT or EI would be interested in acquiring 8,000 telecom towers from an operator at this stage. If Wind Tre do sell, we may see another independent towerco enter the market, or they may look at carving out their towers into an operator owned towerco (see below).
Iliad buying towers: As part of Wind Tre’s agreement with the EU when they merged, they agreed to make around 5,000 towers available to Iliad, Italy’s new entrant, made up of redundant towers created by the merger. It is as yet unclear how many towers Iliad will take – much of this will become clearer as they roll out across Italy in 2019 – but industry experts who have worked with Iliad in France think they will much prefer to use third party towers when given the choice, rather than buying and maintaining their own assets. TowerXchange estimates that Iliad may take around 2,000 of the ~5,000 made available to them.
Hutch carving out a towerco: Unsupported rumours currently suggest that CK Hutchison is working on plans to carve out their European assets into a towerco. With towers in Italy, the UK, Ireland, Sweden and Denmark, Hutchison could have a strong proposition for an infrastructure investor who wishes to invest in communications infrastructure. If Hutch’s Italian opco Wind Tre is carved out into a towerco in parallel with Vodafone Italy doing the same, we could see north of 90% of the Italian tower market available for commercial colocation – and competition in the market reaching unprecedented levels.
INWIT for sale: As US investor Elliott and French Vivendi wrestle for control of the TIM board, it’s as yet unclear what the future holds for both Telecom Italia and its tower subsidiary, INWIT. However, it’s known that Elliott is keen to offload infrastructure, and Telecom Italia did announce their intention to sell their remaining 60% stake in INWIT in the future, most likely in 2019, when they postponed the first sale process back in 2016. It’s very possible that INWIT could come to market next year, and would doubtless attract the attention of those who joined the process last time around, including Cellnex, and F2i, the new owners of EI Towers.
Figure three: Who owns Italy’s 55,108 telecom and broadcast sites?
What shape will the Italian market take?
The Italian market is one of the most dynamic markets in Europe, with everything to play for. At this point it seems likely that at least one more player will enter the tower market, although whether that is a carve out towerco or a multi-national independent (or both) remains to be seen.
Despite Italy’s stringent EMF regulations, if tower sharing becomes more efficient there will be a need for significant rationalisation in the Italian market. The problem is that, while every player in the market acknowledges the need for rationalisation, none of them wants to be the one to make significant reductions to their portfolio, so the entry of one or possibly even two new players into the Italian market will simply exacerbate this problem, while a merger or acquisition is likely to result in value creation through a considered decommissioning strategy. We could see a very top-heavy market developing, with five towercos vying for Iliad’s business to achieve the tenancy ratios which will create value in their assets.
TowerXchange predicts 2019 will be one of the busiest years for European towers, and Italy will be a weathervane for this change as independent towercos, broadcast asset owners and carve out towercos backed by infrastructure investors vie for position in an increasingly crowded market. Longer term, we feel rationalisation within the market will be inevitable, but in the short term it’s not clear what shape the market will take.
