A frank view on European towers from Tobias Martinez, CEO of Cellnex Telecom

As the proposed 2020 5G rollout date draws closer, tower companies must balance capex deployment between organic growth, new acquisitions and investing in infrastructure for a future which may look very different to the architecture of today.

In this interview, Tobias Martinez, CEO of Europe’s biggest towerco Cellnex Telecom and a keynote speaker at Meetup Europe 2018, shares his ambitions for Cellnex in terms of both organic and inorganic growth, and explains how the towerco is preparing for a shift away from macro infrastructure.

TowerXchange: Can you tell us about Cellnex’s plans for 2018?

In 2018 we continue to focus on having the right combination of expanding our geographical footprint; integrating new countries where we have recently expanded, like France and Switzerland; and delivering the best possible service for our customers.

In today’s market, we aren’t just judged by the type of services we offer and the reliability of our masts. We have operations in six countries and dealing with different customers we have to think about market positioning, consolidation, and achieving of efficiencies for our customers in parallel to expanding and consolidating in new markets. We are in the process of integrating the companies we have acquired over the last year and focussing on customer management; making sure we have the teams in place to drive organic growth while also integrating new assets.

Having said that, we continue to consider acquisitions in new markets. It’s now public knowledge that Altice could be open to a potential transaction in 2018 and Portugal would be an interesting new country to expand our footprint.

TowerXchange: You gained a large amount of new territory in 2017, with operations in some of Europe’s biggest tower markets. Is your main focus now on consolidation in those markets or further growth into new European countries?

We now have operations in Italy, Spain, France, Switzerland, the Netherlands and the UK. We have expanded from approximately 7,400 sites in 2014 to over 21,000 at the end of 2017. It would be a step forward for us to improve our footprint in the Netherlands and the UK, but sometimes it’s hard to find the right opportunity such as we have been able to capture in markets like Italy, France or Switzerland. It will come.

We always keep an eye out for future asset disposals in the European market. For example, as I have raised, we will see what can be expected from the potential Altice’s tower and telecom sites divesting process. Certainly in 2018 we do expect a very attractive market which will expand our pipeline of opportunities. From dealing with our customers we get a sense that they are increasingly willing to outsource passive infrastructure.

TowerXchange: You’ve acquired towers from Telefonica, VEON, Bouygues and Sunrise now. Do you feel you’ve created a ‘proof of concept’ for a European Sale and Leaseback model, and will we see more operators willing to sell their towers as the market becomes more comfortable with the idea?

I definitely think the market is moving in this direction. Since our initial acquisitions we’ve been able to acquire more and more assets. Our customers recognize us as a reliable long term partner.  For us, it’s about more than just allocating towers or hosting on our assets, we also offer build to suit and decommissioning. We are in constant dialogue with our customers about their future development and strategy. This partnership approach is having an effect and telecom operators are more open to discussing outsourcing opportunities.

The second most important factor is being able to accommodate all customer requirements. Until Cellnex was in the market, Master Lease Agreements were the only framework on which to base realistic services in our industry. The IFRS Standard 16 has changed the dynamics of the market. Both Cellnex and its customers are now revisiting this framework to accommodate a new way to deliver these kind of services.

This is why our Master Service Agreements are one of the levers of value creation which differentiates Cellnex from other competitors. The important aspect is the ability to accommodate all customer requests, accounting issues and concerns around the outsourcing of their infrastructure.

Our Master Service Agreements focus on the services we provide. That means they are about providing coverage rather than providing square meterage in one shelter or access to one tower. It’s managing the relationship in a different way and defining the service in a different way. From an accounting- perspective, it’s a different type of service which allows the telecom operator to avoid the full capitalisation of the contracts. This isn’t the case in terms of Master Lease Agreements. The capitalisation of Master Lease Agreements means an impact in terms of debt liability. With Sunrise, Bouygues and Veon we have MSAs rather than MLAs, and for some of our customers an MSA is a must. This illustrates how MSAs will play an increased role for service providers like Cellnex and will let value emerge for our customers.

TowerXchange: We’ve talked a lot about 5G with your team over the last few months. Can you give us your high level thoughts on how quickly we’ll see 5G actually roll out?

Working out the timing for new technologies is always difficult but from our point of view the timing is not a major issue. We are envisaging the first steps of 5G rolling out for commercial purposes from 2020 but in terms of passive infrastructure we have to start working one to two years before this rollout, so by the end of 2018 and into 2019 it will become a more and more relevant part of our capex plans, our contract reviews and parameters. In 2018 we will be doing more technical tests and trials and by 2019 we will start defining with our customers what will be our common approach to tackling 5G. We don’t expect to see much commercial use before 2021 or 2022.

TowerXchange: Cellnex is leading the way in terms of future infrastructure and diversifying your portfolio. Do you still see macro infrastructure as the core of your business? Do you envisage this changing over time?

Macro infrastructure will continue to play a key role in the future network architecture. 5G is a dramatic change in the nature of the services we offer, it’s a big change and not just an evolution from 4G as 4G was from 3G. 5G will be an entirely different type of network, and will bring different types of services. We have to talk about robotics and autonomous cars for example. In these industries we need a latency below one millisecond, and this threshold means an almost immediate response, which means a different network structure. We’re going to need a lot of fibre optic backhaul connected to the towers and computing capacity near to the end users in order provide less than one millisecond latency. This will be a major undertaking for the entire industry.

To make this happen densification will be critical. Network infrastructure will be based on macrocells but not just macrocells: we need to deal with urban areas which will mean more urban telecoms infrastructure such as small cells and DAS ecosystems providing more capacity indoor and outdoor coverage.

For wireless infrastructure operators this means an expansion of our role. We have to expand from mainly passive infrastructure solutions to a more holistic approaches. Multioperator small cells, fibre to the tower, edge computing, maybe even big data analysis - why not? At the end of the day, we’re envisaging new business models which means more partnerships with other specialist companies, more specific knowledge on industries such as insurance, banking, manufacturing etcetera, as we are envisaging telecom operators will offer more vertical solutions than now. If you want to deliver 5G to corporations, you should improve your knowledge on the specific value creation models of your customers and work with them to understand their strategies and align your strategies with them to develop long term relationships and align capex plans with them. 5G for us is a challenge but also a great opportunity.

Cellnex has already taken proactive steps towards anticipating 5G challenges such as our acquisition of Commscon in Italy for 5G deployment of indoor and outdoor solutions and Alticom in the Netherlands for datacentres and edge computing. We feel this underlines the kind of strengths we are building that will allow us to partner with our customers and provide not only passive infrastructure but also deploy a new network architecture.

Recently we have managed to install a brand new network at the Atletico Madrid stadium to offload the mobile broadband services for all our customers using one single infrastructure. We’ve also deployed a similar solution at Olimpico de Roma. Moving forward we have to understand the business model and business case better, whether that’s about datacentres or other new types of services. We are keeping an eye on acquisitions that Cellnex’s peers have made in the US expanding into fibre optic and data centres. We are exploring, but being prudent, as we have to make this journey with our customers, so we are testing the water.

TowerXchange: Your acquisition of the Sunrise towers saw you team up with equity partners from Swiss Life Asset Managers and Deutsche Telekom Capital Partners (DTCP) for the first time. How did that partnership get started? Is this a model you’ll be looking to replicate in future deals?

The acquisition in Switzerland was the first time we worked with investment partners, and it doesn’t mean we will always try to replicate it. In Switzerland we wanted to get a local partner like Swiss Life and it was a suitable opportunity as well to get involved with DTCP -the Deutsche Telekom capital investment arm- as the Swiss market is close to them and opened a way for cooperation and learning from each other. So far it’s going well, maybe it’s still early as we just acquired Swiss Towers AG last summer, but our relationship with both Swiss Life and DTCP is progressing very well. We don’t have any additional commitment for other countries (I mean with DTCP) but we are both open to consider further opportunities to enlarge our footprint. Everything takes time to deliver, so we need to work with them. It’s more a strategic partnership than a pure financial relationship.

TowerXchange: As one of the headline speakers at Meetup Europe, a lot of people will be coming to listen to you. What will you be listening out for during your discussions at the event?

The tower sector is relatively small, although global in its scope. There aren’t thousands or event hundreds of independent companies in the market. Meetup Europe provides an opportunity to listen to other viewpoints not just from our fellow towercos but also to listen to and be listened to by analysts, investors, and telecoms operators, in order to get a full picture of the momentum of our sector.

Furthermore, TowerXchange Meetup Europe is also a great opportunity to understand what’s happening in terms of themes such as planning customer requirements, hearing their concerns and technology challenges. All in all TowerXchange Meetup Europe is becoming more relevant and more complete in terms of having a full picture of the different angles and views on the sector. It’s becoming a reference for the industry and we appreciate the opportunity to attend. You can meet more people in one or two days than you can in one month in the office or travelling abroad.