Orange has become the latest mobile network operator to announce plans to carve out its European towers into a captive towerco. Revealing the news on 4 December during the presentation of its new strategic plan, Engage 2025, Orange will first start with its largest markets, France and Spain. The operator roll out the strategy across the majority of its European markets, with a view towards consolidating the units into a single pan-European towerco. TowerXchange take a look at Orange’s tower portfolio and the impact on the European tower market.
Orange’s tower strategy to date
French headquartered Orange has a footprint in eight European countries and eighteen markets across Africa and the Middle East (figure one). With the exception of the sale of its Ugandan towers to Eaton Towers back in 2012 (Orange has since exited the Ugandan market) and the signing of management with license to lease contracts with IHS Towers in Cameroon and Côte d’Ivoire, Orange has preferred to retain control and ownership of its tower portfolios. The sale of 1,500 non-strategic Spanish sites to Cellnex for €260mn, announced alongside the presentation of Engage 2025 this December marks Orange’s sole tower transaction in the European market.
Whilst preferring to retain control of its towers, the operator has been a keen advocate of infrastructure sharing. In Poland and Romania, Orange has entered into active network sharing joint ventures NetWorkS! (with T-Mobile) and Netgrid Telecom (with Vodafone); the operator also formed network sharing joint venture MBNL in the UK (with Hutchison’s 3) prior to exiting the UK market. In both Spain and Belgium, Orange signed new RAN-sharing agreements in 2019 (with Vodafone España and Belgium’s Proximus).
In the Middle East and Africa, Orange has entered into passive infrastructure sharing with other operators, although to varying degrees depending on the country (figure 3a and 2b).
Orange also has extensive experience in working with independent towercos, with towercos operating in eleven of Orange’s eighteen markets across EMEA.
Their motivations to carve their European towers into a towerco
On 4 December 2019, Orange announced that it planned to create towercos in the vast majority of its European markets, with the goal of deriving higher value from its network infrastructure.
The operator has laid out three key objectives for its soon to be formed towercos:
1. To improve operational efficiency and optimise mobile CAPEX
2. To increase the tower colocation rate whilst retaining Orange’s competitive advantage
3. To better understand and highlight the quality and value of these assets.
What we know about Orange’s tower portfolio
Orange has a portfolio of 40,000 sites in the European market (with a further 23,500 across Africa and the Middle East). By far Orange’s most significant site portfolio in Europe is in France where the operator has 17,100 towers (over 40% of their total portfolio). In Spain, the operator has 7,700 sites (of which 1,500 non-strategic sites are being sold to Cellnex; In Poland 5,200; Romania 3,600; Belgium 3,100; Slovakia 1,800; Moldova 1,500; and in Luxembourg just 200 sitesthe.
Figure one: Orange’s global presence
Figure two: Orange’s European tower portfolio
What revenues could the portfolio generate and what is it worth?
Whilst Orange have announced that they wish to keep control of their towercos, a key objective for the carve out plans is to “highlight the quality and value” of the assets, suggesting that a potential monetisation of a minority stake could be on the cards. The operator could look to sell stakes in each of the separate towercos (as Altice did in Portugal and France) or could sell a stake in the consolidated pan-European entity (which TowerXchange suspects will be the more likely move).
With Orange wanting to maintain majority control of their towerco, there are two monetisation options which the operator could explore; Orange could look to sell a stake in their towerco to a financial investor (following in the steps of both Telefónica (with Telxius) and Altice (with Hivory)) or could look to list a stake on a European stock exchange (a strategy Telecom Italia followed with INWIT).
In terms of revenue generation potential of the unit, one can make crude comparisons based on the figures proposed by Vodafone (in the announcement surrounding their tower carve out plans). Vodafone claimed that based on comparable benchmarks, their 61,700 pan-European towerco could generate proportionate annual revenue of €1,700mn and EBITDA of €900mn. A crude comparison based on scale suggests that Orange’s European towerco could generate an EBITDA approaching €600mn.
In terms of a valuation of the unit, there are too many variables and unknowns to draw an accurate figure, but benchmarks can be drawn from recent transactions in the industry. In France, Altice sold a 49.99% stake in their 10,198 towerco to KKR, valuing the company at €3.6bn, 18x EBITDA; in Portugal Altice sold a 75% stake in their 2,961 towerco to a consortium of investors, valuing the company at €660mn, 18.9x EBITDA. The sale of a 40% stake in Telefónica’s Telxius (with operations in Europe and CALA) back in 2017 valued Telxius at €3.7bn, 11.4x EBITDA. If one were to assume a midpoint range, Orange’s towerco could reach a valuation between €7.8bn and €10.2bn.
Figure 3a: Breakdown of Orange’s tower ownership and site usage in Sub-Saharan Africa (Q1 2019)
Figure 3b: Breakdown of Orange’s tower ownership and site usage in MENA (Q1 2018)
How will the news impact the tower markets in which Orange operate?
Orange currently operates in eight European markets; France, Spain, Poland, Belgium, Luxembourg, Moldova, Romania and Slovakia. Their plans to carve out towercos will begin in France and Spain, countries where the towerco model is well established, and then rollout across the other countries, where the business model is yet to have made a major footprint.
France
There are 60,690 towers in the French tower market and with the completion of Orange’s tower carve out, all four MNOs will have carved out their tower portfolios in one capacity or another.
Bouygues Telecom was one of Europe’s first MNOs to sell towers to an independent towerco, selling 2,166 of their estimated 17,000 towers to Antin Infrastructure Partners’ FPS Towers in 2012 for €185mn (originally retaining 15% equity, which Antin subsequently bought in 2015). Bouygues Telecom has also completed several tower transactions with Cellnex. In 2016 they sold 500 towers (an initial tranche of 230 towers, followed by a second tranche of 270) to Cellnex for a total of €147mn; in February 2017 they signed a third deal with the aforementioned governing the transfer of 1,800 urban (primarily rooftop) sites and 1,200 new build towers for a total of €854mn; later the same year they signed a further deal with Cellnex transferring a further 600 sites for €170mn. Bouygues is understood to retain a portfolio of around 3,250 sites in France.
In 2018, MNO SFR (owned by Altice) carved out their towers into a new towerco, SFR Towerco, in which they subsequently sold a 49.99% stake to investment firm, KKR and rebranded the unit to “Hivory”. Hivory owns a portfolio of 10,198 towers in the country and has a build to suit contract in place with SFR for the addition of approximately 1,200 new sites.
In 2019, France’s newest MNO, Free Mobile (owned by Iliad) announced a tower sale,reaching a deal with Cellnex for the sale of its 5,700 sites, retaining a 30% stake in the assets. The transaction also involves a build to suit component with Cellnex to add up to 2,500 new sites for the operator.
France’s independent towerco market is headed up by Cellnex whose total site count (as of Q4 2019) in France stands at 9,000 sites, a figure expected to increase to 13,450 when all their build to suit commitments are realised.
Following their acquisition of FPS Towers from Antin Infrastructure Partners in 2016, ATC Europe (American Tower’s European arm in which Dutch pension fund PGGM has a 49% stake) has a portfolio of 2,514 sites in the country.
Broadcast-telecom hybrid TDF has 7,728 telecom towers as well as an established broadcast business and growing fibre interest, whilst broadcast towerco, TowerCast (owned by NRJ Group) owns around 500 sites also sell co-locations to telecom clients in the country.
A carve out of Orange’s portfolio of 17,100 sites will create the largest towerco in the French market, and with the operator more actively pursuing co-locations on its assets, will present a sizeable competitor to towercos in a country which needs as many as 50,000 new points of presence. In terms of new build, Cellnex has significant programmes underway for Iliad (2,500 sites) and Bouygues Telecom (1,200 sites) with Hivory building 1,200 sites for Altice, but one can assume that going forward Orange’s towerco will manage the vast majority its parent company’s new build requirements. Orange’s announcement that their towers will be carved into a captive towerco also closes the door on any speculation of a sale and leaseback transaction which could have offered significant scale to an independent towerco’s portfolio in the market.
Figure 4: Tower ownership in France
Spain
Just over 50% of Spain’s 37,829 towers are owned by towercos, primarily Cellnex and Telefónica’s Telxius. Cellnex acquired the bulk of its portfolio through a number of transactions with Telefónica and Yoigo across 2012-2014; Telxius was formed when Telefónica carved out its c. 11,000 sites back in 2016 (transferring the remainder of its sites in Q3 2019). Axion (which was acquired by AMP Capital in 2018) operates a portfolio of c. 600 broadcast sites, of which 70% are in Andalucía.
Vodafone owns a portfolio of 9,700 towers in the country, which it is in the process of carving out into a towerco unit (along with towers across most of its European footprint). It is widely expected that Vodafone will gear up for an IPO of its towerco business, however the potential exists that it may follow different strategies in different markets.
Orange is understood to have a portfolio of 7,700 sites in the country and has agreed the sale of 1,500 “non-strategic” sites to Cellnex for €260mn. The creation of an Orange towerco, alongside the creation of a Vodafone towerco would mean that Spain’s entire complement of telecom towers would be held by towercos, demonstrating the value and success of the towerco business model.
Figure 5: Tower ownership in Spain
Poland
There are four mobile network operators in the Polish market (Orange, Play, Plus and T-Mobile) and around 22,000 towers. There have been no tower transactions to date in the country, although rumours have been circulating that Play’s towers may come to market in 2020.
T-Mobile and Orange share passive and active infrastructure in Poland through 50-50 joint venture NetWorkS!, although the assets remain on T-Mobile and Orange’s own balance sheets. Initiated in 2011, the partnership was intended to last 15 years, but recent developments would likely lead to the joint venture being dissolved. Orange has a portfolio of 5,200 sites in the country.
T-Mobile is 100% owned by Deutsche Telekom, with Deutsche Telekom recently announcing that its infraco, Deutsche Funkturm will look to expand beyond its German borders and start to consolidate assets from its other international opcos. Deutsche Telekom has already carved its 3,000 Dutch towers into a newly created infraco, T Infra, with the Austrian towers expected to be carved out next. Whether the operator has plans for its Polish assets remains to be seen.
Whilst Orange has not confirmed that its Polish towers will be carved out into a towerco, the scale of Orange’s portfolio in the country coupled with the growth potential in Poland make it one of the Orange’s more attractive set of assets. Poland has more subscribers per tower than the majority of other countries in Europe, indicating the potential demand for more towers and thus business for a towerco operating in the country. What’s more, outside of the NetWorkS! venture, as little as 2% of Poland’s towers are shared between multiple MNOs, indicating the scope for co-location growth across the country.
Beyond Poland’s MNO owned towers, Poland’s broadcast towerco, Emitel (owned by Alinda Capital Partners) operates a portfolio of 377 sites and has been diversifying into telecom. It was rumoured that Emitel would be coming to market in 2018, but no further developments were reported.
Belgium, Luxembourg, Moldova, Romania and Slovakia
Save Slovakia, where independent towerco, Towercom operates a portfolio of 700 sites, towers in the remainder of Orange’s European markets are captive on MNO balance sheets.
In Romania, Orange and Vodafone formed an active and passive network sharing joint venture back in 2013, initially called Ovidiu Telecommunications and since rebranded to Netgrid Telecom. Vodafone’s plans to carve out a pan-European towerco extends to their Romanian operations and so a dissolution of the joint venture looks likely. With Vodafone following tower carve out plans in Romania, and their joint venture with Orange likely to break up, it seems likely that Orange’s towerco carve out plans will also extend to market. Orange has a portfolio of 3,600 sites in the country
In Belgium, where Orange has 3,100 towers, Orange and Proximus recently signed a RAN-sharing agreement to enable the two operators to meet increasing demand for network quality and indoor coverage whilst reducing the cost and timeline for the rollout of 5G. Orange expects that the agreement will deliver cumulative opex and capex savings in the region of EUR300mn over ten years.
Whilst the five countries have less exposure to the towerco business model than Spain or France, operators have shown their appetite to share infrastructure in at least three of the markets. The creation of a dedicated towerco unit in each country would give Orange the opportunity to place real focus on maximising the value and efficiency of its assets and with 10,700 towers across the five markets (27% of Orange’s entire European tower portfolio), would add significant scale to a pan-European towerco.
How does Orange’s strategy follow that of other European MNOs?
2019 has been a big year of announcements in Europe when it comes to the creation, or expansion, of MNO captive towercos. In June, Vodafone announced its intent to carve out up to 61,700 European towers and the operator is widely expected to be gearing up for an IPO of the unit in 2020; in August, CK Hutchison announced plans to carve it 28,500 European towers into their own captive towerco, CK Hutchison Networks, although plans to monetise the towerco do not appear to be an immediate priority; in September, Telefónica (who had already carved 18,000 CALA and European towers into their infraco Telxius) announced that it was to accelerate the monetisation of its remaining c. 50,000 sites, 19,000 of which are in Germany and 7,000 of which are tied up in the UK JV with Vodafone (Cornerstone). In November, the operator then revealed its new strategic plan which included the creation of Telefónica Infra, a dedicated unit into which its infrastructure assets would be transferred, including its 50.01% stake in Telxius. Deutsche Telekom has extended the reach of its infraco, Deutsche Funkturm, with the carve out of its Dutch towers into sister company (T Infra) and plans to do the same in Austria. Deutsche Telekom CEO, Tim Höttges also hinted that the company may look to list a stake in Deutsche Funkturm in 2020. In Scandinavia, both Telia and Telenor have also commenced proceedings to carve out towers, with Telia creating towercos in Finland, Sweden and Denmark and Telenor carving out its towers in Norway. Orange’s announcement very much joins this European wide trend as MNOs look to derive further value and efficiencies from their infrastructure portfolios.
What are the most appropriate comps for Vodafone’s TowerCo, CK Hutchinson Networks and a potential Orange towerco?
Assuming Vodafone, Hutchison and Orange carve out and keep controlling stakes in their towercos, the most relevant comps are not pureplay independent towercos like American Tower, Crown Castle, SBA Communications and Cellnex. More direct comps would be other towercos carved out of MNOs where the parent MNO or MNOs still owns at least 50.01%, such as Telecom Italia’s INWIT, Deutsche Telekom’s Deutsche Funkturm, Telefónica’s Telxius, Axiata’s edotco, América Móvil’s Telesites, or China Tower Corporation, in whom China Mobile, China Telecom and China Unicom still have significant stakes.
INWIT: Vodafone Italy is in the process of injecting its towers into Telecom Italia’s towerco INWIT, in return for €2.14bn and a 37.5% stake, raising INWIT’s tower count to ~22,100. The enlarged INWIT’s tenancy ratio (the average number of tenants per tower) will be 1.75, the majority of which are TIM and Vodafone tenancies, although they also have tenancies from Italy’s other MNOs. INWIT IPOed in June 2015, since when it’s share price has increased 2.3x.
Deutsche Funkturm: Deutsche Telekom carved out towerco Deutsche Funkturm (aka DFMG) in 2002. DFMG have a healthy tenancy ratio of around 2.3 on ground based towers, but EMF restrictions and challenging landlord relations mean they have a much lower tenancy ratio (estimated to be between 1.1 and 1.5) on rooftops, which make up around 70% of their portfolio. DFMG has over 30,000 towers and rooftop sites in Germany, where they added 1,300 sites in 2018 and around 1,800 in 2019. Deutsche Telekom has carved out 3,000 T-Mobile towers in the Netherlands into DFMG associate company, T Infra, and will do likewise in Austria. Deutsche Telekom has hinted that it may explore an IPO for DFMG.
Telxius: Telefónica’s Telxius has 17,550 towers across in six countries: Brazil, Chile, Germany, Peru, Spain and Argentina. The Telxius tenancy ratio is 1.36. Telefónica sold 40% of equity in Telxius to KKR in 2017 for €1.3bn, and a further 9.99% to Pontegadea in 2018 for €379mn, suggesting an enterprise value of €3.8bn.
edotco: edotco is in six countries (Bangladesh, Cambodia, Malaysia, Myanmar, Pakistan and Sri Lanka), and is poised to enter Laos and the Philippines. edotco has a tenancy ratio of 1.6 on 29,325 towers. Axiata sold a total of 37.6% equity in edotco between 2016-17 at a price which would have then valued the company at US$1.9bn.
Telesites: América Móvil’s Telesites is primarily in Mexico, with a small operation in Costa Rica. There is speculation they may expand further into America Movil’s Central and Latin American footprint, but nothing has been confirmed yet. Telesites tenancy ratio remains below 1.2, and they have 16,606 towers. Telesites IPOed in July 2016, since when the share price has increased by 5%.
China Tower Corporation (CTC): CTC has 1.979mn towers with a tenancy ratio of 1.58. CTC has built over half a million towers and added over 1.25mn tenancies in five years. 55% of China Tower’s revenues are derived from China Mobile, 23% from China Unicom, 22% from China Telecom. China Tower debuted on the Hong Kong stock exchange in August 2018, since when its share price is up 57.7% (as at 1 August 2019).
For further detailed analysis of major developments in the European tower market in the past 12 months, download TowerXchange’s complimentary 2019 market review to read:
- Detailed summaries of the key discussion areas at the 2019 Meetup including CEO strategies, the impact of business models on valuation, M&A, deploying infrastructure for 5G and better usage of site data
- Interviews with VIPs including Cellnex, ATC Europe and Russian Towers
- Analyses of 2019’s M&A deals
- The implications of 2019’s tower announcements by Vodafone, Hutchison, Telefónica and Orange
- Forecasts for tower ownership by Q4 2021
- A who’s who, profiling the top 150 companies you need to know in the sector
Download TowerXchange Europe report 2019
The who’s who in European towers will be coming together in Barcelona on 19-20 May 2020 for the 5th Annual TowerXchange Meetup Europe. To find out more information about the Meetup and how to join visit https://meetup.towerxchange.com/event/39048e27-74eb-4f9f-aecf-eaddb76894ef/summary
