A significant number of big European operators have now either created towercos or sold their assets, the rest are either midway through the process or discussing their options across the boardroom table. The continent’s second tier players, companies with strong market positions in a single country for example, are following suit and examining the opportunities for their more modest tower portfolios. In this article, TowerXchange rounds up the strategies of the continent’s major operators, discusses their motives and speculates as to how the shape of the market may evolve.
A timeline of tower M&A activity
Whilst tower carve outs and tower sales began in the European market 15+ years ago with deals such as Eircom’s tower sale to Towercom (2007) and KPN’s tower sales to Open Tower Company, Cellnex and Protelindo (2008-2012), momentum only really started to build in 2016, with Cellnex announcing a flurry of deals and Telefonica creating Telxius . Vodafone’s 2019 announcement that it was creating a pan-European towerco added a further catalyst to the fire, putting the European tower market – to quote Cellnex’ Deputy-CEO, Alex Mestre – in a position that the industry could have only “dreamed about” in its early days. All operators are talking about what to do with their towers.
Figure 1(a) European MNO-towerco deals since 20081(a): European MNO-towerco deals since 2007 1(a) -2: European MNO-towerco deals since 2007
Figure 1(b) European towerco consolidation since 20151(b): European towerco consolidation since 2015 1(b) 2: 1(b): European towerco consolidation since 2015
Figure 1(c): Major European towerco equity deals and listings since 20161(c) Major European towerco equity deals and listings since 2016
What have been the strategies if the continent’s major operators to date?
There is a general consensus across the industry that towers can no longer sit trapped on an MNO’s balance sheet, their value needs to be highlighted and maximised. The direction that operators will take to achieve this goal varies. Some (such as Iliad and Hutchison) have chosen to sell towers to independent towercos; others (such as Vodafone and Orange) have preferred to retain ownership; others have switched tack halfway through (such as Telefonica’s decision to sell Telxius to American Tower). Some operators have carved out both active as well as passive infrastructure (PPF Group moving its active and passive infrastructure into its own towerco, CETIN; Polkomtel choosing to sell both active and passive infrastructure to Cellnex). A further option available to operators is to form joint ventures (as Vodafone and TIM have done in Italy).
Some operators have executed very much a pan-European strategy, divesting or carving out towers in most, if not all their markets (e.g. Vodafone’s formation of Vantage Towers or Hutchison’s divestment of all its European towers to Cellnex); others have only announced plans in a couple of markets to date (e.g. Orange’s TOTEM plans are currently limited to France and Spain, Deutsche Telekom have carved out towercos in Germany and Austria, and sold towers in the Netherlands but retain towers elsewhere) . Signs very much indicate, however, that operators will roll out their tower strategies to other opcos as they look to demonstrate and maximise the value of their tower assets. Sometimes complex ownership structures in certain markets can present a barrier but all investors should be motivated to demonstrate and maximise the value of their assets.
Operators who are yet to formally reveal tower plans are Telekom Austria (although parent company America Movil is carving it’s CALA towers into a captive towerco, indicating a similar strategy will be followed in Europe), Tele2 (who has commented there is more to do in terms of sharing and separating out infrastructure assets, suggesting news is imminent) and VEON (who is moving towers into towerco business units but is yet to comment on whether these will be sold or retained as VEON-owned towercos).
Figure two summarises the tower strategies to date of the continent’s major multi-country operators.
In terms of tier two operators, companies with a strong position in just one or two markets – there are a significant number of such players active across the continent. We have seen moves by some of them – France’s Bouygues Telecom and Switzerland’s Sunrise have both sold towers to independent towercos; Italy’s TIM has formed a joint venture with Vodafone’s Vantage Towers (INWIT); whilst Greece’s Wind Hellas sold towers to Vantage (originally retaining a minority stake in the towerco entity) - but there are plenty more who are yet to execute tower strategies.
Figure two: Tower strategies of Europe’s major multinational MNOs
What is the lay of the land in terms of tower ownership and how could this change?
Currently, there are just under 710,000 towers in the European market – inclusive of both ground based and shareable rooftop sites. Of these towers 21.5% are currently owned by independent towercos, 24.9% by operator owned towercos, 12.3% by JV infracos whilst the remainder are captive on MNO balance sheets (figure three). When all the deals and carve outs that have been announced are finalised, the figures will shift to 24.5% of towers being owned by independent towercos, 26.9% by operator owned towercos; 12.3% by JV infracos and 36.3% by MNO captive towers.
Figure 3a: Tower ownership in the European tower market – August 2021
Figure 3b: Tower ownership in the European market when all announced carve outs are finalised and deals are closed
There is however still a long runway for towers to be released from MNO balance sheets. Orange has only announced towerco plans in France and Spain, but owns a further 18,000+ towers across Europe and is likely to rollout their strategy across their broader footprint; Deutsche Telekom has only carved out its towers in Germany and Austria into its GD Towers business unit (whilst selling their Dutch portfolio to Cellnex) but has a significant footprint across the region; Telekom Austria and Tele2 have yet to announce tower strategies but have hinted that discusses are very much underway across the boardroom table.
The appetite of independent towercos to acquire more portfolios from operators is very much still there. Cellnex‘s M&A spree had dominated tower transaction news in the European market for a number of years and that appetite shows no signs of abating. Whilst they have been relatively quiet on the M&A front in Europe (versus other geographies), American Tower’s acquisition of the Telxius towers has been transformational for their European footprint and indicates that the towerco remains committed to inorganic growth should the right opportunities arise. Whilst a relatively new entrant to the European market, Phoenix Tower International has been very active on the M&A front since it stepped foot on the continent, building a portfolio of 4,000 towers in five markets – including some virgin towerco territories such as Malta and Cyprus. The majority of Europe’s remaining independent towercos are single country players yet to execute any major tower deals; some, such as Brookfield-backed Wireless Infrastructure Group have stated an appetite for M&A; whilst other smaller players are more likely to present acquisition targets themselves.
In terms of the formation of new operator owned towercos, since Vodafone announced the creation of Vantage Towers, a number of other operators have stepped forward with similar plans – with Orange, Telia and Telenor to name just a few. The model presents an interesting alternative, and as Vantage’s successful IPO shows – there is no shortage of capital interested in such ventures should partial monetisation also be part of the plan. Of the operators yet to reveal towerco plans, TowerXchange expect a number to follow this route – whether the towerco carve out will be their final destination remains to be seen – both Telefonica and Altice are examples where a towerco carve out eventually led to a sale to an independent player.
Finally, TowerXchange expects the number of towerco joint ventures to grow. We now have a precedent in Italy, with TIM and Vodafone combining their towers under INWIT - this will help with regulatory approval in other markets. Plus, in investor calls a number of operators have confirmed the joint venture option is a strategy they are exploring and we expect this to gain traction as discussions move forward. Joint ventures make particular sense where operators also have active sharing agreements in place, providing a much more holistic way in which to share assets. Whereas historically joint ventures have not been run as commercial entities, TowerXchange expects the new breed of joint venture to follow in INWIT, and now Cornerstone’s footprint – commercialising the operations and deriving the most value from the combined assets.
Currently 41.3% of towers (just over 293,000 sites) remained trapped on MNO balance sheets in Europe, additionally some of the joint venture towercos active in the continent are not yet run as commercial entities. Over the next 12-18 months, TowerXchange expects a number of announcements and movements from the major operators yet to carve out or sell their towers – anticipating that we will see new sale and leasebacks as well as new operator-owned towercos and new joint ventures being formed. TowerXchange also expects activity to ramp up amidst the continent’s tier two players as the options available to them becoming increasingly clear. Whist the past couple of years have been the most dynamic on record for the European tower industry, there is still a long runway of growth ahead of us.
