Cellnex expands into France

The vision behind Cellnex’s acquisition of 230 towers from Bouygues Telecom

Read this article to learn:

  • Why Cellnex decided to enter the French market
  • How the rationalisation and decommissioning of Europe’s macro towers will proceed in parallel with the deployment of small cells
  • The impact of the shortening of Free Mobile roaming agreement with Orange and the RANsharing agreement between Bouygues Telecom and SFR
  • The balance of GBTs versus rooftops in the acquisition, and Cellnex’s appetite to invest in rooftops
  • Comment on the valuation multiple

Cellnex has reached agreement to acquire an initial 230 towers for €80mn from Bouygues Telecom. Most of the sites are in rural and suburban France. The deal heralds Cellnex’s entry into France and inaugurates what they hope will be a 20 year relationship with Bouygues Telecom. France is the second Northern European country to which Cellnex has expanded this Summer, following their acquisition of 261 towers in The Netherlands from Protelindo. Cellnex currently has over 16,100 sites, and closed Q116 with revenue of €165mn (+41%) and EBITDA of €63mn (+26%).

TowerXchange: Congratulations on Cellnex’s announced acquisition of 230 towers from Bouygues Telecom for €80mn! What has attracted Cellnex to extend your footprint to France – what market dynamics make the country fit your investment thesis?

Gaëtan Le Bouedec, Country Manager, France, Cellnex:

There are several factors that make this new move consistently fit with our strategy. This is the beginning of a long-term collaboration with Bouygues Telecom. We trust that this agreement opens the door to extend it in the future to other areas such as the construction of new towers on demand (Build to Suit), or the deployment of new technologies based on the “small cells” for mobile broadband extension.

Moreover the deal strengthens our European scope and thus our ability to build partnerships with customers operating in different European markets to whom we can offer telecom connectivity solutions.

In terms of dynamics France is one of the biggest telecom European markets. It is expected to have more than 85mn mobile connections in 2016 with four main mobile operators, which means a lot of activities to be done regarding telecom network development.  It is a market with well established franchises of independent infrastructure operators, which taken together manage more than 20% of all towers nationwide. Thus the business model is known and we see further growing opportunities for operators like Cellnex in the rolling out of a more dense and more capillary infrastructure network by deploying small cells and distributed antenna systems (DAS) that, as in every key European market, will constitute a growth vector in France over the coming years.

TowerXchange: How would you characterise the maturity of France’s 4G rollout and the progress of the French MNOs’ thinking toward 5G? What does this suggest about growth opportunities in macro and small cells?

Gaëtan Le Bouedec, Country Manager, France, Cellnex:

Rolling out LTE is a challenge as well as a huge opportunity for the whole industry. 4G and especially 5G deployment will require not only a consensus on technology standards and the regulatory environment, but will demand a new leap in investment in mobile access points and supporting fixed infrastructure. Thus denser networks based on small cells and DAS technologies that will not substitute but complement and enhance a more rational and efficient installed capacity of macro cells.

there will be two parallel and consistent processes in the next years that will pave the telecom infrastructure landscape throughout Europe: rationalisation and decommissioning of the current macro cell stock, as well as new investment and deployment of a wholly brand new network of small cells

Among others there will be two parallel and consistent processes in the next years that will pave the telecom infrastructure landscape throughout Europe: rationalisation and decommissioning of the current macro cell stock, as well as new investment and deployment of a wholly brand new network of small cells. To make this happen in the most efficient way, sharing and outsourcing offer a means to minimise risks, accelerate time to market of a real mobile broadband and drive commercial flexibility of the MNOs.

It will imply a more densified radio network based on macro and small cells developments. In order to accelerate the time to market of a real mobile broadband and focus their strengths in their core business, MNOs will share, initially, their passive networks with the future sharing of active networks. In that case, towercos will be very well positioned to contribute value to the MNOs through saving costs, efficiency models, and capital-intensive strategies in non core business for MNOs.

TowerXchange: How will the French telecoms regulator ARCEP’s shortening of FREE Mobile’s roaming agreement with Orange (now expiring at the end of 2020) affect demand for tenancies from the FREE Mobile?

David Bernal, Head of Business Development, Cellnex:

Arcep’s strategy is to promote the efficient investment in broadband infrastructure and it implies avoiding duplication of towers in those cases where a shared infrastructure can be used by the different MNOs to provide the coverage and capacity to the final customer to fulfill the broadband plans.

TowerXchange: Similarly, what impact do you feel the RANsharing agreement between Bouygues Telecom and SFR might have on demand for tenancies from those MNOs?

David Bernal, Head of Business Development, Cellnex:

RANsharing agreements are a way of cutting costs for MNOs but they limit the flexibility the different operators have with regards to selecting the network technology as well as other network strategic points.  Usually, MNOs try to use the sharing model in non-strategic areas with low voice and data traffic. At the end, it depends on the agreements entered into by the MNOs and the towercos to manage the value shared among the different players with the infrastructure owned by the towerco.

TowerXchange: Does your acquisition from Bouygues Telecom consist solely of ground based towers, or are there some rooftop structures in the portfolio?

Gaëtan Le Bouedec, Country Manager, France, Cellnex:

The current agreement involving the first phase of 230 sites and the potential extension up to 500 are mainly ground based towers, with a low number of rooftops.

TowerXchange: What is Cellnex’s appetite to invest in the ~13,000 rooftop structures used as mobile PoSs in France? How do you see the relative investibility of rooftops compared with ground based towers?

David Bernal, Head of Business Development, Cellnex:

Cellnex considers that not only towers are valuable assets but also rooftops can capture a lot of value from the telcom market. Rooftops have a more limited capacity to share different antennas (due to structural limitations) but are located in more urban and strategic areas, so they are key assets for the MNOs in terms of traffic, so the increase in tenancy ratios when rooftops are managed by a towerco can bring a lot of value to the MNOs.

TowerXchange: When your press release states that the “assets contributing €6.9mn to revenues over a 12 month period, including other third parties”, is that the same as Tower Cash Flow?

Gaëtan Le Bouedec, Country Manager, France, Cellnex:

No, we refer to revenues, not to technical concepts as recurrent free cash-flow. This is a figure which does include the contract agreement with Bouygyes Telecom as well as estimates of agreements with other third parties.

While in the coming months the total number of sites transferred to Cellnex could reach up to 500 the EBITDA multiple can change consequently.

I can confirm that the transaction falls within the current European multiples range.


Highlights from the press release

Cellnex’s CEO, Tobias Martínez said: “This deal strengthens our European scope and thus our ability for building a partnership with customers operating in different European markets to whom we can offer telecom connectivity solutions.”

“Over the last 18 months Cellnex has pushed forward a top-class transformational project that has taken us from being a single-country, single-product company to become a reference operator in four European countries; to diversify our business lines based on our “know how” in managing telecommunications infrastructures; to invest more than 1,100 million euros in growth; to double the Group’s key indicators and to consolidate a set of assets that provide us with stable and predictable long-term flows. Which is essential for a company that has an industrial project with the ambition to actively participate in the deployment of new infrastructure for mobile connectivity and broadband.”

Francisco Reynés, Cellnex’s Chairman added: “these operations consolidate the model of a neutral and independent telecommunications infrastructure operator focused on growth opportunities in Europe. This was the objective which underpinned the company’s IPO one year ago: gaining flexibility and leeway in order to seize the opportunities that we understood the market could offer us and which  we are seeing confirmed with today’s deal with Bouygues, or the most recent ones with CommsCon in Italy and Protelindo in Netherlands”.


 

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