Read this article to learn:
- Telecom Italia announces Inwit’s IPO: an initial analysis of the plan
- Is Inwit really worth €2.4bn?
- How Inwit is planning to generate considerable savings
- Inwit vs Cellnex: a preliminary comparison
Mobile Network Operators realised early on that owning passive infrastructure didn’t secure any competitive advantage in Italy, especially since TIM – the mobile arm of Telecom Italia – already had a widespread portfolio of sites and started leasing to third parties back in 2004. As Inwit gears up to follow Cellnex into an IPO, the Italian tower market takes another giant leap toward a towerco-driven ecosystem. What do we know about Inwit and their portfolio of 11,519 towers?
Infrastrutture Wireless Italiane S.p.A., commonly known as Inwit, is the largest Italian towerco with a portfolio of 11,519 sites spread all over the national territory. Approximately 7,400 sites are located in suburban or rural areas with the remaining covering major cities and metropolitan hubs.
Back in March 2015, Telecom Italia transferred to Inwit a business unit allowing Inwit to take over all activities related to towers and other civil infrastructure with the goal to lease to both telecom and all other operators in Italy. Telecom Italia agreed to pay €253mn in annual rental to Inwit of which €140mn derives from the lease of 7,400 rural/suburban sites (€1577pcm) and €113mn derives from the remaining 4,100 urban towers (€2297pcm). The towerco expects to initially generate 90% of its revenue from its anchor tenant. However, sites are accessible to all operators in the country.
Upon approval of the deal, Inwit’s Extraordinary General Meeting of shareholders approved a capital increase from the original nominal €50,000 to a nominal value of €600mn with the addition of €780mn of nominal charge through the transfer from Telecom Italia of the business unit.
In recent news, Telecom Italia announced its plans to release an Initial Public Offering (IPO) on the Milan Stock Exchange for a 40% stake in Inwit. Before doing so, Telecom Italia will need to receive the green light from both the Stock Exchange and the Italian telecom market watchdog Consob. As of today, Telecom Italia retains Inwit’s entire corporation stock and intends to keep the majority of it after the IPO, which has been dubbed Operation Eiffel.
Initially valued at €730mn, the stake to go on sale could be ultimately valued as much as €970mn, as per recent valuations expressed by involved banks such as Deutsche Bank, Imi and Mediobanca. Quoting Seeking Alpha “…that would value the entire operation – Infrastrutture Wireless Italiane – at more than €2.4bn. Valuing the for-sale portion of Inwit between €810mn-€970mn means a valuation for the unit corresponding to 15-18x 2014 EBITDA of €135mn.”
When interviewed by Italian financial newspaper Il Sole 24 Ore, Inwit’s CEO Oscar Cicchetti said that the IPO “is an issue of capital allocation” and the newspaper went on commenting that “if there are investments needed to develop the finer network and buy licenses abroad keeping the capital tied up in poles and batteries is not the most efficient way to use it.”
In fact, Inwit plans to deliver bold targets throughout 2015 and 2016 with ideally 50% of the national population covered by broadband by Q4 2016 and 80% by LTE.
Il Sole 24 Ore also explained that Telecom Italia is better off carving out its towers to a specialised towerco in light of the stringent norms in terms of electromagnetic emissions in Italy. In fact, the Italian limit is of 6 volts per meter compares with 40-60 volts in the rest of Europe. Therefore, infrastructure sharing is subject to a natural limitation in Italy. Considering the often complicated Italian bureaucracy, licensing and permits should be handled by experienced players entirely dedicated to managing passive infrastructure.
Looking at the leases under the towers, Il Sole 24 Ore explained that “Inwit has already started to renovate the lease contracts for the sites that it doesn’t own, saving on average 20%, although €151mn per year of rental fees still account for 87% of total costs. Inwit started a few weeks ago to propose to land owners to pay five years in advance in return for a discount of up to 40%.” On a separate note, some commentators believe Inwit should not acquire the land it currently leases space on as property tax could have a heavy impact on the company’s balance sheet.
When looking at Inwit and its characteristics, it’s important to highlight that a significant proportion of the Inwit / TIM (Telecom Italia Mobile) towers already host more than one tenant as a result of a strong push in favour of infrastructure sharing which took place in Italy around 2004-2005, when operators realised that owning sites didn’t represent a competitive advantage. RBC Capital Markets estimates the Inwit tenancy ratio is currently 1.55, with TIM as anchor tenant, Vodafone the primary second tenant and an estimated 1,500 Wind tenancies. To put this in context, RBC Capital Markets puts the average tenancy ratio in Italy at 1.42.
Considering that Spanish towerco Cellnex (formerly Abertis Telecom) owns 7,698 sites in Italy thanks to the purchase of TowerCo and the majority of Wind’s portfolio, enjoys similar tenancy ratio and has parallel ambitious plans of its own, local news sources already refer to this newly formed dynamic as an exciting “tower chess game” between Inwit and Cellnex. In fact, commentators from various news sources such as Il Sole 24 Ore and Il Corriere suggest the possibility of further consolidation among small and medium-sized towercos which could decide to divest assets to the likes of Cellnex or Inwit in the near future. Any move is likely to happen following the IPOs for both companies though.
It might be too early to comment and express any opinion on whether Italian’s Inwit can compete with Cellnex and its expansion plans. One sure thing is that Cellnex has a pan-European vision and is currently being set up as an independent towerco with the appetite and capital succeed in Italy and beyond. On the other hand, Inwit is at the beginning of a journey that could very well result in the creation of the largest towerco in Italy, however its independence and bankability much depends on its governance and relationship with Telecom Italia.
Historically, the Italian telecom market featured Telecom Italia (named SIP until 1996) active as a state-owned company until 1997 when it was privatised and underwent a long reorganisation process in an attempt to guarantee third party operators fair conditions of access to Telecom Italia’s widespread network. To do so, the network was separated by the communication service unit and is now owned by Telecom Italia Rete which charges monthly fees to other companies for its use. Thanks to its maturity, the network has been used by many MVNOs such as Lunkem, Ringo Mobile, BT Mobile, CoopVoce, DigiTel Italia, Fastweb and MTV Mobile among others. Other operators though such as Omnitel – now Vodafone, H3G and Wind decided to build their own network and towers in order to ensure their full autonomy against direct competitor Telecom Italia.
To date, Italy has approximately 41,419 telecom towers of which approximately 20,067 (48%) are already in the hands of Cellnex, Inwit, EI Towers and various smaller towercos. The remaining portfolios are retained by Vodafone (12,000), H3G (7,000) and Wind (approximately 2,600 sites which weren’t included in the Cellnex deal). Therefore, it’s safe to say that there is still potential for further sale and leaseback deals in Italy.