Read this article to learn:
- The terms of Cellnex’s latest deal with Sunrise
- Background information on the Swiss market
- An analysis of the potential for tower growth in the Swiss market
- Potential targets for Cellnex’s next European deal
With the acquisition of 2,339 towers from Sunrise in Switzerland, Cellnex are not only entering a new market, but also rolling out a new business model; working in partnership with financial investors (in this case Swiss Life Asset Managers with 28% and Deutsche Telekom Capital Partners with 18%) to secure towers as part of a consortium. Sunrise has raised €430mn from this deal.
Similarly to Cellnex’s recent deal with Bouygues, the acquisition agreement includes the signing of a Master Service Agreement, for an initial period of 20 years, extendable by a further 20 years in 10-yearly increments. A build to suit element is also included in the deal, both potentially for macro towers and for 200 DAS nodes.
Cellnex Telecom Chairman Francisco Reynés underlined the quality of the acquisition “which will enable us to further consolidate Cellnex’ European platform to Switzerland, a country marked by stable and secure economic and political environment, while also offering Cellnex clear synergies through its geographical location next to France and Italy, where the Company is also present. Undertaking this acquisition with reputable partners such as Swiss Life Asset Managers and DTCP will provide not only financial support, but essential knowledge and access to the Swiss market as well as to other Central European countries.”
The Swiss market
Cellnex states that there are currently 11,300 mobile sites in Switzerland, meaning their acquisition of 2,339 sites has given them just shy of 20% of market share in one transaction. Most of these sites are in the North and West of the country, and 32% are in urban areas with 64% of the total on rooftops.
TowerXchange believes that many of these rooftop towers are ‘stub’ towers, however, which differ from traditional rooftop sites as there is an existing structure in place, offering the potential to lease up the sites much more easily than a basic ‘rooftop’ site, which is essentially just an agreement to place a set amount of active equipment in a set location.
Swisscom may become a second tenant, ditto Salt, Switzerland’s third MNO, owned by Xavier Niel, whose asset-light rollout of Free in France has relied heavily on roaming and, increasingly, towercos to achieve scale.
EMF regulations in Switzerland are stringent, which will limit potential tenancy ratios, however, they are in line with Italian regulations: 5 kV/m for electric fields and 100 µT for magnetic fields, and the Italian tower market has been one of the most active in Europe.
As elsewhere, however, Cellnex aren’t just eyeing straightforward tenancy ratios, but increases in data useage, infill, densification and 5G rollout. As Cellnex state: “As in other European markets, the Swiss mobile telecommunications market is experiencing significant growth in mobile data, for which year-on-year growth is expected to exceed 45% over the next five years”. A foot in the door in the Swiss market will allow them to leverage their burgeoning expertise in small cell and DAS deployment, with 200 DAS sites agreed as part of this initial deal.
As Tobias Martinez told us back in January 2017, Cellnex’s model has three stages: firstly, to acquire an asset in the market and learn about market dynamics, secondly to pursue further growth and capture economies of scale and thirdly to consolidate and offer full efficiencies to their customers in that market. At this point, Cellnex is entering stage one, and will doubtless be looking for opportunities to grow in the Swiss market, and with significant market share captured already, that growth may well be achieved through network densification, and doubtless by a degree of decommissioning.
When commenting on this deal, Tobias Martinez stated: ”Like all other major European countries, the industry in Switzerland is facing the challenge of meeting the significant growth in mobile data consumption and transmission by incorporating new technologies based on small cells and distributed antenna systems (DAS), which in the medium term will mean densifying networks by rolling out new equipment in parallel with reducing the overlap of some of the already rolled out networks, essentially 2G and 3G. This market development provides a clear opportunity for Cellnex Telecom.”
Swiss Towers AG tower locations
The consortium model
Of course, this type of deal is nothing new – Cellnex has been flagging this model as a potential solution to lengthen their leverage limit for several months, and they had been willing to partner with F2i for the INWIT towers when they were briefly brought to market in 2016. In the context of the European market, where American Tower partnered with PGGM in late 2016 to form ATC Europe and acquire French towerco FPS Towers, this represents a model which will pique the interest of heavyweight investors that can accept single digit returns given the low risk inherent in investing in developed market telecom towers. This ‘third way’ between public investment in a listed towerco, and the straight-out acquisition of private entities allows investors with an appetite for steady and stable infrastructure returns a direct route to significant exposure to the proven towerco business model.
With Europe’s biggest towercos both now employing this model, we may well see further replications from ambitious towercos as well as further expansion by Cellnex or American Tower.
Infographic: This map but with the title: Cellnex’s current position in Europe. Don’t need the bar chart below – just the map and numbers of towers in each
With no sign of decelerating their acquisition pipeline, Cellnex have played up the ‘neat fit’ of Switzerland’s geographical location heavily in their press release about this deal. Cellnex Telecom Chairman Francisco Reynés didn’t hold back with his comments about “clear synergies through its (Switzerland’s) geographical location next to France and Italy” and the benefit of their financial partners, Swiss Life Asset Managers and DTCP providing “not only financial support, but essential knowledge and access to the Swiss market as well as to other Central European countries”.
So, what potential is there in Central Europe? Telekom Austria had a ‘very tough’ 2016, with EBITDA down 17.7%. Parent company America Movil’s tower spin-off to form towerco Telesites in 2015 shows the company isn’t afraid to think creatively in terms of using infrastructure to its advantage.
In Poland (as in Spain), there is some existing towerco activity in the form of Alinda-owned Emitel (with around 377 telecoms sites), as well as ambition from managed service provider ECS, backed by CEE Equity Partners, to move into tower ownership. Joint venture NetWorkS! operates around 13,000 towers between T-Mobile and Orange and may prove an acquisition target of interest.
Cellnex European presence June 2017
In the Czech Republic, CETIN (Česká Telekomunikační Infrastruktura), an infraco carved out of O2, has 4,800 towers and 750 micro sites. CETIN’s business model includes all the physical assets which used to belong to O2, including active equipment and 38,000km of fibre, the MNO having been acquired by PPF and the infrastructure business spun off. Embroiled in some to-ing the fro-ing with the European Commission, CETIN is owned by Czech billionaire Petr Kellner’s PPF Group, and rather than being a prospective acquisition target itself, is more likely a competitor for acquisition opportunities in Central Europe.
it’s very possible Cellnex’s relationship with Deutsche Telekom could extend beyond their capital investment arm in the near future
Of course the biggest market in Central Europe is also the biggest in Europe: Germany. Bordering countries where Cellnex has operations including the Netherlands, France, Germany, Switzerland and Italy, there’s plenty of geographical synergies to be had, and there’s a towerco with huge potential to be streamlined and commercialised in Deutsche Funkturm. Still 100% owned by Deutsche Telekom, but subject to frequent rumours about a sale, it’s very possible Cellnex’s relationship with Deutsche Telekom could extend beyond their capital investment arm in the near future.
With this consortium deal Cellnex benefits twice over: firstly from new relationships and expertises and secondly, from a financial point of view it allows them to keep their powder dry for a bigger acquisition. With Arqiva coming to market, as well as the potential for 27,000 Deutsche Funkturm sites in Germany, Cellnex must find the right balance between pursuing their three-step growth strategy to support steady returns, as well as keeping an eye on their leverage limit to enable them to grab opportunities to ramp up their European scale in an even more dramatic way.