TowerXchange’s analysis of the independent tower market in Europe

TowerXchange Meetup Europe was abuzz with conversation about the future of European towercos. Whether growing through M&A, organic build to suit or expansion into new verticals, we’re at the nexus between towercos’ role as a minor real estate player in Europe and their potential future as a critical part of infrastructure and digital growth. 

Cellnex, silver sponsors of the Meetup, brought a delegation of senior experts including CEO Tobias Martinez, to London to meet and discuss their innovative plans for growth and their move into active sharing through small cells and DAS offerings. 

Marc Ganzi, founder of Digital Bridge, spoke to the audience about their disruptive approach to marrying towers, fibre and datacentres, and announced their first move into the European market, with the acquisition of Finnish Digita that same week. 

As we approach the summer, there is plenty of news still to play out and keep the European tower industry busy into H2. Altice’s towers in France and Portugal are still on the market, with KKR touted to be taking a minority share in the former, creating another level of competition in one of Europe’s most competitive tower markets. Cellnex are still the favourites to acquire the Portuguese portfolio, although if Altice are looking for an investment partner rather than a strategic buyer in France, they may be open to other models in Portugal as well. 

In Germany, Deutsche Telekom’s infrastructure arm Deutsche Funkturm has played its hand, announcing the building of another 9,000 macro towers in Germany which it intends to lease up more actively, as well as rolling as many as 25,000 further towers across Europe into the towerco, starting with Austria and the Netherlands. Deutsche Telekom may well be calling on their friends at Cellnex for partnership beyond their initial joint investment in Swiss Towers as this process gains momentum. 

Finnish Digita has been acquired by Digital Colony, but there remain several broadcast entities which will be looking for buyers in 2018. French TowerCast is believed to still be on the market, while in CEE three portfolios of assets will be looking for new owners later this year. Polish Emitel, owned by Alinda Capital Partners, has around 377 towers in the portfolio. Macquarie-owned České Radiokomunikace could fetch as much as €800mn for 800 towers in the Czech Republic. Macquarie is also believed to be considering the sale of Slovak Towercom AS, which owns around 700 towers in Slovakia and is expected to be valued at around €240mn.

The current state of play in Europe 

Let’s review the current state of the European tower industry country by country. A couple of caveats before you start reading: firstly, TowerXchange includes Russia, Turkey, the CIS and former CIS States in our definition of Europe. Secondly, our definition of a “tower” is slightly different in Europe – when presenting tower counts, we are always interested in sites and structures that can accommodate multiple tenants, and which towercos might consider investible. While our tower statistics on emerging markets focus on ground based towers, in Europe we are equally interested in counting rooftop sites, but we exclude multi-tenant DAS, microcells and small cells from headline counts, at least until a single small cell can be shared and monetised to multiple tenants.

TowerXchange tower counts are the result of qualitative market research and the aggregation of our own and other research firms’ work – as such they should be treated as estimates. We assert copyright over data sourced to TowerXchange – you will need to request our permission to quote our data and there may be a charge to do so.

Figure two: breakdown of ownership of Europe’s ~600,000 telecom tower and rooftop structures as at the end of Q3 2017

Figure 3: Projected tower ownership in Europe 

CIS

Until this point the CIS has been relatively low on tower activity. In 2017 VEON decided to bring over 12,000 towers to market in Ukraine, Kazakhstan, Armenia and Georgia. We did believe that this deal was quietly scrapped after the sale of VEON’s Russian towers was cancelled in May 2017, but are now aware that VEON may be courting a new buyer with experience in the region.

Emerging from recession after political instability, Ukraine is a growth market with 3G yet to be extensively rolled out and 4G still on the horizon, meaning a potential 2,500 PoP could be added in the next three years.

In 2016 Turkcell carved out and transferred 811 lifecell towers to UkrTOWER, the local subsidiary of their captive towerco Global Tower. UkrTOWER’s current site count is 1,201, including a number of in building solutions, and the company boasts a healthy tenancy ratio. Outside of UkrTOWER, there are multiple structures available for colocation in the market, so there is a significant margin for error in our site counts. While all parties agree VEON has around 3,500 sites, around 60% of which are rooftops and 40% ground based towers, our best estimate is that Kcell owns around 5,500 towers and rooftops, with Altel and Tele2 combining a total of around 4,200 towers and rooftops. Third party structures make up around 30% of Kazakhstan’s mobile networks, and total at least 1,500, perhaps significantly more.

Georgia and Armenia consist of around 3,000 and 2,200 sites respectively. Around 65% of sites are rooftops, but less alternate site typologies are used than in Kazakhstan: just a handful of broadcast tower co-locations. 

Estimated count of owned towers and rooftops

Belarus

Global Tower has recently taken control of Turkcell’s towers in Belarus, where they have owned subsidiary BeST since 2008. Global Tower currently operates 828 towers in the country under the name BelTower.

Czech Republic

With an ongoing project to decommission 35-40% of the country’s parallel infrastructure, TowerXchange estimate there are around 10,200 active cell sites in the Czech Republic’s telecom network, of which only around a quarter are ground based towers, with the balance being rooftops and IBS.

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. CETIN absorbs O2’s RANsharing venture with T-Mobile, which operates under the MORAN model.

Denmark

Infrastructure sharing is second nature in Denmark, where Telia and Telenor formed active infrastructure sharing joint venture TT-Network. There are around 4,500 towers in Denmark, with co-location management agreements managed through KPR Consult. Falck operates a small towerco in the country with around 75 towers, while Teracom operates the country’s broadcast towers.

There is little possibility of sale and leasebacks in Denmark in the short term, but don’t discount the possibility in the medium to long term, with TT Networks working to streamline operations quite possibly in advance of a divestiture.

Finland

There are around 10,000 towers in Finland, around half of which are owned by incumbent operator Elisa, with the balance distributed across the other MNOs Telia and DNA. An active infrastructure sharing joint venture between Telia and DNA increases the efficiency of providing coverage to the sparsely populated Northeastern region.

Digita operates Finland’s broadcast network, with 27 high masts and 530 smaller masts and was acquired in April 2018 by Digital Colony.

What is the breakdown of the high sites used by the French telecom industry? And who owns them?

France

There are just over 25,000 ground based towers in France, of which 55% remain operator-captive. The remainder are divided among three independent towercos: broadcast-telecom hybrid TDF has 4,865 telecom towers, ATC Europe (formerly FPS Towers) has 2,484, and Cellnex have bought into the French market with 2,300 existing Bouygues towers and a further 1,200 in the pipeline. In addition to the 25,000 ground base towers, there are a further 7,500 alternative ground based structures and ~15,000 rooftops. TDF and ATC France currently provide 10% of those rooftop sites, but both are positioning themselves to play a larger role in this segment of the ecosystem, and Cellnex’s most recent acquisition will make a total of around 1,450 new rooftops available for colocation.

Altice, owner of French opco SFR,is well into the sales process for around 8,000 towers in France, (5,300 of these are GBT and the remainder rooftops and alternative typologies). All three of the key French players: TDF, Cellnex and American Tower, could be interested in these assets, as well as newcomers to the French market who are keen to get a foothold in Europe.

There has also been recent activity in the broadcast vertical of the French market. With TDF acquiring ITAS for a reported €100mn (420 towers) and NRJ seeking a buyer willing to part with €300mn for their 500-tower asset Towercast.

Estimated breakdown of ground based towers and rooftops in Germany

Germany

Just 20,006 of Germany’s 75,474 cell sites are ground based towers – the rest are rooftops, which can be problematic for tower owners seeking to lease up their assets. Deutsche Funkturm’s rooftop portfolio has a tenancy ratio which is currently 0.8x lower than their GBTs, and this gap could grow as they actively pursue further colocations in the German market, as access and landlord contracts make leasing up rooftops a significantly trickier proposition than towers.

Deutsche Funkturm is Germany’s biggest towerco, with ~28,000 sites (of which ~9,000 are macro towers and a further ~19,000 are rooftops) across the country. Additionally, Deutsche Funkturm controls 7,700 former TEF rooftop assets under the name Omega Towers, although it is believed that they are partway through a decommissioning programme to reduce this number to ~5,000.

As well as offloading their rooftops, Telefónica transferred 2,350 German towers into their towerco Telxius in 2016 in a deal valued at €587mn, where these towers sit under management with assets in Spain and CALA, and alongside Telefonica’s sub-sea cable assets.

American Tower have been active in Germany since acquiring KPN’s ~2,000 E-Plus towers for €393mn in 2012. Their portfolio has grown slightly over the last six years to a total of 2,206, mainly through the acquisition of 186 transmission towers from German broadcaster WDR. Although the cost of these towers was not publicised, we estimate that American Tower probably paid around €35-50mn for the assets.

German broadcast towerco Media Broadcast Group owns a further 450 towers in Germany, and was acquired by Freenet in 2016 for €295mn (around 12x EV/EBITDA).

Of the remaining MNOs in the market, we believe Telefonica owns a further ~2,000 towers plus ~12.000 rooftops, and Vodafone owns around 4,000 masts and ~18,000 rooftops in Germany.

There are a total of around 23,000 co-locations in Germany, most being on Deutsche Funkturm and American Tower’s ground based towers, with tenancy ratios estimated at 2.5 and 1.8 respectively.

Greece

While there are no independent towercos in the 12,000 site Greek market at present, tough economic conditions and the dominance of market leading Cosmote may prompt a sale and leaseback in the medium term.

Cosmote’s competitors Wind may have an appetite to monetise their towers, while the other MNO in Greece, Vodafone has less financial incentive. Joint venture infraco VICTUS Networks currently manages Vodafone Greece and Wind Hellas’ sites. There are around 10,500 tenants on VICTUS Networks’ 7,000 sites. Decommissioning could see VICTUS Networks’ site count fall to 6,000 and the tenancy ratio rise accordingly.

Broadcast towerco Digea owns 156 towers in Greece.

Who owns Ireland’s 4,000 towers?

Ireland

60% of Ireland’s 4,000 cell sites sit in the hands of the country’s three MNOs: Vodafone, Meteor and 3.

A network sharing partnership between Meteor and O2 (Mosaic) is in place with 3 joining the alliance, putting downward pressure on current and prospective future tenancy ratios.

With little prospect of sale and leasebacks in Ireland, the most likely source of tower transactions remains consolidation among the many independent tower companies, broadcast operators and public sector players. Irish towerco Cignal seems keen to consolidate further after their acquisition of Cellcom in early 2017, and larger European players seem to be turning their attention to this small but interesting market as well. We anticipate seeing some smaller scale consolidation between existing Irish towercos in the short term, followed by the entry of a larger towerco in the medium term. 

Who owns Italy’s 49,778 telecom and broadcast sites?

Italy

With the merger of 3 and WIND now complete, and Iliad having launched into the Italian market,all eyes are on how this will play out. Already, Iliad owner Xavier Niel, known as the enfant terrible of the French telecoms sector, is locked in a war of words with the incumbent operators, who fear the introduction of new business models and aggressive price wars. Although no set plan of action is in place for Italy’s infrastructure, it’s widely believed that Iliad’s requirements will ‘free up’ around 5,000 towers, which may well come to market in the coming months and which will be of interest to several parties.

Currently, INWIT, Cellnex and EI Towers’ TowerTel lead the telecom tower market in Italy, where towercos own just under half the total sites, and where decommissioning may outstrip organic growth in the coming years.

TIM retains a 60% equity stake in INWIT, with the balance having been floated on the Milan Stock Exchange in June 2015, and had initiated a process to sell some or all of their retained equity in 2016 which was then halted ostensibly because the TIM management team believed that several value adds had yet to reach fruition and were not yet reflected in INWIT’s valuation. Although recent rumours were that TIM would sell its 60% stake in INWIT in 2018, a complete overhaul of the INWIT board in April 2018 may mean the operator has other plans for the asset.

In the last year INWIT has decommissioned around 200 sites, bringing their Q117 site count to 11,000. By the end of 2018, INWIT forecasts driving tenancy ratios to around 1.9, decommissioning 800-1,000 more sites, and building as many as 500 new sites, primarily for TIM’s 4G rollout.

The continent’s largest pan-European towerco, Cellnex, has rolled up several small towercos in Italy, but the lion’s share of their portfolio comes from the acquisition of Wind’s towerco Galata, and their 7,377 towers, for €693mn in 2015. At the end of Q317, Cellnex operated 8,933 sites in Italy, with build-to-suit slightly outstripping decommissioning.

Both INWIT and Cellnex remain bullish about the potential of small cells in Italy, highlighted by Cellnex’s acquisition of CommsCon for €18.65mn in June 2016.

The other key player in the Italian market is  EI Towers, whose telecom-focused subsidiary TowerTel has built and acquired a portfolio of 700 telecom towers with an aggregate EV of up to €55mn, ~300 of which have been added through several small acquisitions.

Estimated tower ownership and rooftop usage in The Netherlands

The Netherlands

Only 20% of The Netherlands’ 15,204 cell sites are macro cell sites, with the balance being rooftops, DAS and small cells.

Cellnex acquired Protelindo’s 261 Dutch towers for €109mn, (and is now marketing the towers under the name ‘Towerlink Netherlands’), and a further 460 as part of their deal with Shere Group. There is no duplication between the two portfolios. Following the small scale acquisition of local towers, Cellnex now owns 788 towers, or 24% of the macro towers in The Netherlands, where 1,781 (59%) of the country’s 3,031 ground based towers are already owned by towercos. Cellnex’s acquisition of Dutch broadcast towerco Alticom in 2017 gave them a further 30 towers in the country, as well as securing them high-quality infrastructure to support 5G rollout in the Netherlands.

Open Tower Company has around 850 towers, plus access to over 1,000 electricity pylons and is rumoured to be looking for buyers in 2018. UK headquartered Wireless Infrastructure Group is also present in The Netherlands.

KPN sold their towers in four tranches between 2008-12, while Vodafone and T-Mobile retain around 1,250 towers between them. New entrant fourth MNO Tele2 has few if any towers, preferring to rely on co-location and a RANsharing deal with T-Mobile.

T-Mobile and Tele2 Netherlands agreed to deepen their existing colocations and RANsharing deals at the end of 2017, announcing a merger of the two entities. Deutsche Telekom has ringfenced their tower assets in the market and is in the process of bringing them under the control of infrastructure arm Deutsche Funkturm, which has been operating almost exclusively in Germany to date.

Poland

There are around 22,000 telecom structures in the Polish network, a little under half of which are towers, with the rest being rooftops.

Poland has more subscribers per tower than the majority of other countries in Europe, indicating both potential demand for more towers, and indicating the extent of decommissioning that has already taken place in the country. A balanced, competitive MNO market amplifies the attractiveness of the Polish market to towercos.

T-Mobile and Orange share passive and active infrastructure in Poland through 50-50 joint venture NetWorkS! Initiated in 2011, the partnership was intended to last 15 years, but there has been speculation that one or both party might wish to exit the venture and sell towers to a third party. While NetWorkS! operates around 13,000 towers, the assets remain on T-Mobile and Orange’s own balance sheets. Outside of the NetWorkS! venture, as little as 2% of Poland’s towers are shared between multiple MNOs.

Alinda Capital Partners owned Emitel is the Polish broadcast towerco, operating 377 sites and diversifying into telecom. It’s rumoured that Emitel will be coming to market later in 2018.

Turnkey infrastructure provider ECS is leveraging new capital from CEE Equity Partners to move into tower ownership and leasing.

Mobile tower ownership in Portugal

Portugal

The Portuguese tower market is one of the hottest in Europe after Altice’s announcement that they intend to sell the macro towers of their Portuguese asset MEO/Portugal Telecom. With around 3,000 towers in Portugal, MEO is the market leading MNO in the country and a solid prospective tenant. As well as Cellnex, who have expressed their interest in the towers, this portfolio should garner interest from a number of European and international towercos and investors. Watch this space!

Romania

Romania hosts a competitive four MNO market, with no independent towerco activity to date. Orange and Vodafone Romania operate a joint venture infrastructure sharing company called Netgrid Telecom (formerly Ovidu Telecommunications).

Despite being one of the poorest countries in Europe, ARPU is relatively high in Romania at around €20, which means there is little financial imperative for the country’s MNOs to monetise their towers.

Estimated breakdown of ground based towers and rooftops in Russia

Russia

TowerXchange estimate there are around 59,000 ground based towers and 65,400 rooftop structures across the vast Russian landscape. Each of Russia’s four MNOs has looked at utilising tower company business models, but in contrasting ways.

VEON’s creation of ‘National Tower Company’, into which they injected their ~13,000 Russian towers, was hailed as a precursor to the sale of the assets to an independent towerco. However, the company decided to pull the plug on the sale process in May 2017, and it is believed that the towers will be reabsorbed into the opco.

MegaFon has carved out ‘First Tower Company’, which they are gearing up to monetise in 2018 and with a possible view to a future sale to a strategic buyer. MTS has injected part of their portfolio, 5,500 towers, into ‘MTS Towers’ with a view to making the towers available for co-location, but has declared an intent to retain ownership of the venture. Meanwhile, rumours persist that Tele2 Russia are selling their ~9,000 towers.

Leading local towercos Russian Towers and Vertical, as well as the Russian Direct Investment Fund, are all expected to be prominent bidders as Russia’s towers come to market, with Tele2’s towers the most likely up for grabs. Russian Towers is also undergoing a period of sustained organic growth, growing from ~2,300 towers to ~3,100 over 2017. Newcomer Service-Telecom is also keen to expand organically and recently acquired Link Development, a Russian towerco with around 200 towers in the St Petersburg region. A new Russian towerco has also recently come onto the TowerXchange radar: Stoka Vysotok. Based in Tatarstan, Sotka Vysotok is believed to have around 200 towers centred mainly around the regional capital, Kazan.

Serbia

Managed service provider Konsing Group, which also owns a portfolio of 47 sites, counts all three MNOs among their client base (Telekom Serbia, Telenor and Telekom Austria).

Slovakia

Broadcast towerco Towercom, which has around 700 sites, was acquired by Macquarie Infrastructure Fund in 2013. Towercom turns over in excess of €50mn annually and includes O2, T-Mobile and Orange among their customer base. Towercom completed the roll up of TBDS, RK Tower and Rádiokomunikácie in 2008.

Estimated ownership of Spain’s 48,997 telecom and broadcast sites

Spain

39% of the 48,997 broadcast and telecom towers and rooftops in Spain are owned by towercos, led by Telefónica’s Telxius and European market-maker Cellnex.

Cellnex has seen fast growth in its telecoms arm, deriving €471mn of its €789mn 2017 revenue from telecoms, an increase of 23% yoy. In 2017 they entered the Swiss market, as well as acquiring Alticom in the Netherlands. 

In 2016, Telefónica transferred 11,000 Spanish towers and rooftops to their towerco Telxius for an undisclosed sum ahead of ahead of their planned IPO, however, the IPO was scrapped in October 2016 due to lack of interest in the market. Telefónica has since completed the sale of a 40% stake in Telxius to investment firm KKR for €1.3bn.

AMP Capital has agreed a deal to acquire 100% of Axion from current owners Antin Infrastructure. Axion operates 584 broadcast towers, with some telecom co-location, 70% of which are in Andalucía.

Sweden

There are no independent tower companies in Sweden, largely because network sharing is efficiently managed through three network sharing joint ventures.

SUNAB is a 50-50 3G joint venture between Tele2 and TeliaSonera which runs the MOCN RANsharing model; Net4Mobility, another 50-50 joint venture, runs Telenor and Tele2’s combined 2G and 4G network; and 3GIS is a joint venture running Telenor and 3’s 3G network outside of Sweden’s largest cities.

Teracom operates Sweden’s broadcast tower network. There are a little over 10,000 sites in Sweden.

Switzerland

Cellnex acquired 2,339 towers from Sunrise in May 2017, creating Switzerland’s first fully fledged towerco Swiss Towers AG. Working with partners Swiss Life and Deutsche Telekom Capital Partners, the Cellnex-led consortium paid €430mn for roughly 20% of Switzerland’s 11,300 towers, mostly in rooftop locations. With future build to suit as well as 200 DAS nodes agreed in the deal, Cellnex sees a chance for significant growth through data usage and 5G rollout in this central European country.

Turkey

Turkcell, Turkey’s largest mobile network operator, announced plans to list their towers unit, Global Tower, in April 2016. However in October 2016 Turkcell decided to postpone the IPO at the eleventh hour, citing global political uncertainty and the possibility of cyber attacks. TowerXchange believes that Turkcell planned to list 25% of the business and was perhaps hoping for a more Cellnex-like valuation multiple than was likely to be achieved. With Turkcell making ambitious plans to support revenue growth through expansion into overseas markets, an IPO or sale is certainly not off the agenda.

Established in 2006, Global Tower has 8,067 ground based towers among a portfolio of over 23,000 sites in Turkey. Of these macro towers, TowerXchange believes that Global Tower owns around 3,400 and leases around 2,390 from Turkcell, for which they only receive revenue from co-locations. In addition they manage a portfolio of around 2,215 towers on behalf of Turkcell, for which they just receive maintenance fees.

Turkey is also home to one of the world’s largest government-owned universal service networks, called ‘Universal Services Project’ and implemented by the Ministry of Communication and Transportation. Phase one of the project was auctioned in 2011, with Turkcell implementing 1,100 rural sites following a successful bid. Phase two was recently auctioned and will see Vodafone and Turk Telekom creating a joint venture to build a further 2,500-3,000 RANsharing sites in rural areas. .

United Kingdom

The UK has a tower market structure unlike any other in the world. Independent towercos, headed by Arqiva, Wireless Infrastructure Group and Shere Group (recently acquired by Cellnex in 2016), own 38% of the 38,500 active towers in the UK. The balance are contained within two joint venture infracos: CTIL, which operates Vodafone and O2’s network (Telefónica), and MBNL, which performs a similar function for EE (now BT) and 3 (Hutchison). CTIL and MBNL are both the primary clients of the UK’s independent towercos, and site sharing businesses in their own right. Their business models differ in that the tower assets are actually on CTIL’s balance sheet, while MBNL is a management company with the assets retained by the MNOs. CTIL is a passive infrastructure sharing play, while MBNL’s model extends to active infrastructure and transmission sharing.

The UK’s broadcast tower operator Arqiva has been through many changes of identity and ownership (BBC, Crown Castle, National Grid to name a few), and was initially believed to be close to closing a sale to a consortium of buyers led by Brookfield, before a short-lived attempt at an IPO in Q417. It remains to be seen whether Arqiva will revisit the option of a strategic sale, or give themselves some breathing room to try and show that their improving EBITDA is sustainable in order to close the gap between their expectations and market valuation.

Who owns/operates the UK’s 38,500 active cell sites?

Figure four: Estimated tower counts for selected markets in Europe

 

European sale and leaseback deals since 2008

Major European towerco equity deals and listings since 2016

European towerco consolidation since 2008

European heatmap

 

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