The headline news for European towers in Q417 is Arqiva’s ongoing search for a solution to its debt pile. At the time of our last quarterly update, Arqiva was looking close to a sale to a consortium of strategic buyers, but in late October 2017 they announced an IPO and in early November cancelled it again.
It’s telling that the time from IPO announcement to cancellation was so short, implying that Arqiva’s valuation was not closely aligned with the market’s. There’s no doubt Arqiva’s new management team has made great improvements but the cost of debt has swallowed up profit and put them further into the red each year. The markets’ excitement about telecom towers and small cells has been offset by uncertainty about the debt pile and the longevity of Arqiva’s broadcast core.
Arqiva isn’t the only broadcast asset looking for a new owner at the moment. France’s NRJ is hoping to raise as much as €300mn from the sale of Towercast, their 500-tower broadcast asset, and Finnish broadcast towerco Digita is also believed to be in the market.
To date there’s been a valuation gap between broadcast assets and telecoms towers, but, as Cellnex’s acquisition of Alticom proved, broadcast towercos can be a good platform to move into adjacent verticals such as data centres or IoT and may attract higher prices with the right bidders.
It’s these new verticals, such as data centres, network virtualisation, small cells and fibre which are driving the next big shift in the European tower industry, as the most progressive towercos on the continent gear up for a shift from ‘real estate’ providers to a ‘service’ model, and prepare to offer services across both passive and active infrastructure for the first time.
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, 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 three: breakdown of ownership of Europe’s ~600,000 telecom tower and rooftop structures as at the end of Q3 2017
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 but this deal appears to have been quietly scrapped after the sale of VEON’s Russian towers was cancelled in May 2017.
Ukraine: 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 on 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
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.
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.
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.
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 is believed to be gearing up for a sale in late 2017/early 2018.
What is the breakdown of the high sites used by the French telecom industry? And who owns them?
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 2,482, 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.
In December 2016 American Tower announced the acquisition of FPS Towers for €697mn, a deal which closed in February 2017, gaining them a significant foothold in the market and putting them into competition with French incumbent tower owner TDF. FPS’s ambitious plans for the French market are expected to be capex-heavy over the next two to three years, and we will watch the dynamic between TDF, Cellnex and American Tower develop with interest over the coming months.
Cellnex fairly quietly acquired 500 towers from Bouygues Telecom in two transactions in 2016, the first of which was for 230 towers at a valuation of €80mn and the subsequent tranche for 270 towers for €697mn, and in January 2017 they signed a deal with the aforementioned governing the transfer of 1,800 existing sites and 1,200 new build towers for a total of €354mn, giving them a good foothold in the market and a solid anchor tenant.
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
The German tower market may be characterised by slow growth, but it is entering a period of rapid change.
Telefónica transferred 2,350 German towers into their towerco Telxius in a deal valued at €587mn. After pulling their IPO due to low investor interest, Telefónica has since sold a 40% stake to investor KKR for €1.3bn.
Meanwhile, Deutsche Telekom were rumoured to be gearing up to monetise their towerco Deutsche Funkturm, but with enthusiasm for an IPO cooling after the cancellation of similar flotations recently, and no word of a strategic sale, it seems they may hang on to the asset a little longer. Deutsche Funkturm operates over 34,700 sites in Germany, of which around 8,000 are ground based towers with the rest being rooftops. Subsidiary Omega Towers manages 7,700 further sites (mostly rooftops) transferred from Telefónica in July 2015.
Deutsche Funkturm report that they are building “a significant number of new macro locations per year”; with three to four years of LTE rollout still to come, followed by 5G, there are drivers for modest organic growth.
We recently discovered that the jump in American Tower’s German site count in Q216 was due to the very low profile 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 towers. Rumours that they were seeking third party investment turned out to be grounded, with Dutch pension fund PGGM paying €250mn for a 49% stake in their German operations, resulting in a joint venture, ‘ATC Europe’ which has already made an acquisition in the shape of France’s FPS Towers. With Deutsche Funkturm cooling on the idea of an IPO, it may be that there is potential for American Tower to consolidate their position in the German market in 2017.
Just 16,542 of Germany’s 70,136 cell sites are ground based towers – the rest are rooftops.
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. There are few co-locations on German rooftops as demands for supplementary payments from landlords ruin the economics.
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?
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 ten independent tower companies, broadcast operators and public sector players. Indeed, Irish towerco Cignal recently added over 30 towers to its portfolio through the acquisition of Cellcom.
Who owns Italy’s 47,218 telecom and broadcast sites?
With the merger of 3 and WIND now complete, and Iliad confirmed as a new entrant 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, however the process to monetise INWIT further has been halted, ostensibly because the TIM management team believes that several value adds have yet to reach fruition and are not yet reflected in INWIT’s valuation.
In the last year INWIT has decommissioned around further 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.
EI Towers continues to court a much bigger deal: the acquisition of Italy’s other broadcast towerco, RAIWAY, which owns around 2,300 towers, again with some MNO tenancies. Consolidation would represent another opportunity to create significant efficiencies through decommissioning – around 60% of Italy’s broadcast towers are in overlapping locations. This merger is believed to be back on the cards after positive comments from Italian officials, despite some legal questions being raised when the deal was first mooted in 2015.
Estimated tower ownership and rooftop usage in 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 has 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 sites. Following the small scale acquisition of local towers, Cellnex now owns 758 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. In addition, Cellnex’s recently announced acquisition of Alticom will give them a further 30 towers in the country, as well as securing them high-quality infrastructure to support 5G rollout in the Netherlands.
Market leader Open Tower Company has around 850 towers, plus access to over 1,000 electricity pylons and is rumoured to be looking for buyers in 2017. 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.
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.
Turnkey infrastructure provider ECS is leveraging new capital from CEE Equity Partners to move into tower ownership and leasing.
Mobile tower ownership in Portugal
The Portuguese tower market has been dormant since rumors of a prospective sale and leaseback by Portugal Telecom over two years ago. Little has been heard since Altice acquired PT in 2015. However, Portugal has started to appear on the radar of one of Europe’s largest towercos – a market to watch!
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
TowerXchange estimate there are around 58,900 ground based towers and 65,400 rooftop structures across the vast Russian landscape. Each of Russia’s four MNOs is utilising tower company business models, but in contrasting ways.
Veon’s creation of ‘National Tower Company’, into which they have 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, leaving it unclear whether the towers would be reabsorbed into the opco or would continue to operate as a towerco in competition with the independent players in the market.
MegaFon has carved out ‘First Tower Company’ 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, rumors 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 rapidly and has recently announced the acquisition of 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 capital, Kazan.
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).
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
39% of the 48,997 broadcast and telecom towers and rooftops in Spain are owned by towercos, led by Telefónica’ Telxius and European market-maker Cellnex. One is headquartered in Madrid, the other Barcelona, so the battle for tenancies could be as fierce as any El Classico!
Cellnex has seen fast growth in its telecoms arm, deriving €385mn of its €707mn revenue from telecoms, an increase of 27% yoy. In 2016 they expanded from two to five countries, spending €668mn on the acquisition of Commscon in Italy, Protelindo Netherlands, Shere Group in the UK and Netherlands and 500 towers from Bouygues telecom in France.
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.
Figure four: Estimated tower and rooftop counts for selected markets in Europe
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.
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.
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, however, and we believe there may be considerable value in Turkcell identifying a strategic partner who could support their expansion plans.
Established in 2006, Global Tower has 8,067 ground based towers among a portfolio of over 23,000 sites. 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. .
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), 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.
When the merger between O2 and 3 was mooted, it seemed that the realignment of partnerships might create a window to monetise one or both JV infracos, but in the aftermath of the EU vetoing consolidation, it’s very much business as usual in the UK tower market. Not that business as usual is uneventful: the UK is home to one of the largest decommissioning programmes on the planet, while CTIL and MBNL are also leading the rollout of 4G.
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.