The past few months have seen big news in the European tower market, indicating a major shift is underway in attitudes toward tower ownership. TowerXchange forecasts that by the end of 2016 the number of towers owned by infrastructure companies will rise to 40%, with 18% owned by independent towercos, 11% by operator-led towercos and 11% by JV infracos. By 2020, 65% of Europe’s towers are expected to sit in the hands of infracos.
The past few months have seen big news in the European tower market, indicating a major shift is underway in attitudes toward tower ownership.
Of Europe’s 600,000 towers (including Russia and the CIS), 78,211 (or 13%) sit in the hands of independent towercos, 43,684 of which are owned by companies with a significant footprint in the broadcast sector. A further 72,570 towers (12%) are owned by operator captive towercos and 67,125 towers (11%) are managed by JV infracos – putting a total of 35% in the hands of infrastructure companies. TowerXchange forecasts that by the end of 2016 this number will increase to 40% with 18% being owned by independent towercos, 11% by operator-led towercos and 11% by JV infracos. By 2020, 65% of Europe’s towers are expected to sit in the hands of infracos.
The most recent transaction comes from the Ukraine, where Lifecell transferred 811 towers to UkrTower for €47.8m (US$54.4m). While both Lifecell and UkrTower are owned by Turkcell and therefore the transaction represents more of an internal restructure than a true tower sale, the news is in line with recent trends by companies such as Telecom Italia and O2 Czech Republic to carve out their infrastructure assets.
Following a similar strategy, the biggest news of 2016 so far comes from Spanish giant, Telefónica. After months of speculation surrounding a potential divestment of towers, February saw the carve out of their 11,000 Spanish sites (along with towers in Latin America and subsea cabling) into a newly formed infrastructure business – Telxius. The move comes as part of a strategy to reduce the company’s debt burden whilst optimising the return on capital deployed in such infrastructure – including increasing co-locations on sites. The company has also indicated that they will potentially look at the acquisition of towers from third parties – thus creating a sizeable towerco positioned to compete in major tower transactions in Europe. Many observers believe that Telefónica’s 13,968 German sites (mainly rooftops) may also be incorporated into Telxius in the near future and while the company has not stated their long term plans for the business – an IPO and eventual sale in the style of Telecom Italia’s Inwit could be a strategy that company may pursue.
Tower deals in progress
Negotiations continue around the sale of a stake in Inwit, where decision is expected imminently. Three offers have been received – from American Tower (AMT), EI Towers and Cellnex in conjunction with infrastructure fund F2i. Mediaset-owned EI Towers are thought to have bid to acquire a lower stake of 25% in the company, with the deal also including a transfer of 1000 towers to Inwit. Cellnex and F2i who are rumoured to be bidding for a 45%-49% stake in Inwit (which then would be followed with a takeover bid for the rest of the capital).
In Russia, the sale of Vimpelcom’s 10,400 towers is well underway, with three shortlisted bidders – Russian Towers, Vertical and the Russian Direct Investment Fund in the running for the portfolio. The deal is expected to close in Q2 2016, marking Russia’s first major tower transaction. Following the completion of the sale it is widely expected that Vimpelcom will then turn their attention to potential divestitures across their CIS markets, in a bid to further reduce their current debt.
Keeping our focus on the east, Russia’s Tele2 and Megafon are also rumoured to be re-evaluating their tower strategies – with Megafon looking into a potential sale of its infrastructure business, First Tower Company.
In Turkey, sources indicate that Turkcell are starting the IPO process for their infrastructure business, Global Towers (which owns 7870 towers in Turkey and a further 1180 under Ukrainian subsidiary UkrTower); in Germany Deutsche Telekom has reportedly brought in advisors to look at an IPO of their infrastructure assets while American Tower Germany may be seeking third party investors, and in Poland, Orange is also rumoured to be looking into a tower sale.
TowerXchange are currently tracking 68 towercos, broadcast companies and JV infracos with tower portfolios in Europe. With the exception of Cellnex (active in Spain and Italy), Wireless Infrastructure Group (with assets in the UK, Ireland and the Netherlands), Shere Group (with towers in the UK and Netherlands) and Shared Access and Britannia/Hibernian (both with assets in both the UK and Ireland), all other companies have a presence in just one country.
New deals bring new opportunities for local and foreign players
Major tower transactions on the cards represent an opportunity for Europe’s towercos to expand into new geographies and also represent an opportunity for major international players to gain a footprint in Europe: #3 and #4 US towercos SBA Communications and Digital Bridge both have an appetite for European towers, for example. What’s more, such transactions are leading to the creation of new domestic towercos. In such a fragmented market, with independent tower ownership in the hands of a number of mid-sized companies and with investors having a growing appetite to invest in European tower infrastructure, it often seems that there is more capital seeking tower opportunities than there are opportunities. A domestic player with local expertise together with the backing of a financial investor and the presence of a strong management team could be well placed to make a significant play in upcoming transactions. TowerXchange are tracking a lot of towercos, infrastructure funds and PE firms with an appetite for smaller portfolios, from BTS startups to 100-2,000 towers. But the question remains: does anyone have the appetite and digestive capacity to compete with Cellnex for Europe’s largest sale and leasebacks? Telxius could be one such company.
Moving away from macro-structures, an increasing number of European towercos are tapping opportunities in the small cell and DAS markets. With European MNOs accustomed to infrastructure sharing, and urban infill to meet growing data demand sitting as a top priority, there exists significant potential for a third party infrastructure provider to deliver more cost effective, neutral host heterogeneous networks. The uptake of venue-DAS is growing significantly and a number of city-wide outdoor small cell projects are being rolled out. The Small Cell Forum forecasts that by 2020 only 20% of small cell infrastructure will be solely managed by a single operator, the other 80% will be multi-operator small cells with a third party involved, whether that’s other operators or a towerco.
Further focus for Europe’s towercos resides in decommissioning as the impact of MNO consolidation (such as that of Three’s acquisition of O2 in Ireland and the proposed merger of Three and O2 in the UK) starts to filter through to their infrastructure.
European tower activity – the headlines
Azerbaijan: Infraco Azerconnect active in the country.
CIS: Logycom forms first independent towerco in Kazakhstan, with an order to build just under 100 towers. Meanwhile, Vimpelcom’s towers could come to market across several CIS states.
Czech Republic: CETIN, infrastructure business carved out of O2 has 4,800 towers and 750 micro sites. Also in infrasharing venture with T-Mobile.
Denmark: Infrasharing mandated by the state – TT-Network formed by Telia and Telenor. MNO divestments expected in 2-4 years.
Finland: Digita sold by TDF to First State Investments in 2012.
France: Towerco FPS active after acquiring towers from Bougyes Telecom and 20,000 rooftop sites from Loxel. TDF lead the market, ITAS TIM and Towercast also active. Free Mobile’s entry disrupting the market, SFR-Numericable forced into merger; Bouygues Telecom looking to exit? Could more towers become available for sale and leaseback?
Germany: Towercos Deutsche Funkturm and American Tower active in the market, ATC’s towers bought from KPN. Potential for carve out of Telefónica’s 13,968 sites into the company’s infrastructure business Telxius. Deutsche Telekom rumoured to be looking at an IPO of their assets. ATC Germany rumoured to be seeking investors.
Greece: Infraco VICTUS Networks run by Vodafone Greece and Wind Hellas. Initial rumors of potential sale and leasebacks emerging.
Hungary: Antenna Hungaria acquired by the state from TDF in 2014.
Ireland: Towercom, ESB Telecoms, WIG, Hibernian, Shared Access, Cellcom and Highpoint active. Together with three state-owned entities, they own 40% of Ireland’s 4,000 towers. 3’s acquisition of O2 disrupted network sharing agreements and is leading to consolidation. Coillte sold 298 sites including 113 towers to InfraVia Capital Partners creating new towerco Cignal.
Italy: 45% stake in Inwit being sold following an IPO of 40% of the business. Cellnex/F2i, American Tower and EI Towers in the running. EI Towers acquisition of fellow broadcast towerco Rai Way initially halted but discussions re-opened. EI Towers continue to roll-up smaller towercos. Cellnex closed landmark sale and leaseback with Wind in 2015.
Latvia: Bite Group brought towers to market in 2013 but no agreement reached.
Netherlands: Protelindo, Shere Group and Open Tower Company acquired a total of 1,322 towers from KPN. Rumours that T-Mobile may be looking to sell its business.
Poland: Emitel (towerco) and NetWorkS! (infraco) active in the market. Rumours surrounding a potential tower sale by Orange.
Portugal: Portugal Telecom sold to Altice – tower sale rumour has gone quiet.
Romania: Orange and Vodafone sharing networks since 2013.
Russia: 10,400 Vimpelcom towers up for sale and rumoured divestments from Tele2 and Megafon. Active towercos include Russian Towers, Vertical, Link Development and Service Telecom.
Serbia: Managed service provider Konsing Group owns a portfolio of 47 sites.
Slovakia: Towercom, towerco acquired by Macquarie in 2013 with a portfolio of 700 sites.
Spain: Telefonica carved out 11,000 towers into new infrastructure business, Telxius. Towerco Cellnex active after acquiring towers from Telefonica/Yoigo. Axion towers rumoured to be on the market.
Sweden: Several infracos including Net4Mobility, 3GiS and SUNAB
Turkey: Turkcell’s Global Tower manages over 16,000 sites including 7,870 macro towers. Turkcell in talks with bankers regarding a potential IPO.
UK: Towercos active in the market include Arqiva, WIG, Shere Group and Shared Access, MBNL and CTIL sizable infracos. Sale of O2 to Hutchison still under review; implications for joint venture infracos unclear.
Ukraine: Towerco UKRTower active in the market, recent acquisition of 811 towers from parent company Lifecell.