The past year has seen a dramatic acceleration of the trend for Europe’s mobile operators to offload their towers and other cell sites, in order to release shareholder value locked up in these assets, and to make network running and expansion costs more predictable.
Vodafone, TIM, Telefónica, Deutsche Telekom and other majors have been reorganizing their passive infrastructure assets in various ways, while some operators, such as Play in Poland, have sold them off completely – often to Europe’s largest neutral host towerco, Cellnex of Spain.
Now French incumbent Orange is joining the part, forming an autonomous tower company called Totem. This will still be under the telco’s control, for now at least, and will be established with an initial dowry of 25,000 sites in France and Spain, with more to be added later. Orange’s European footprint also includes Belgium, Luxembourg, Moldova, Poland, Romania and Slovakia.
In its statement, Orange said: “In the context of its Engage 2025 plan, Orange is reinventing its operator model and is creating a European towerco destined to become a value-creating entity by: capitalizing on its industry-leading passive mobile infrastructure assets; focusing on revenue growth and optimizing operational efficiency; and delivering both organic and inorganic growth.”
Totem will have the independence to make its own decisions, and lease sites to other operators, because it will be a separate legal entity, owned by the Orange Group, with a fully separate management team from that of Orange’s retail operations. No members of the Totem board of directors will be from Orange’s retail business, the telco claimed, in order “to drive operational excellence”.
Orange said that sites, land, leases and tenancy contracts for the relevant assets will all be transferred to Totem, which will be given “the necessary inhouse capabilities to run operations for anchor and third party tenants. These include deployment activities (build-to-suit construction programmes, turnkey roll-outs) and maintenance.”
The new entity will start with a base of 25,500 cell sites in France and Spain and “the Group will explore the possibility of integrating other passive mobile infrastructure assets from within Orange’s European footprint”. Of the 25,500 sites, 17,000 are in France (55% are towers and 45% rooftops), while the 8,000 macro sites in Spain are roughly evenly split between the two site types. The Spanish portfolio will be part of the existing network sharing agreement between Orange and Vodafone in the country.
The framework Master Service Agreement (MSA) between Orange and Totem sets out a 15-year initial contract with a ‘tacit’ clause for two sequential 10-year renewals after 2036. The statement says this will provide “long term revenue visibility for Totem with its main customer, Orange” and adds that the renewal would cover the entire portfolio of sites.
The new company will target an increase in colocation rates in France and Spain “from 1.3x in 2020 to 1.5x by 2026”, and up to 3,000 sites should be constructed over an eight-year period based on demand from Orange.
Based on 2020 figures, Totem should have revenues of over €500m, and EBITDA of about €300m, two-thirds of that in France. Such figures highlight how Orange hopes to be able to “use the flexibility of the new entity’s entire capital structure, whether for issuing new shares or debt financing”.
Unlike Vodafone, Orange is not suggesting any near term plans to IPO or sell off its towerco. It said it “wishes to retain control of Totem to benefit from the important source of sustainable value creation it provides for the Group”. CEO Stephane Richard, in a recent interview with the Financial Times, took pointed aim at Telefónica’s sale of its Telxius tower carve-out when he said there was “something smarter to do than just selling your towers to Cellnex”.
He is not ruling out a partial sale, or an IPO, but there are no near term plans for that. “Passive mobile infrastructure is a core asset for Orange … and we are determined to keep these strategic assets within the scope of the Group,” said Richard in a statement, adding that the infrastructure represented “a long term industrial view and an essential asset in guaranteeing Orange’s independence”.
This caution about even a minority stake sale is by contrast with Vodafone’s aim of taking its Vantage Towers carve-out public next month with an initial share offering worth about €3bn. Vantage now includes towers from 10 European Vodafone markets, for a total portfolio of 82,000 macro sites including the telco’s 50% share of its UK towers joint venture with Telefónica, Cornerstone.
Cornerstone includes 14,200 of Vantage’s total site count; 19,400 of the sites are in Germany and are fully owned by Vantage; 22,100 in Italy are co-owned through its 33.2% stake in INWIT (Infrastrutture Wireless Italiane).
Its other markets are Greece, Portugal, Romania, Czech Republic, Hungary, Spain (where it has struck a new five-year deal with industry body AOTEC, which represents more than 150 local and regional operators) and Ireland, where it has landed 10-year deals with Eir and Three Ireland for 250 and 200 future site tenancies respectively.
The towerco provided a pre-IPO update last week, boasting of a targeted role as a “5G superhost” that would support enterprise as well as MNO connectivity needs. That would see Vantage extending its business into indoor systems, small cells and potentially edge cloud infrastructure, as a few independent towercos, such as Crown Castle in the USA and Cellnex, have already started to do. It has deployed its first distributed antenna system (DAS) for a building complex in Czech Republic.
“We remain focused on our goal of becoming a 5G superhost in Europe, offering bespoke solutions which enable 5G connectivity using our towers across various verticals, including manufacturing, healthcare, e-gaming and agriculture,” said the company in a financial update.
Vantage also sees new business opportunities in the IoT sector and announced a 10-year deal in Germany to provide LPWAN provider Sigfox with more than 350 new sites, a tally that will rise to 500 in the next financial year. Sigfox Germany currently has 4,800 sites for its ‘0G network’.
Vantage reported revenues of €723m for the nine months to December 31 and earnings before various costs, but after lease payments, of €394m. It said it has a reserve of €1bn to achieve its target to be Europe’s market leader in towers through new site build-outs and acquisitions, and expansion into adjacent markets like DAS. Cellnex, its main rival, now has 120,000 sites (including committed future builds).