Spain-based tower operator Cellnex is becoming the powerhouse of Europe’s mobile infrastructure sector, and evolving to be far more than a towerco, with expansion in small cells, edge compute and active networks.
Indeed, 2021 was looking like a European stand-off between Cellnex and Vantage Towers, which was carved out by Vodafone and completed a €2bn IPO on the Frankfurt stock exchange this month. However, despite operator concerns about declining competition in the region’s infrastructure space, these two giants do not have the market all to themselves. The world’s largest and most geographically expansionist towerco, American Tower, is also looking to increase its presence in Europe, through its acquisition of Telefónica’s tower arm, Telxius.
American Tower’s European division aims to expand its footprint rapidly to compete with Cellnex and Vantage. The company has enlisted a new investor to help manage the €7.7bn cost of buying Telxius in Europe and Latin America, a deal agreed in January this year. The new investor is Canada’s Caisse de dépôt et placement du Québec (CDPQ), which will acquire 30% of American Tower Corporation (ATC) Europe in a deal valued at more than €1.6bn, implying a value of ATC Europe of more than €8.8bn.
The acquisition of Telxius will increase ATC’s portfolio to about 30,000 sites, to support the region’s operators in their quest to accelerate 5G roll-out and densification, while keeping capex and opex growth predictable and under control. Telxius brings a dowry of 31,000 sites, in Germany, Spain, Brazil, Chile, Peru and Argentina. After the deal closes, ATC will have about 220,000 sites worldwide, including 43,000 in the USA.
The new partners said in a statement: “The transaction will position American Tower and CDPQ to jointly benefit from sustainable, long term secular wireless growth trends in select European markets as 5G deployments and demand for communications infrastructure accelerate”.
ATC will also issue 9m new shares to raise additional funds, targeted at about $2.15bn, for the purchase, which is critical to its chances of catching up with Cellnex’s portfolio of over 58,000 sites, as of the end of 2020, and over 3,000 small cell and DAS (distributed antenna system) networks.
“This transaction not only contributes to the funding of our pending Telxius acquisition, which will transform our scale and leadership position in highly attractive markets like Germany and Spain, but also creates a solid, adaptable framework through which future expansion opportunities can be evaluated and financed,” said American Tower CEO Tom Bartlett.
Investment analysts at New Street Research believe the deal with CDPQ reflects a desire by American Tower to accelerate expansion in Europe by signing up partners and through M&A, rather than organic growth. There will be a sense of urgency as Cellnex, and potentially Vantage, snap up some of the prime assets around the region.
New Street’s Spencer Kurn wrote in a client note: “We believe the deal with CDPQ creates a framework for more aggressive inorganic expansion for AMT in Europe, and for AMT to be more competitive in bidding on future M&A.” However, the towerco also aims to step up its build programme in response to rising demand for denser 5G networks. On the recent Q1 earnings call, Bartlett reiterated a target to build 40,000 to 50,000 new locations worldwide over the next five years, and to partner with private capital firms to speed that growth.
Other investors may partner in Telxius. Analysts at Raymond James expect ATC’s current European partner, Dutch asset manager PGGM, to remain a minority partner and that more minority stakeholders could join later, though “AMT would keep the majority stake and operational control”.
A rapid expansion by ATC will certainly stop Europe’s non-captive tower market becoming a duopoly in major countries. But there have been concerns raised by some operators about the dominance of Cellnex, which has been steadily adding new assets over the past few years, most recently with the purchase of Polkomtel Infrastruktura in Poland. This adds to tower assets it is buying in that country from mobile operator Play, and takes it further into the realm of active networks.
The transaction will add 7,000 towers and a range of active assets to Cellnex’s rapidly growing portfolio. The latter include about 37,000 2G/3G/4G/5G radios, about 11,300 kilometers of fiber backbone, and fiber and microwave backhaul networks across Poland. Cellnex has pledged to invest €600m in 1,500 additional sites and active assets (mostly 5G) during the next 10 years.
The deal is particularly interesting because it adds to Cellnex’s repositioning as an ‘augmented towerco’ – one that does not just operate passive sites such as towers, roofs and city furniture, but also provides neutral host services in active networks, in-building networks, fiber, and potentially cloud infrastructure.
Other recent deals included Cellnex’s agreement to buy Deutsche Telekom’s towers in The Netherlands, and to acquire Hivory of France, which adds a further 10,500 sites to its stockpile. The latter deal was struck with Altice France, whose SFR mobile unit is the main customer for Hivory sites, and the company’s majority owner Starlight Holdco, and represents an investment of €5.2bn by Cellnex, plus a plan to invest €900m to roll out up to 2,500 new sites by 2029, among other projects. In November 2020, Cellnex announced a deal to acquire CK Hutchison’s sites in Austria, Ireland, Denmark, Sweden, Italy and the UK for a total of €10bn.
The closing of outstanding acquisition deals, and the completion of all pledged site additions, will bring Cellnex’s total European portfolio to 128,000 sites within a decade, which would double its base and put it in a commanding position even as Vantage and other carved-out towercos start to expand their reach to new service providers and asset types.
So far, competition authorities in Europe have been far less concerned about concentration of ownership of passive infrastructure than active mobile networks. Issues may be raised in time, related to limited price competition for operator tenants, but in general, regulators and MNOs are taking the view that consolidation will accelerate the expansion of 5G and mobile broadband, and reduce costs for operators and consumers. However, the regulatory view could change if Cellnex expands significantly in active RAN, where consolidation of MNOs has often been blocked by European authorities. Though in the current Cellnex model, it does not own spectrum, the availability of shared licensed spectrum could make even that argument less meaningful.
Cellnex CEO Tobías Martínez put a positive spin on potential concerns about market concentration when the Hivory deal was announced, saying: “With the acquisition of Hivory … we will now be working in France with three of the big mobile operators in this market as anchor tenants, fostering infrastructure sharing; freeing up financial resources for those MNOs; enhancing rationalisation processes of existing sites; and accelerating the deployment of new sites that ensure both an efficient and seamless extension of 5G coverage in the country and the effective fulfilment of an objective that is also shared by the players in the sector: eliminating ‘non-spot areas’ or zones without proper coverage in the country.”
However, there will be concern that, in their race to reduce debt, MNOs are storing up cost challenges for the future. After the Polish deal clears, Cellnex will own about 29% of Europe’s 2019 installed base of 420,000 towers and other macro sites. In France, it will have about half the market, following deals with the third and fourth MNOs, Bouygues and Iliad Free, both of which have sold off towers to reduce debt. And in Italy, where Cellnex signed deals last year with Iliad and CK Hutchison, it has 24,549 sites, about 52% of the 2019 total.
At the end of 2020, the company had 58,014 operating sites
- Austria 4,470
- Denmark 1,317
- France 10,312
- Ireland 1,781
- Italy 10,610
- The Netherlands 924
- Portugal 5,052
- Spain 10,327
- Switzerland 5,315
- The UK 7,996
It also had 3,004 DAS (distributed antenna system) and small cell nodes, an increase of 25% year-on-year.