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2 August 2022

Cellnex presses pause on large acquisitions and pledges organic growth

Europe’s largest independent tower operator, Cellnex, has been acquiring infrastructure portfolios at a breakneck rate over the past few years, taking advantage of the trend for European operators to offload some or all of their tower portfolios in order to unlock cash and streamline operations. However, this year has seen the Spanish-based towerco pulling back somewhat, and now it says its expansion plans will not involve M&A for the time being.

The change of direction may have been partly driven by the prospect of increased scrutiny from competition regulators, as Cellnex’s leadership of the European market began to spark fears among operators – even those eager to sell their towers – that a consolidated infrastructure market could reduce price competition and drive up site rental fees. The UK Competition and Markets Authority conducted an in-depth probe of Cellnex’s plan to acquire CK Hutchison’s UK portfolio of sites, early in 2022, and the details are still to be finalized.

Meanwhile, Cellnex surprised the markets when it withdrew from bidding for Deutsche Telekom’s tower operations in Germany and Austria last month, leaving the deal to be won by DigitalBridge and private equity partner Brookfield.

Cellnex still plans to expand its presence in Europe, but mainly be expanding the portfolios it holds in 12 markets, the company’s management told shareholders last week. The firm plans to spend €6.5bn by 2030 to add 22,000 new towers and rooftops to its infrastructure across those 12 countries.

CEO Tobias Martinez indicated that, for the next 2-3 years at least, the focus of investment and expansion will be on organic growth rather than M&A, as well as consolidation of assets. There may be small-scale acquisitions to fill holes in some portfolios or to expand further into newer business areas such as small cells or active networks, but large-scale M&A will be on hold for now.

Cellnex made the comments while announcing its first-half financial results, which saw the firm report revenues of €1.69bn, u 59% year-on-year. Martinez said: “The key financial indicators continue to reflect Cellnex’s expanded geographic footprint – after integrating the sites acquired in 2021 – and the strength of the Group’s organic business.”

Ironically, Cellnex’s pullback from large acquisitions comes as competition for passive mobile infrastructure is heating up again in Europe following the IPO of Vodafone’s Vantage Towers carve-out, and the increasing presence of American Tower (ATC).

At the start of 2021, it seemed that a European stand-off between Cellnex and Vantage was looming, but ATC, the world’s largest and most geographically expansionist towerco, has been boosting its own presence in the region, through its acquisition of Telefónica’s tower arm, Telxius, in May 2021. American Tower’s European division aims to expand its footprint rapidly to compete with Cellnex and Vantage. The company enlisted a new investor, Canada’s Caisse de dépôt et placement du Québec (CDPQ), to help manage the €7.7bn cost of buying Telxius in Europe and Latin America. CDPQ acquired 30% of 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 increased 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 brought a dowry of 31,000 sites, in Germany, Spain, Brazil, Chile, Peru and Argentina. After the deal closes, ATC had about 220,000 sites worldwide, including 43,000 in the USA.

ATC also issued9m 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. When the CK Hutchison UK deal completes, Cellnex will have a further 6,000.

Investment analysts at New Street Research believe the deal with CDPQ reflected 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, snapped up some of the prime assets around the region, so Cellnex’s new approach may be a relief to ATC investors.

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, and diversifying the nature of them.

Last year, it acquired Polkomtel Infrastruktura in Poland. This added to tower assets Cellnex was buying in that country from mobile operator Play, but also took it further into the realm of active networks. The transaction added 7,000 towers and a range of active assets to Cellnex’s 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 2021 deals included Cellnex’s agreement to buy Deutsche Telekom’s towers in The Netherlands, and to acquire Hivory of France, which added 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 represented 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 the deal to acquire CK Hutchison’s sites in Austria, Ireland, Denmark, Sweden, Italy and the UK for a total of €10bn.

The closing of that deal, and the completion of all pledged site additions, will bring Cellnex’s total European portfolio to 128,000 sites by 2030, which will double its base compared to 2019, 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. Cellnex owns about 29% of Europe’s 2019 installed base of 420,000 towers and other macro sites. In France, it has 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.

Until the UK intervention, it seemed that competition authorities in Europe were far less concerned about concentration of ownership of passive infrastructure than of active mobile networks. Regulators and MNOs had been taking the view that consolidation would accelerate the expansion of 5G and mobile broadband, and reduce costs for operators and consumers.

Martínez summed up the towerco case 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 rationalization 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.”