UK towerco Arqiva seeks IPO after private sale collapses

UK digital tower company Arqiva has announced a bid to raise £1.5bn ($2bn) by selling 25% of its shares as part of a £6bn IPO, a new move to fix its finances after two years touting around for a private buyer.

To a greater extent than elsewhere in Europe this reflects the long term decline of digital terrestrial transmission (DTT), which is broadcast from Arqiva’s TV towers. It has also struggled in some of its efforts to diversify its wireless business, adding WiFi, LPWAN and small cell sites to its macro tower portfolio. Those initiatives have made limited impact on revenues, and the firm has backed away from some of the efforts, such as its alliance with Sigfox.

It may also be afflicted by uncertainty in Europe amplified by Brexit and other factors such as the current instability in Spain, which are making IPOs look risky. Other European tech companies such as O2 owner Telefonica and financial software firm Misys have recently called off plans to list for these reasons.

Arqiva has in fact been doing well for revenues in recent years with a further annual 6.8% rise to £944m for the year ending June 30 2017. The problem has been interest on debt and high infrastructure capital costs, which transformed pre-tax profits of £467m into an overall loss of £427m for the year. This was worse than the previous two years and such figures are the main reason Arqiva has been seeking a private buyer to heal its complex finances, which have continually confounded efforts to regain overall profitability.

This dates back 20 years to when Arqiva was effectively part of the BBC before being spun out and, after various transactions, ending up owned by Australian bank Macquarie and the Canada Pension Plan Investment Board by around 2009.

These two accumulated debt to invest in the infrastructure, but then sought to erase that through a private sale, but the effort finally collapsed when a conglomerate led by GIC, Singapore’s sovereign wealth fund, pulled out of the auction after expressing concerns over declining TV audiences, as reported by the Sunday Times.

Naturally enough Arqiva has been eager to talk up its activities on the cellular front and present itself as a 5G infrastructure pioneer, but it is too early for that to convince investors. Its claim to fame in 5G is a London trial with Samsung, featuring an ultrafast 5G-based fixed wireless access (FWA) broadband network using the 28 GHz millimeter wave radio spectrum band to deliver stable two-way downlink speeds of around 1Gbps at the CPE.

However this is, so far, only a trial between two buildings, using technology that could feasibly be located on lampposts or street objects and does not exploit Arqiva infrastructure at present.

More relevantly Arqiva had shored up its management team ahead of this planned £6bn flotation, with Mike Darcey, former News International chief executive, and Paul Donovan, former chief executive of Odeon, appointed to its board, along with Frank Dangeard, former France Telecom deputy chief executive.
Events at Arqiva are being watched with interest across the channel in continental Europe, with a sense of déjà vu in France. The nation’s transmitter company TeleDiffusion de France (TDF) succeeded where Arqiva has just failed by completing the sale of its assets, in April 2015, to a consortium comprising Brookfield Infrastructure, PSP Investments, APG Asset Management and Arcus Infrastructure in April 2015. This sale comprised around 6,700 towers and 5,000 kilometers of fiber backbone, and raised about €3.6bn ($4.1bn). A further €800m was then raised in April 2016 through a 10-year bond issue.

Investment of some of this cash has sparked a revival for TDF, as capital expenditure on infrastructure soared 33% to reach 25% of its €673.9m 2016 revenues, bringing the inventory up to 11,856 operational sites. This growth was also boosted by the October 2016 takeover of its smaller infrastructure rival ITAS for about €100m, bringing on 400 sites and adding around €45m to annual revenues.

This new-found strength has also helped TDF bolster its presence on the ground, with a notable coup being its successful tender to provide optical fiber throughout the Val d’Oise region as part of a program to provide ultra-high-speed broadband in sparsely populated areas. This project entails deploying around 85,000 fiber outlets over the next three years in 116 communities.

At the same time DTT itself remains the country’s most popular medium of reception, according to a Perceptiva Labs commissioned by TDF itself. It found 45% of homes have DTT as the means of distribution on their main TV set, followed by ADSL (33%), satellite (16%), fiber (11%) and cable 9%.

This situation is mirrored in Italy, where again DTT has been bolstered by the fact that cable has never been authorized and there is limited IPTV. Italy is the only significant European country with a pay-DTT platform of any note – RTI’s Mediaset Premium has almost 20% of the country’s pay-TV market with a range of premium content, including pay-per-view football matches. (There are also declining DTT paid services in the Netherlands, Sweden and Spain).

Meanwhile in Europe’s other major market, Germany, there has been a period of stagnation for tower provider Media Broadcast, which had been owned by France’s TDF.
Deutsche Telekom had originally sold Media Broadcast to TDF for €850m in 2007. But then TDF decided to exit Germany, leading to German mobile communications company Freenet acquiring Media Broadcast through its subsidiary Mobilcom-Debitel for €295m.