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27 July 2020

Vodafone Vantage and Cellnex in battle to dominate Europe’s towers

The cell tower business has been a hive of activity for the past year, as pressurized operators look to release capital and monetize their site assets, while driving internal efficiencies. Vodafone plans to spin off all its towers, across Europe, into an arm’s-length company and then mount an IPO (initial public offering), It has now announced the details of its scheme, which will make its spin-off – to be called Vantage Towers – the biggest tower operator in Europe.

Vantage Towers will be listed in Frankfurt and Vodafone will retain a majority shareholding.

Vantage has controlling interests in towercos in Germany, Spain, Greece, Portugal, the Czech Republic, Romania, Hungary and Ireland, but only a minority stake in Italy and 50% ownership in the UK.

In addition to its fully-owned towers and other sites, the UK-based operator will include several joint ventures including Greece’s largest towerco, a JV with  Crystal Almond, the controlling shareholder of Greek MNO Wind Hellas; and Vodafone’s 33.2% stake in INWIT, its JV with Telecom Italia. It may also add its 50% stake in its UK JV with Telefónica O2, CTIL.

Vodafone’s CEO, Nick Read, commented: “Today’s launch of Vantage Towers marks significant progress of the strategy I established when I became Vodafone CEO.”

Vivek Badrinath has been appointed as Vantage’s CEO. He said investing in fiber will be a key priority. “As you move to 5G, operators will require increased fiberization of sites,” he said. “We will definitely be looking into that.” He will have a tough job – although he will have the biggest portfolio of sites, he will need to work hard to attract other telcos to put equipment on them – hence the importance of differentiators like fiber backhaul. Only 10% of Vantage’s revenues come from non-Vodafone operators today.

Read has previously said the towers business could be valued at $20bn, about half Vodafone’s current market capitalization of about $42.2bn. Its share price has halved in the past 2.5 years, accounting for the rush to unlock asset value. Infrastructure stocks have been generally better valued than digital services stocks in recent years, and that pattern tends to be intensified in times of recession. Shares in pure-play European towerco Cellnex of Spain have almost doubled in value since early 2019.

Meanwhile, Cellnex itself has announced plans to issue €4bn ($4.7bn) in new shares to fund expansion into new areas, as its position as Europe’s largest independent towerco is threatened by Vantage. Cellnex plans to increase its portfolio to 61,000 regional towers through an €11bn ($12.8bn) program of acquisitions and construction. However, this will still not amount to as many sites as Vantage, which will bring at least 68,000 sites to the neutral host market.

Cellnex spent €2.5bn in the first six months of this year, making acquisitions in Portugal, Ireland and the UK. It now operates in eight countries in western Europe, with 40,000 active sites.

Its revenues leapt by 48% year-on-year in the first half of 2020 to €723m, though most of the growth came from acquisitions. About 77% of revenue came from infrastructure services to MNOs, while its broadcasting infrastructure delivered 16% of sales. EBITDA stood at €527m for the first half of this year, though it made a net loss of €43m, due to high amortization and M&A costs.

Cellnex is also diversifying its revenue streams. It has been, for some years, a leader in expanding from macro cell sites such as towers, poles and large roofs, into small cell infrastructure such as lamp-posts.

In June it teamed up with server vendor Lenovo and orchestration software developer Nearby Computing to launch an Intel-based edge computing solution for mobile operators that could be deployed at Cellnex sites around Europe.

And now it has moved into private cellular networks with the acquisition of Finnish start-up Edzcom, which designs, builds and manages private 4G networks for large enterprises such as Port Oulu, Kalmar and Finavia.