By Isla Binnie and Supantha Mukherjee
MADRID/STOCKHOLM : European telecoms firms are cashing in on the money-making power of masts, as tower companies line up to pay multi-billion dollar price tags for antennas buzzing with ever more data ahead of the advent of 5G.
Faced with straitened revenue growth and stubbornly high debt built up during the last network upgrade, telecoms companies are relishing the quick cash injections they can get from selling these portfolios, or future income from spin-offs.
Upgrading networks, including towers, for 5G - which promises an age of self-driving cars and brain surgery performed at a distance - will soak up some $890 billion between 2020 and 2025, the GSMA industry body says.
European operators are increasingly willing to exploit assets to help finance those build-outs. While selling towers outright brings piles of cash, many are also looking to create separate tower units or launch joint ventures with independent companies as a way to keep a chunk of potential future growth.
So far this year, Vodafone has lined up its towers business for the European sector's biggest listing since 2014, while Orange created a separate towers unit.
Independent tower companies have proved hungry to buy, snapping up more than 14 billion euros ($16.9 billion) worth of assets so far this year to access the steady, inflation-linked returns antenna-topped towers generate.
But around 66% of sites in Europe are still wholly or partially owned by phone companies, Barclays estimates, compared with less than 10% in the United States. "The market is unlocking," said Julian Plumstead, Chief Executive for Europe at American Tower, which bought more than 30,000 towers from Spain's Telefonica in January.
Compared to the United States, Plumstead told Reuters, "We are still in the early to middle ages of our industrial development, but looking forward I think the trend will continue and possibly accelerate."
GRADUALLY RELINQUISHING
In cases where operators and tower companies have signed joint ventures, the tower companies say they usually have the option to buy out the operators after a number of years.
This means some are gradually relinquishing these unlikely trophies in stages. Telefonica netted more than $9 billion with the sale to American Tower of sites it had already hived off into a separate unit in 2016.
"We fully understand the interest of the operators in going for this two-stage approach," Cellnex Deputy Chief Executive Alex Mestre told Reuters. "There is revalorization of the asset ... and the operators can seize that."
Plumstead said American Tower had managed to beef up its portfolio - from an admittedly low base - in Europe this year despite restrictions on movement.
"Getting people into the field has not been as easy... but we've built more towers this year than in Europe last year and we'll plan to do the same again this year."
Towers are prized assets partly because contracts to use them are like an "infinite marriage" in which operators pay steady rates for decades, in the words of one industry expert.
Shares of both American Tower and Cellnex touched record highs last year during the pandemic after more than doubling and more than tripling respectively in value in the last half decade.
TOWERING OVER EUROPE
Deal-making has been concentrated in Western Europe until now, but regional leader Cellnex and American Tower, whose buy from Telefonica increased its presence in Europe sevenfold, are both now looking further east and in Scandinavia.
"We are looking at a wider geographic scope," Cellnex's Mestre said. "We have started also in the Nordics, we have started in Poland and in all those areas in our core geographies where we believe there are still a lot of towers yet to be outsourced."
Almost all European operators are now discussing what they should do with their tower assets, industry executives say.
High multiples paid for recent deals have piqued their interest. American Tower paid Telefonica around 30x its tower unit's most recent core earnings for the assets, according to analysts at Moody's.
Operators willing to part with their towers have commanded average valuations 22.1 times higher than the assets' core earnings since mid-2018, Moody's also said. Cellnex clinched the lowest price among recent deals, paying 16x earnings for a portfolio from Poland's Play last October.
"If you conclude that it's not really a competitive advantage to own the towers, then you should dispose of them because the multiple arbitrage is high," said Nikos Stathopoulos, chairman of mobile operator United Group, which owns 6,000 towers in Bulgaria, Slovenia and Croatia.
Sweden's Telia is also considering wringing money out of its more than 9,000 towers by partnering with external investors, a spokeswoman told Reuters, while Telenor is also aiming to generate value from its tower portfolio, a representative said.
Source:-ET Telecom and used here for Educational Purposes only
