Cellnex’s stock market listing in 2015 (+39% since its share offering and with a capitalisation of 4.5 billion euros), was the first in a series of moves (Inwit’s share offer, the sale of Telefonica’s stake in Telxius, etc) towards the creation of a listed telecommunications’ infrastructure sector, focusing on the mobile broad band segment. This industry has as its exponents big American companies of the stature of American Towers (capitalisation of 50 billion euros), Crown Castle (33 billion euros) and SBA Communications (14.4 billion euros).
GVC Gaesco analyst Eduardo García Argüelles says that although these are highly geographically-diversified companies, they have one element in common: their small or minimum presence in Europe. It’s in this continent where consolidation has hardly happened.”
On the one hand, there is a large number of telecommunications operators (over 50 in the EU) and the European Commission, for the time being, is showing no signs of changing its stance with regard to allowing mergers between operators with the aim of avoiding potential price increases for the end client. On the other hand, the majority of these traditional operators still own a large part of these assets which, in some cases, are considered as strategic and, in others, a mere commodity (which can be sold off as they are not considered as core business for operators in an integrated and converging telecoms market).
The fact is that in cases like Inwit or Cellnex itself, we have seen the emergence of private investor appetite, as well as that of competitors and private equity, willing to pay over 20x EV/EBITDA like US peers (REITS and success stories in terms of their stock price).
In general, companies like American Towers automatically have investment banks on their payroll which are on the look out for any M&A opportunity at a global level. Apparently there only restriction is that the asset on the radar is situated in an area where mobile data traffic is relevant. This has driven the above-mentioned company’s expansion in countries like India or the LatAm region. As a result (and up to now) it has left Europe to one side.
However, there is a company called Cellnex which has gone further, and has been able to see another unique path to growth, especially in Europe: the dismantling and rationalisation of networks. Previously, the operators’ main competitive advantage was providing sufficient coverage for the network so they built their own infrastructures and shared them with us. As a result of this process, a huge number of towers are currently duplicated or triplicated, so rationalisation is necessary Europe.
There are various catalysts for the sector in Europe, according to GVC Gaesco:
- Win-to-win long-term contracts between telecommunications operators and infrastructure companies. Indexed to the CPI. Double digit IRR with an important gap in relation to the financing obtained by the infrastructure firms against a backdrop of low interest rates, with refinancing later via corporate bonds.
- The need to build more sites in densely populated areas where there is a big requirement for mobile data, looking ahead to the development of 5G technology which will start to be sold from 2020 onwards.
- The dismantling of infrastructures in order to group various operators together in the same site. This leads to a reduction in energy costs, land…
- The EU’s regulatory restrictions on consolidation operations in the telecommunications sector in Europe. This is a positive point for companies in the telecommunication towers’ sector, since they have a greater potential number of clients. At the same time, it avoids the operators from merging and carrying out the dismantling themselves, registering them as post-integration synergies.
- The possibility of the listed companies in Europe being bought up by their US peers which have a greater criticial mass.
- The acceleration of divestments in telecommunications towers’ passive infrastructures. This is due to telecos’ major need for capex to cover all the converging segments of the business: content, spectrum, the deployment of fiber-to-the-home…