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The Rise of TowerCos, FibreCos and NetCos

Spotlight on operator divestments

One of the biggest trends in the last 12-18 months has been the divestment of passive assets by mobile network operators (MNOs). While it existed previously, this is now an accelerating worldwide phenomenon. One crucial component is the willingness of MNOs to dispose of their infrastructure into a newly created company (sometimes on a joint venture basis), which operates either on a captive basis or as a neutral host network opened to other operators. The deals are often backed by a wholesale deal between the new infraco and the divesting operator. 

There are demonstrated benefits for telcos opting to hive off towercos and fibrecos:

  • release capital
  • monetise asset portfolios
  • reduce costs of capital
  • reduce capex
  • optimise and diversify sources of financing for infrastructure deployments
  • increase efficiencies

And for investors:

  • attractive long-term opportunities
  • low-risk positions
  • predictable returns and revenues
fibre optic

A transformational deal in Spain


This case study for the divestment by Spanish operator Grupo Másmóvil to a joint venture also including investors Macquarie Capital, Aberdeen and Daiwa illustrates some key characteristics of such deals.

CMS advised infrastructure specialist Macquarie Capital as the main investor together with Daiwa Energy & Infrastructure and Aberdeen Standard Investments, on the acquisition of a majority stake in the fibre optic network owned by MásMóvil in rural areas, which will cover more than 1.1 million Spanish households once rolled out, and the financing of that acquisition.

The neutral host rural network will be managed by Onivia, the independent network operator created by Macquarie, Daiwa and Aberdeen in 2020. The acquisition allows Onivia to have a national presence and completes its current coverage in the urban areas of Madrid, Seville, Valencia, Barcelona and Málaga. The transaction takes place in a context in which the presence of optic fibre in rural areas is especially relevant, given the growing number of people working remotely in these areas as a result of the COVID-19 pandemic.

Oliver Bradley, Managing Director, Digital Infrastructure Investing at Macquarie shares his thoughts with CMS on the importance of this deal:

“This transaction cements Onivia’s position as the largest independent FTTH wholesaler in Spain, now with a genuinely national presence, and a good balance between the key urban centres and more rural communities throughout the country.  These transactions were complex to execute, creating an infrastructure business, and all the agreements that need to go along with that, where one didn’t previously exist, but we’ve been delighted with the impact Onivia has had in a relatively short time.”  

This is the second optic fibre transaction in which CMS has advised Macquarie and one of the most relevant transactions in the telecommunications sector in Spain in recent years. Both transactions create networks opened to all operators with MásMóvil as the initial anchor customer.

Telecoms antenna

Orange’s approach to infrastructure deployment


In 2021, Orange implemented several infraco deals across Europe, such as:

  • Orange Polska’s partnership with APG (financial investor) in a 50:50 joint venture to roll out fibre in Poland, reaching 2.4 million lines including 1.7 million households over the next five years, for a reported EUR 605m (April 2021).
  • Orange’s announcement of TOTEM, a structurally separate and operationally autonomous company that will initially hold the company’s tower and telecoms sites in France and Spain, also serving third-party customers (February 2021).
  • Orange’s agreement to sell a 50% stake in Orange Concessions to a consortium including La Banque des Territoires (Caisse des Dépôts), CNP Assurances and EDF Invest, a new company that will hold Orange’s concessions to operate fibre to the home networks across rural France on behalf of local public authorities (January 2021).

Juan Velázquez Saiz, General Counsel for Europe at Orange, shared his thoughts with us on the importance of network sharing:

“Accelerated technological development, and the need to make it accessible to all Europeans, requires huge investment on the part of the operators. We can achieve this faster by sharing network deployment and access. Doing this alongside private investors, and in accordance with competition rules, will enable us to expand our networks, provide full access, boost consumer welfare and promote economic sustainability.” 

Read full interview with Juan here.

Some of the other top deals include:

  • Telefónica’s partnership with Allianz to build a neutral wholesale operator offering FTTH wholesale access to all operators in rural and semi-rural areas, spending some EUR 5bn on the deployment, while partnering with KKR in Chile and CDPQ in Brazil to create open access networks (agreed October 2020).
  • Proximus’s partnership with Eurofiber to build fibre to the home in Wallonia for at least 500,000 homes, and with EQT to roll out fibre in Flanders for at least 1.5 million households and businesses (signed October 2020).  
  • The EUR 7.7bn disposal by Telxius (majority-owned by Telefónica) to American Tower Corporation of 30,722 tower and telecommunications sites (completed January 2021).
  • Vodafone’s carve-out of its European mobile tower portfolio (including its 33.2% stake in Italian tower operator INWIT, and its 50% stake in Cornerstone (UK joint venture with Telefónica) into new entity Vantage Towers, which listed in Frankfurt raising an estimated EUR 2.3bn. (March 2021).
  • Cellnex Telecom’s agreement to acquire CK Hutchison’s European telecoms towers for EUR 10bn (November 2020); its purchase of a 51% stake in a joint venture with Bouygues Telecom for the roll-out of fibre network infrastructure in France (February 2020); its acquisition of 3,150 tower and rooftop sites in the Netherlands from T-Mobile Infra B.V. (January 2021); and other acquisitions of and investments in telecoms sites across Austria, Denmark, France, Ireland, Italy, the Netherlands, Poland, Portugal, Spain, Sweden, Switzerland and the UK.

Spotlight on netcos and altnets

The latest trend sees “netcos” and “altnets” (alternative network companies), vehicles established to provide access to passive infrastructure, now expanding into the provision of wholesale access to active network infrastructure. 

The fibre space is home to a fast-growing number of altnets, in particular in the UK (CityFibre and Hyperoptic), Spain (Lyntia and Adamo), Italy (Open Fiber) and Germany (Deutsche Glasfaser and Inexio) but also in Latin America (Ufinet International), attracting record investments and financing to roll out networks.

Recent transactions include:


  • On the very active German market, Deutsche Glasfaser raised EUR 1.4bn in debt following its acquisition by EQT and OMERS Infrastructure for EUR 2.8bn (with SWEN Capital Partners also joining in the equity by acquiring a EUR 1bn stake from EQT) (2020).
  • Inexio, another German FTTH company backed by EQT, raised EUR 1bn in loans (2019).
  • In Italy, Open Fiber recently raised an additional EUR 674m increasing its debt to EUR 4.15bn while Macquarie Infrastructure and Real Assets (MIRA) acquired an equity stake in the company from Enel for EUR 2.65bn.
  • In Spain, Antin-backed Lyntia raised EUR 225m in debt while EQT-backed Adamo raised EUR 250m (2020).
  • The UK is seeing an accelerating number of significant transactions with some of the biggest tickets including:
    •  In 2018, GBP 1.12bn of debt raised by CityFibre following its acquisition by Antin and Goldman Sachs;
    • In 2019, Hyperoptic’s GBP 250m bank raise followed by the acquisition by KKR of a majority stake in the company;
    • In 2020, the GBP 525m debt raise by Gigaclear; the GBP 1bn equity and debt raise by Cube-backed G.Network; and the GBP 208m raised by Community Fibre following the acquisition by Deutsche Telekom and Warburg Pincus of a majority stake in the Amber-backed company.
  • Enel acquired 21% of Ufinet International (the Latin American wholesale fibre operator) from Cinven for EUR 150m in 2018 with a reported option for the remaining 79% for between EUR 1.31bn and EUR 2.1bn. Ufinet International has also recently entered into an agreement with ETB in Colombia to deploy a neutral FTTH network.

How it works

This is a flexible model - applying across retail and wholesale - which is attractive to investors, lenders and the public sector. For example:

  • CityFibre sells wholesale active and passive network solutions to communications providers including retail ISPs and mobile operators.
  • On the tower side, Cellnex and Telxius offer multi-operator distributed antenna systems (DAS) and small cell solutions to improve coverage and capacity for MNOs.
  • Following its acquisitions of Stratto, Opencell, iWireless Solutions and Spyder Facilities, the digital infrastructure investment firm Digital Colony launched Freshwave Group in 2020, combining those companies’ small cell, DAS, tower and rooftop site businesses to offer multi-operator access and neutral host infrastructure solutions, serving UK MNOs, business customers, local authorities and central government.
  • In 2017, the City of London Corporation (CLC) awarded Cornerstone a 15-year contract to deploy and manage (with Telefónica) a free public access Wi-Fi service, and a 4G network using small cells deployed on street furniture in the City of London to provide wholesale access to MNOs to enhance their mobile coverage. As the CLC’s exclusive partner for the deployment of small cell and rooftop infrastructure, Cornerstone is now running a pilot to demonstrate that mobile infrastructure can support the MNOs’ requirements. If successful, this is intended to lead to a deployment delivering 5G coverage across the City of London by the end of 2022.
Mobile Phone Tower

Our prediction

Whether as a result of operator divestment or the growth of altnets and netcos, we expect to see an increasing number of transactions separating the providers of networks and the providers of services on those networks. The big question: Will this eventually drive consolidation, and what shape will this take?

Authors

Anne Chitan
Anne Chitan
Partner
Global Co-Head of Communications, TMC
London
Joseph Ladusans
Joseph Ladusans
Associate
London