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The trends changing the towerco landscape
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The future of European tower companies
Cellnex, Europe's leading operator of wireless telecommunications infrastructures, recently experienced a significant change with the departure of its CEO, Tobias Martinez, after an eight-year stint. His departure sparked discussions surrounding the different business models of European tower companies (TowerCos) and their ownership of infrastructure assets.
A noticeable shift has occurred in the last couple of years towards independent ownership of towers. For example, Cellnex Telecom SA agreed to acquire over 24,500 telecom towers and sites in six European countries from CK Hutchison Holdings Ltd. for €10 billion. By the end of 2022, market research suggested that 41% of towers were owned by independent TowerCos globally.
This shift is fueled by large-scale M&A deals, with the end of 2022 witnessing two of the largest. Vodafone agreed to sell most of its masts company, Vantage Towers, while Deutsche Telekom completed its majority sale of GD Towers.
At the same time, Cellnex publicly announced that the European towers market was "pretty much closed" due to market saturation in Western Europe and soaring inflation, making it increasingly difficult to finance new deals as assets dwindled. As such, TowerCos like Cellnex are now looking beyond their core business and exploring further investments in fiber wholesale and data center assets.
The future belongs to the TowerCos that can masterfully balance speed and efficiency while providing a lean and cost-effective solution that CSPs cannot achieve independently.
TowerCos and CSPs will continue to work together
TowerCos recognize the essential part that CSPs bring to their business and strive to establish a collaborative and mutually beneficial operational model that enables both parties. Given that TowerCos are an integral part of the CSP operating models, the natural diversification is to help CSPs solve the significant challenges they have in 5G and fiber coverage and to secure a position in the Edge ecosystem.
With such collaboration, TowerCos can assist CSPs in providing high-quality customer services as this shared infrastructure model allows for the accelerated availability of a variety of advanced CSP services, including:
Replace DAS systems to improve 5G indoor coverage – an attractive solution to building/venue owners and CSPs as demand for indoor 5G service increases.
Deploy FTTH infrastructure in low-fiber-penetrated areas – this model is a golden opportunity for FiberCos and TowerCos. It has proven successful in Latin America, benefiting TowerCos, CSPs, consumers, and governments.
As CSPs strive to monetize their 5G investments, reach rural areas with economic challenges, and reduce coverage costs, a multi-operator neutral-host extension of the macro network by a TowerCo is a mutually beneficial solution.
Deploying equipment on city sites is attractive for CSPs and cities while limiting environmental impact.
TowerCos have a broad reach and can reconfigure facilities to host cloud servers, enabling them to offer CSPs and enterprises IaaS, MEC, and Edge/data center solutions.
Private Wireless solutions, mainly to enterprise customers, provide additional portfolio diversification for TowerCos.
Tower companies set to reach new heights
These TowerCo trends are expected to continue, and the independent ownership model is poised to accelerate. Today, their core business remains centered around the real estate model, where they confidently offer co-location services to their tenants on long-term contracts.
In the future, they will likely adopt active asset offerings to diversify their business models. Understandably, TowerCos are feeling the need to diversify their assets as more and more towers are acquired globally. The trigger for diversification is expected to come when TowerCos control greater than 60% of the towers – a signal that the overall market is reaching saturation point.
One way TowerCos could diversify is by acquiring full-stack CSPs and converting their assets into Neutral Host "open access" infrastructures. Although this happened with the Cellnex acquisition of the Polkomtel infrastructure, it’s still a unique occurrence.
TowerCos will increasingly look to spaces where investment by a single CSP is not attractive, where it can supply multiple tenants with a single infrastructure. They will likely prefer to purchase from an ecosystem similar to an enterprise and provide services to CSPs, enterprises, and webscalers.
Where does the future of TowerCos lie? They have a bright future ahead, with Cellnex leading the way by exploring new avenues, such as the acquisition of Polkomtel infrastructure, as well as pushing for an expansion of their tower business through their innovative "augmented TowerCo" concept. Despite industry challenges, such as increasing interest rates and business model complexity, TowerCos can overcome them and succeed.
