Experts say that separating base stations into separate companies is common practice. How did the strategy implemented by United Group work out in other countries?

Stunning offer for Deutsche Telecom

Deutsche Telekom received €10 billion for a 51 percent stake in its tower company in July, capturing the imagination of dealmakers looking for the next mega-deal in telecoms, media and technology (TMT), ionanalytics reported.

This sale is the latest in European mobile operators who want to bring in investors by separating tower infrastructure units. According to Dealogic, “tower activity was responsible for roughly 10 percent of the value of all TMT activity in the year to date, and around a third of the value of all telecom deals.”

Investors in infrastructure who had earlier wanted to get a stake in GD Towers are now looking for the next best opportunity in Europe. KKR, EQT, and Global Infrastructure Partners are among the investors who are considering investing in Vodafone’s Vantage Towers.

It is expected that investors will have more opportunities to invest in telecommunication assets once European operators begin preparations for separating tower infrastructure in new entities. Telenor has begun preparations to create, and ultimately monetize, its tower portfolio for next year. Tower business Cornerstone, owned by Telefonica, Liberty Global, and Vantage Towers could also offer new opportunities for investors.

While infrastructure funds are continuing with attempts to get involved, European operators could look into deeper consolidation moves in light of rising CAPEX costs and increased mobile network usage. In the meantime, however, infrastructure funds will keep operators on speed-dial while on the lookout for the next mega-deal in towers.

Benefits for Norwegian consumers

The transaction to sell 30 percent of the newly established Norwegian company Telenor Fiber AS was completed on Monday. The sale is made to a consortium led by the investment company KKR, which invests through its core infrastructure strategy, with Oslo Pensjonsforsikring as a co-investor.

The transaction values Telenor’s fiber company at NOK 36.1 billion and adds around NOK 10.8 billion to Telenor. The company delivered an EBITDA result of NOK 1.7 billion in 2021.

“This transaction is an important milestone in our new strategy to build Telenor for the future. We show the value in Telenor’s infrastructure while safeguarding future investments in Norwegian fibre. This will benefit Norwegian consumers, who will gain access to both modern and robust communication options through Telenor continuing to strengthen its customer offers,” said Jannicke Hilland, head of Telenor Infrastructure.

The sale of 30 percent adds NOK 10.8 billion to Telenor. As previously communicated, Telenor intends to use part of the consideration to buy back shares.

The transaction is in line with Telenor’s strategy to ensure a continued high pace of fiber development in Norway. At the same time, it highlights the value of Telenor’s infrastructure operations. Telenor’s aim is to take a significant share of the remaining fiber market in Norway and will continue to strengthen fiber coverage by giving consumers increased access to high-speed fixed, mobile and TV offers.

KKR has considerable expertise in digital infrastructure and shares Telenor’s long-term perspective on the Nordic telecoms market.

“We look forward to investing in and contributing to the long-term development of Telenor’s fiber strategy and infrastructure, which builds on KKR’s considerable experience in investing in digital infrastructure,” said Julian Barratt-Due, Director, European Infrastructure at KKR.

Vodafone to join KKR and GIP

Vodafone has agreed to sell a part of it company Vantage Towers to Global Infrastructure Partners (GIP) and KKR, creating a joint venture that will release proceeds of at least €3.2 billion to cut the telecoms operator’s debt, according to Reuters.

The deal, valuing Vantage at €16 billion, has achieved his goals of keeping co-control of the infrastructure necessary to introduce 5G networks, while extracting value and removing it from the British group’s balance sheet, said Vodafone CEO Nick Read.

“This significantly increases Vantage Tower’s financial flexibility to capture future growth opportunities both organic and inorganic,” Read said.

Last year, Read separated Vodafone’s European towers into a separately listed company, which was a precursor to a tie-up with another industry player, tower operator or infrastructure fund.
Read spun off Vodafone’s European towers into a separately listed company last year as a precursor to a tie-up with another industry player, a tower operator or infrastructure fund.

Vodafone’s investors, including, since September, French telecoms billionaire Xavier Niel, have been impatient for Read to fulfill his promise to monetise assets and start consolidation in mobile markets.

Boosting a relationship between KKR and TIM

Early in February, TIM confirmed it has received a non-binding offer from the American investment company KKR for buying a stake in its fixed network. Although the details of the offer remain unknown, TIM confirmed that, if the deal is reached, the American company will take control over the newly established company, according to Capacity media.

This would expand the existing relationship between KKR and TIM, as the investment group owns a 37.5 percent stake in Fibercop, valued at €1.8 billion.

“The government sees the safeguarding of employment levels and the security of a strategic infrastructure such as the national telecommunications network as key issues,” said the industry ministry as carried by Reuters.

“Turning point in writing the future”

Telefonica announced in October that its subsidiary, Telkius Telecom S.A., has signed an agreement with the American Tower Corporation (ATC) on the sale of its telecom tower division in Europe (Spain and Germany) and Latin America (Brazil, Peru, Chile, and Argentina) for an amount of €7.7 billion, Telefonica reported.

Among other things, the deal envisages commitment to employment by ATC. On the other hand, Telefonica Group operators will keep the existing contracts on leasing the towers signed with companies that sold the subsidiaries of Telkius Telecom, S.A., meaning that this operators will keep providing their services in similar conditions as before. Conditions of renewal do not include any new “all or nothing” clauses.

This is a part of Telefonica Group’s strategy which, among other goals, includes active policy of managing the portfolio of its assets and companies, based on creating value and simultaneously speeding up the organic debt reduction.

Telefonica’s president, José María Álvarez-Pallete, said that “this is a deal that makes strategic sense within our roadmap. American Towers was our second supplier after Telxius”.

Álvarez-Pallete added that “after this great operation we will continue to focus on our most ambitious objectives: the integration of O2 with Virgin in the United Kingdom, the purchase of Oi mobile in Brazil and the reduction of debt”.

After this operation, American Tower became Telefonica’s leading supplier in Europe and Latin America, maintaining its status as a partner in strategic projects in Brazil, Argentina, and Colombia.

Telefonica is a company forged in changes, focused on results and fulfillment of its commitments, and it continues to implement its action plan as an accelerator of the company’s transformation, which is even more important in the current context. The deal with American Tower meets the main goals on the roadmap set about a year ago: to enhance the possibilities with the greatest growth potential, using the value of the infrastructure; to boost the agility and improve efficiency; and to generate value through a long-term sustainable model by achieving operational excellence.

United Group is not selling Telemach

United Group – owner of Croatia’s commercial broadcasters Nova TV and N1 – has unofficially denied they are planning to sell the mobile operator Telemach. They are only following the prevailing trend in the mobile operator sector – base stations and towers are extracted into separate companies and sold, after which other players on the market can get access to the infrastructure.

Media speculations on the sale of Telemach first surfaced in the Slovenia’s Finance business daily, after which they have spread across the region. It seems, however, that the truth is markedly different. United Group says they are not selling Telemach, but instead they are finding a way to generate additional income from basic infrastructure.

“In line with the current market practice, we are planning to monetize our mobile base station infrastructure in some of the countries where United Group is present on the market, including Croatia,” United Group said.

Common practice

United Group is doing what many global telecommunications giants have already done, thus reducing its level of leverage.

“Other global telecoms are doing the same, such as Vodafone, Deutsche Telecom and Telecom Austria, A1 Croatia, HT will probably do the same at some point considering that DT has already started, Telecom Italia, British Telecom. This has become normal in the United States – that everyone is using the same steel infrastructure on which base stations are placed,” said Drazen Tomic, editor-in-chief of ICTbusiness.info.

United Group pointed out they are one of the few European telecommunications companies who own nearly 100 percent of its own mobile and fixed networks. In line with global practice, they say they have started the process of separating the towers into the United Towers company back in 2021.

The plan is that the separation will provide the income necessary to reduce the debt level – primarily for easier debt repayment of a total of slightly more than €1 billion, which is due in two installments in 2024 and 2025.

“It is logical that telecom operators are finding ways to capitalise on their relatively dead assets on which there is little return on investment. That is what specialised funds are for. Such a small return on safe assets is quite satisfactory,” said Djuro Lubura, telecommunications expert.

As United Group explained, this is a typical “sale and lease back” transaction in which the Group would sell the base stations, and Telemach Croatia would lease them back.

Consolidation brings lower costs, and they – lower prices

Base stations or towers, the trend is nothing now even on the Croatian Market. A1 Croatia has already nominally separated the company A1 Towers with around 2.000 towers, which now competes with the state-owned Transmitters and Connections.

“This is a global trend, telecom operators are doing their job, which is providing services to users. It is in fact completely irrelevant who owns the infrastructure, the poles, the power supply, or the optical infrastructure, as long as it’s accessible to all,” Lubura added.

The towers are a limited resource – it makes no economic sense for each operator to biuld their own on the same location, nor is it always possible to get a permit for that.

“The idea is to reduce the need for that company to deal with construction infrastructure; to have everyone on one pole and reduce the effect on the environment, and on the other hand to reduce the price of installation itself, because each pole costs money, especially during this crisis in which the price of steel has skyrocketed,” Tomic explained.

“Yes, consolidation is possible and they are actually welcome in that area. Every consolidation brings lower costs, and lower costs mean lower prices,” Lubura explained.

By separating the base infrastructure, United Group would become available to all mobile operators under equal conditions. The market would be further liberalised, the competition on the service market would increase and the people naturally do not care which base station they receive a signal from. Above all, they care about the best possible service for the lowest possible price.

United Group is the leading telecommunications and media service provider in southeast Europe, whihin which the telecom operator Telemach Croatia operates in Croatia, as well as TV channels and websites Sport Klub and N1, Nova TV, Doma TV and dnevnik.hr.