Cellnex finds another €800m to expand tower empire into Portugal

Cellnex has expanded its European footprint once again through the acquisition of Omtel, taking the infrastructure giants into the Portuguese market.

It is perhaps becoming difficult to fully convey the aggressive nature of Cellnex’s expansion over the last 12-18 months. This €800 million transaction is another to add to the increasing list of moves made by the firm to quickly expand the geographical relevance of the business. Altice Portugal and Belmont Infra Holding are the beneficiaries this time.

“With Omtel, we are not only integrating one of the leading independent telecommunications infrastructure operators in Portugal,” said Cellnex CEO Tobias Martínez.

“We are also committing to consistent growth in Europe, incorporating an eighth market – which naturally extends the current geographical coverage of the seven countries in which we already operate, and in this case especially due to the proximity and operational synergies that may arise with the Group in Spain.

“We are also incorporating a new client, Meo, which is the market leader and joins a rich and diversified mix of clients in Europe, covering the leading operators in the markets in which we operate.”

As part of the deal, Cellnex will acquire 3,000 mobile cell sites, roughly 25% of the total across Portugal, while there are plans through the build-to-suit (BTS) programme to deploy additional 350 by 2027. The current expansion plans have been tabled at a cost of €140 million.

While Cellnex is proving to be a very ambitious firm right now, this might be down to opportunism more than anything else. European telcos do not have the same scale as those in North America or Asia and have been financially strained over the course of the last decade. Most are now searching for funds to fuel 5G and fibre deployment plans, and divestment in passive infrastructure is proving to be a popular strategy.

The telcos financial situation has been well-publicised and Cellnex is one of a few different players seemingly hunting bargain deals for infrastructure assets across the continent.

Aside from the Omtel investment, Cellnex has also bought 1,500 sites from Orange Spain, Arqiva’s Telecoms division for £2 billion, Irish tower company Cignal, 70% of the operating company which manages Iliad’s 7,900 sites and 2,800 sites from Swiss telco Salt. Alongside this spree of acquisitions, Cellnex also obtained marketing and operating rights for 220 BT high towers distributed throughout the UK for 20 years and has signed numerous co-operation deals across the continent.

All of these deals were announced post-May 2019. It has been a very busy six months.

Cellnex has certainly noted telcos are in a precarious position and is throwing some serious cash to obtain assets. It might be expensive in the short-term, but it has guaranteed customers for as long as anyone can stare into the future; Cellnex and its 60,000 sites is a heavy-weight, profit making machine.

Altice bags €2.3bn Morgan Stanley cash in wholesale deal

Altice has struck a deal with US investment bank Morgan Stanley which will see its Portuguese unit create a nationwide wholesale business.

Under the terms of the agreement, Altice will create a nationwide fibre wholesaler in Portugal. While Altice has been quick to suggest innovation in the structural separation, even going as far as to claim a ‘first’ in Europe, the new position looks similar to what is currently in the UK between BT and Openreach.

As reward for the restructure, Morgan Stanley will pay Altice €1.565 billion in 2020, an additional €375 million in December 2021 and a final lump sum of €375 million in December 2026, subject to conditions and performance. Morgan Stanley will take a 49.99% stake in the wholesale business unit.

“I am very pleased that our partnership with Morgan Stanley Infrastructure Partners, initiated in the context of our Portuguese tower transaction in 2018, now continues with a transformational fibre project,” said Altice Group CEO Patrick Drahi.

“Following this transaction, Altice Europe has obtained cash proceeds in excess of €5.7 billion through the transformational SFR FTTH transaction and the various tower sales and partnerships announced in 2018. Altice’s portfolio of infrastructure assets continues to grow. On a 100% proforma basis, SFR FTTH and our towers in France in addition to our fibre and towers in Portugal, already represent more than €0.8 billion of revenues and more than €0.5 billion of EBITDA, effectively constituting one of the largest telecom infrastructure groups in Europe.”

While diluting influence and ownership over valuable assets might be a tough pill to swallow for Drahi, this is an acquisition-addict after all, it is perhaps necessary. The digital era is fast-approaching, and if Altice is to remain competitive, it will have to spend big on its network just like everyone else.

Telecommunications has always been an expensive business to manage, though today’s dynamic presents even more of a conundrum than previous years; telcos have both 5G and fibre demands to satisfy simultaneously. Individually, these are incredibly expensive upgrade jobs to manage, however running in conjunction will force some telcos to create new avenues to secure cash.

That said, the industry is looking attractive for long-term investors, especially for fixed line assets. This is a change in the winds over the last couple of years; the consumer appetite for fibre connectivity has been demonstrated, and the Wall Street money men want in on the action. CityFibre is another which has benefitted from this surge of enthusiasm from the investment bankers, though it would not be considered unusual for more connectivity wholesalers, or challenger alt-nets, to secure additional funding.

Spain and Portugal resist US pressure over Huawei

Portugal is the latest western country to say it won’t ban Huawei from its 5G network, while Telefónica Spain is using Huawei for its 5G core.

AP reports that Portugal formally notified the US it won’t be excluding any Chinese vendors from participation in its 5G network. The report goes on to note that Portugal already has a fair bit of Chinese infrastructure investment and may be wary of putting that sort of thing in jeopardy. If so, that’s further evidence that the whole 5G security thing is a proxy for the broader geopolitical tussle between the US and China and that China may be threatening further consequences for countries that pick team US.

Meanwhile Telefónica has revealed it will be using Huawei in its Spanish 5G core, indicating there’s no ban from the Spanish government either. Expansión got the scoop and Reuters got confirmation from Telefónica. Both reports note that Telefónica is moving to a multi-vendor strategy having been all-in with Huawei, so that would appear to mark some kind of concession to security concerns.

US President Trump has been in the UK for a NATO summit and has inevitably been whispering in the ears of allied leaders about the perils of Chinese involvement in 5G networks. While the UK is still agonising over the matter, general European sentiment seems to be warming to Huawei, which could lead to diplomatic repercussions down the line. It seems the lack of hard evidence of the security threat Huawei is accused of posing is seriously undermining the US position.

Government policy has held UK back in pursuit of digital economy

While the investment climate for connectivity infrastructure has certainly been improving in recent years, a proactive and prioritised government is critical to ensure rapid evolution to the digital economy.

Across the world, the climate for investment in connectivity infrastructure is improving. There is plenty of demand from both the consumer and governments to build the business case for deployment of fibre infrastructure, though more could still be done in certain markets.

“The digital economy does not work without the government, especially in the rural areas,” said Dick Van Schooneveld of Mahler Corporate Finance at Total Telecom Congress this week.

This is the challenge which some telcos and governments are facing when it comes to attracting investment; the political and regulatory environment is not always very helpful. There are some bright spots across the world, Portugal for example as well as Sweden or South Africa, but some are lagging considerably.

According to Mikael Sandberg, Chairman of VX Fiber, the political and regulatory climate in some nations, such as the UK, has been a point of suffocation when it comes to investments in connectivity infrastructure. This has allowed other nations to leap-frog the UK in pursuit of the riches promised by the digital economy.

The difference between these nations which have made strong progress and those who are lagging, is the ambition of the governments involved and the ability to see the bigger picture. In Portugal or Sweden for example, public/private partnerships to invest in full-fibre infrastructure might expensive but it is very attractive in the long-run.

Sandberg suggested more than 50% of Swedish enterprise organizations have adopted full-fibre connectivity products and the benefits are significant from a productivity perspective. The more successful these businesses are, the more jobs which are brought into the economy and the more tax which is contributed back to the government.

The gains are quite clear both in terms of revenue for the public coffers and political capital gained in the eyes of voting citizens.

And while there are clear and measurable benefits through prioritising such investments, the likes of the UK and Germany have suffered. There have been policies in play which have steered the government away from such lavish spending, austerity measures in the UK for example, though the repercussions of these decisions are perhaps being felt now.

There are still many questions which need to be addressed to fully understand and appreciate the impact of the digital economy, and of course many areas which need to be tackled to mitigate the risks. However, will the right political climate, connectivity infrastructure is looking like an attractive investment to the money men. Unfortunately, there are still countries which haven’t balanced the equation.

Altice raises €2.5 billion by flogging some towers

Debt-riddled French telco conglomerate Altice has raised some much-needed cash by selling stakes in two of its tower holdings to private equity.

The the total cash consideration is €2.5 billion, with KKR getting half the French towers business, while three quarters of the Portuguese towers business are being snapped up by Morgan Stanley and Horizon. There is much talk of what a good deal this is and how it will enable the relevant bits of Altice to focus on their core stuff, but this is all about eating into its massive debt pile in a bid to repair the catastrophic damage it experienced last year.

“I am enthusiastic about creating new tower partnerships in France and Portugal,” said Altice founder Patrick Drahi. “With KKR, Morgan Stanley Infrastructure Partners and Horizon Equity Partners, we have found long-term partners of the highest-quality who share our vision to invest in leading infrastructure and growth opportunities.

“We will create a leading European tower business, including the number one in France. Both tower businesses will be uniquely positioned to grow as they provide increasingly important infrastructure services to operators in both markets. Simultaneously, these transactions underline our commitment to delever and proactively manage our balance sheet while highlighting the significant underlying value of Altice Europe’s business.”

If Drahi hoped this move alone would have a profound effect on Altice’s share price he must feel pretty disappointed as it has been met with a distinct shrug. The French tower joint venture is called SFR TowerCo, but Altice stock is far more sensitive to the fortunes of the SFR telecoms business than a few towers, and that remains a challenge. You can read further analysis of the move at Light Reading here.

Cisco gets thumbs up from Portugal

Cisco has followed up a successful week in Spain by signing a memorandum of understanding with its neighbour Portugal.

The new agreement will see Cisco work with the Portuguese government over the next two years to ready the country for the digital economy. The brief is quite broad, but some of the highlights include improving economic growth, education, innovation, and competitiveness as well as social inclusion and quality of life.

“By accelerating the national digitization agenda, Portugal can increase GDP growth, create jobs, and improve digital inclusion for our people and businesses,” said António Costa, Prime Minister of Portugal. “We strongly welcome Cisco’s contribution to create a sustainable innovation ecosystem that will enable our country to better compete in the global digital economy.”

“Cisco is proud to partner with Portugal’s government, businesses, and citizens in their commitment to digitize the nation and become a European leader in digital transformation,” said Chuck Robbins, CEO of Cisco. “We are committed to helping accelerate the Portuguese ecosystem of talent, entrepreneurship, and innovation that is key to creating a digital Portugal, and can bring even greater value to the country.”

Looking at some of the specifics, Cisco will partner with Startup Portugal focusing on areas such as security, mobility, and Internet of Things. The US technology giant will also provide local start-ups with access to its European Venture Capital initiative and Incubation program to help accelerate business and expand internationally. The agreement will also see Cisco supply products and services to several ministries, with a focus on public administration modernization, health, justice, and defence.

Another area of interest will be the four-year Industry 4.0 plan launched by the Portuguese government recently. The plan focuses on tourism, transportation, cities, and regions, with the aim being to improve services to citizens, visitors, and businesses, as well as to help competitiveness and operational efficiency. Part of this plan will include work with Turismo de Portugal to take advantage of wifi with analytics to improve experience and attract more visitors to the tourist hotspots in Portugal.

A few questions have been asked of Cisco in the last couple of days, namely focused around how recent product releases which essentially undermine Ericsson’s place in the radio segment. The gloriously named ‘Multi-Vendor Open vRAN Ecosystem Initiative For Mobile Networks’ is a direct alternative to single-vendor RAN offerings, and does offer a bit of a slap to Ericsson. Many had speculated the partnership between the two was on shaky grounds, but with Cisco’s radio initiative it looks dead and buried. Can a co-operation continue when one half of the partnership is taking a swipe at the others core competency?

Cisco might be facing awkward questions regarding its partnership with Ericsson, but at least good news stories like this will deflect some of the attention.