Vodafone ponders spin off of European tower business

After reporting declines in group revenues, Vodafone needed to bring some good news to the earnings call, and it seems the creation of a standalone tower business has done the job.

CEO Nick Read announced during the Q3 earnings call work had begun to legally separate the European tower infrastructure business, with plans to have the new organization up-and-running by May 2020. The team intends to monetize the tower business through an IPO or disposal of a minority stake in the next 18 months, dependent on market conditions.

“We will capture industrial efficiencies through network sharing agreements signed in multiple markets, and today we are announcing the decision to create Europe’s largest tower company,” said Read. “We believe there is a substantial opportunity to unlock the embedded value of our towers, and we have started preparations for a range of monetisation options over the next 18 months, including a potential IPO.”

Looking at the revenues, total group revenues declined by 2.3% year-on-year for the quarter to €10.6 billion, with Europe accounting for a 2.1% decline. Italy and Spain accounted for the biggest drops across the continent, though the operational challenges faced here are well-known to all. Germany and the UK both offered marginal growth, but there is hope on the horizon for these two markets.

In both the UK and Germany, Vodafone is readying itself for a more aggressive push into the convergence game with broadband offerings. In the UK, it has partnered with the rapidly expanding CityFibre and launched a 5G FWA offering, while in Germany, the recently approved Liberty Global acquisition will give it more of a presence in the cable market.

“Modest results in a challenging competitive European environment,” said Paolo Pescatore of PP Foresight. The move to lead in 5G with punchy pricing gives it a perfect opportunity to gain momentum. But margins will continue to be under immense pressure with unlimited price plans.”

On the network side, Vodafone is readying itself for an expansive rollout into the 5G world. Being one of the world’s largest operators does sound nice, however the catch is that there are massive financial commitments when it comes to infrastructure overhauls, such as the one the 5G era presents. With a new network sharing partnership in the UK with O2, a tie-up with Orange in Spain and potentially one with Telecom Italia in Italy, the burden could certainly be lessened.

While this is all good news for the operations, the tower infrastructure business will steal the headlines. This is becoming an increasingly common trend in the telco world as operators look to appease the financial appetites of investors by monetizing tower infrastructure assets. On the surface, it does seem to have worked, share price has risen almost 9% in early morning trading.

“Exploring options to float or monetise infrastructure assets is becoming a fashionable play among some network operators, motivated by driving greater value from them and reducing costs,” said Kester Mann of CCS Insight.

“Better asset utilisation and driving greater efficiency has been a leading part of Vodafone CEO Nick Read’s strategy so far. The company has also established a number of 5G network-sharing deals, increased focus on online sales and customer care and replaced many legacy tariffs with new simplified plans.”

Darker days forcing Vodafone CEO towards tower unit sale

The doom and gloom outlook at Vodafone seems to be strangling the glint out of the eyes of designate CEO Nick Read, as the incoming boss ponders selling off the tower business.

According to the Financial Times, Read made comments at Goldman Sachs 27th Communacopia Conference in New York, seemingly reacting to a slump in Vodafone share price since the beginning of the year. With €31 billion debt and share price down roughly 35% through the last twelve months, something needs to change.

Competition in the Spanish and Italian markets and an exiting CEO are hardly going to inspire confidence in the business, though a gloomy trading update for the remainder of the year make things slightly more awkward. Pressure will soon start to mount up from investors, though the entry of activist investor group Elliott Management will almost certainly ramp up the background noise.

With 110,000 towers across Europe, 55,000 of which are directly controlled, there is an opportunity to relieve some of the pressure, with a sale expected to generate in the region of €12 billion. The Idea merger won’t have been cheap, India has been a recurring headache, though the takeover of Liberty Global’s German and eastern European operations will also weigh heavy on the spreadsheets. The scene is perfectly suited for vulture fund Elliott to cause chaos.

As an investor, Elliott scours the globe for businesses which is deems underperforming on the financial markets. The team rile up other investors, often attempting to force the hand of the current management team into asset disposals and other short-term strategies, to inflate share price. It’s a pump and dump strategy which has proved incredibly effective for one of the world’s most influential investment management firms.

What is worth noting is this is not an announcement. Read has reacted to questions and is simply blue-sky-thinking the strategy, though this might be a toe dipping exercise to soften the eventual reception. He has declared this would not be a traditional transaction, should it become more concrete, as any potential buyer would have to be “more open to different formulas”.

We wonder whether this is the most sensible actions from the CEO. There is no such thing as a bad idea, though this could be a notion for Elliott to sink its teeth into. Vodafone will not want to sell its tower unit, unless absolutely forced to, though this has simply offered Elliott some ammunition and credibility to throw back in the future. This is a firm which doesn’t need to be encouraged to charge towards short-term ambitions, though Read seems to be helping it out.

Vodafone India completes €478mn tower sale

Vodafone has announced the completion of the sale of its Indian tower business to American Tower in a move to build the spreadsheets in preparation for the Jio battle.

The plan was initially set in motion back in January as Idea kicked off a number of initiatives to improve its financial position ahead of the merger with Vodafone. Assets are being hurled overboard as both parties streamline their organizations to ensure a healthy financial and operational position to tackle the Jio problem.

Today’s announcement will see American Tower complete the acquisition of the standalone tower business of Vodafone India for an enterprise value of €478 million, before turning its attention to finalizing the acquisition of Idea’s tower unit.

While the introduction of Jio ruined a perfectly comfortable position for Vodafone India and Idea, you can’t say the pair are not doing everything possible to meet the challenge. Aside from the merger, which is set to complete in the second half of the year, selling off assets would have been tough decisions to make. With the €478 million made of this deal, Idea will also be aiming to bring €882 million through sales of equity and assets.

Consolidation and divestment are two very common trends in the Indian telco industry right now, but these deals are nothing but the preliminaries. Jio might be in a relatively comfortable position right now, but the new Vodafone/Idea entity is working up a war chest to disrupt the space. One of the big questions which remain is whether Jio can entrench its position deep enough in the Indian consumers life to withstand the Vodafone/Idea assault.