For many years, mobile network operators have viewed the masts and towers that house their antennas, radios and switching gear as strategic assets vital for their competitive standing.
But over the past year or so, the European market has seen a significant shift and carriers there are more likely to consider them as valuable structures that can be — and are being — monetized. This is being achieved by either spinning them off into new entities that they partially control, or selling them off to the existing and already large and influential tower infrastructure specialists. They are following the lead of US carriers, which largely divested their towers 10 years ago.
European carriers feel the need to share wireless infrastructure, notably in rural areas, and to reduce operating costs and improve coverage. Offsetting their costs in rolling out 5G network , including vast amounts spent on licenses to spectrum, is also a major consideration in this consolidation and restructuring.
But the jury is very much out on how the large sums that can be raised or saved will impact on the long-term loss of control.
Just like the existing tower companies (“towercos”), the new entities being created are basically landlords renting out their property, often to the highest bidders.
Huge sums are involved in many of the recent deals or plans, since investors are keen to back all this market re-orientation, which can generate dependable, long-term returns as wireless infrastructure becomes ever more important.
The existing large global players — or “neutral hosts” — such as Cellnex, Crown Castle and American Tower Corp (ATC), have been busy acquiring tens of thousands of masts and towers from the likes of Arqiva, Iliad , Sunrise, CK Hutchinson and NOS to build businesses valued at many billions of dollars.
New kids on the block
They are about to be joined by some new movers and shakers, for instance Vantage Towers and Totem.
It should be noted at this point that with the emergence of 5G, densely populated urban areas with tall buildings will increasingly need two radio cover layers, one at street level and the other high up for maximum coverage.
The street-level installations, typically 15 to 30 ft. (4.5 to 9 meters) above ground, will house myriad mmWave radios. Novel techniques are already emerging to camouflage these on utility poles, lamp posts and the sides of appropriate buildings. (And residents living near such installations are finding ever novel reasons to object.)
Moreover, in addition to using traditional mobile masts for 5G, carriers will need to densify their networks in urban areas, through micro infrastructure, typically small cells.
All these deployments, of course, have the same space, power and connectivity requirements as most existing macro cells, but in significantly higher numbers and more challenging positioning needs.
Add into this mix the fact that the carriers also need to upgrade masts and towers with new equipment capable of handling the increasing spectrum needs offered by 5G, while remaining as compact and lightweight as feasible. And networks using mm Wave spectrum in particular will need a substantial number of cell sites.
Estimates suggest they could require between 4x and 10x the number of sites typically deployed per square kilometer than in 4G/LTE network topologies. Identifying the optimal location of thousands of small and macro cells calls for rigorous planning, adding substantial costs to their roll-out, as well as extensive lead times.
Meanwhile, equipment suppliers such as Ericsson, Huawei, Nokia and Cisco are all having to invest heavily to ensure their latest 5G gear that will support all the new standards and capabilities, again, a major undertaking.
Another major consideration is that these masts and cell-site aerial platforms need to support gear other than the antennas, for instance diplexers (to reduce the number of cables); tower mounted amplifiers (to boost the send and receive signals from the antennas); and remote radio heads.
This means the carriers are facing a complex amalgam of spectrum and cell-site pole mounting challenges to manage all their FDD and TDD coverage options in the 5G era. They also need to ensure the necessary fiber optic links are in place; there is little point having the ultra-fast radios if the backhaul is not there to support it.
Tower transfers include Telefonica, one of Europe’s largest carriers, selling off its assets to ATC ; Spain’s Cellnex is in the midst of creating a European empire through a series of acquisitions; Orange is spinning off its towers estate in all European markets into a separate entity called Totem that, the carrier stresses, will be a separate legal structure; and the third big European player, Vodafone, is in the process of floating its interests into a partially-owned venture dubbed Vantage Towers, which the company late last month said would be listed on the Frankfurt exchange by the end of March.
There is likely to be further maneuvering.
More changes ahead
For example, Vantage Towers said it plans to grow as quickly as feasible via aggressive, strategic M&A activity.
Intriguingly, though neither Totem nor Vantage is yet actually operating, neither has ruled out a merger or partnership between the European giants, nor have they ruled out involving other telco towers operations out there — or yet to be revealed.
The intrigue was amplified by Stephane Richard, CEO of Orange, recently calling out Vantage Towers as a potential “ideal partner” for its Totem spin-out. He also alerted investors’ interest suggesting a possible link with Europe’s largest mobile carrier, Deutsche Telekom, which so far has resolutely declined to join this towers frenzy.
DT currently owns and operates 32,500 towers but to date has repulsed advances from the likes of Cellnex, which last month offered €5.2 billion (about $6.2 billion) to acquire Hivory, the Altice group’s operation that manages 10,500 tower sites currently used by French operator SFR.
Once completed, that will increase Cellnex’s portfolio across Europe to 120,000 sites, nearly doubling the number it had last year.
The Telefonica-ATC deal for the former’s Telxius subsidiary, valued at about €7.7 billion (about $9.2 billion) , is expected to complete within months, and see the carrier almost towerless in its wide European network encompassing most major markets, notably France, Germany and Spain, as well as some major parts of Latin and South America. .
The economies will also change significantly. Telefonica’s towers mostly had just the one locked-in tenant — the neutral host model means ATC will be able to add others to the array over time.
Even without that deal, ATC is believed to operate 184,000 sites around the world. The company increased its turnover by 6.1% last year to just over $8 billion, and recently forecast that would increase by 8% to between $8.5 billion to $8.65 billion this year, with profits also set to increase by similar percentages.
It did of course help that the US started this massive re-shaping to split tower ownership from the carriers to specialist, independent operators over a decade before Europe. Recent estimates from analysts at Barclays Bank indicate that in the US, nearly 90% of towers are now run by the neutral hosts, compared to about 60% as of now in Europe.
This historic divide is mostly a consequence of European regulators being very averse to mergers amongst mobile operators for fear of anti-competitive behavior. The US has just three major carriers, as does China, while across Europe there are about 40 mobile network operators.
ATC’s move also suggests that Cellnex might find it more difficult to continue snapping up deals in Europe without undue interference from its US rivals, which also includes Crown Castle International.
And with the emergence of ambitious newcomers, competition will only become fiercer, with significant increases in tenancy ratios for the new independents being the measure of success. Those increases will have to come from outside the Vodafone camp when it comes to Vantage Towers and from operators other than Orange in Totem’s case.
Orange has already set the benchmark, suggesting it plans to increase Totem’s tenancy ratio (the number of clients per site) in France and Spain to 1.5x by 2026.
Similarly, Vodafone has set its medium –term growth for Vantage Towers to the same type of ratios – from 1.3x as of last year.
By comparison Crown Castle, for instance, recently claimed its average ratio is 2.1x.
There is no doubt generating additional tenancies in such an ever-more competitive environment will be no easy matter. Network sharing deals that involve more than two tenants are quite rare — and there is always the possibility, and danger, of mergers between existing or prospective tenants. Despite some growth in mobile usage and coverage, the industry could soon find itself with a surplus of towers.
Yet Totem suggested in documents regarding its spin out from Orange that it could build up to 3,000 new sites by 2020, based on demand from Orange alone. It did not give estimates of how many additional sites it would need in the same time-frame from currently rival telcos. The estimates are also based on increased demand from 5G coverage, industrial IoT opportunities and smart cities.
It will help, of course, that Totem is inheriting a portfolio of just over 25,000 cell sites just in France and Spain, roughly split between towers and rooftop sites.
Vantage said it would also target enterprise users in all its European markets. Currently, its legacy Vodafone portfolio comprises 82,000 macro sites across 10 countries.
The biggest contributors are 19,500 in Germany, 22,000 in Italy that are jointly owned via its 33% stake in Infrastructure Wireless Italiane, and 14,200 in the UK. Those again are jointly owned with Cornerstone, which transferred its interests to Vantage earlier this year from Vodafone.
Vantage is also looking to opportunities in the IoT sector, where its German unit has already struck a deal with Sigfox, as well as indoor coverage through deploying Distributed Array Systems.
And, as already noted, deploying small cells will inevitably become more common and important as densification increases so as to boost capacity and lower latency requirements. On the whole, they will supplement the macro sites on towers, offloading traffic from them as appropriate.
In the US, Verizon is leading the densification trend, with the carrier busy commissioning some 14,000 cells for its high-band mmWave spectrum, known as the 5G Ultra Wideband network. This is targeted specifically for densely populated environments.
The company suggest such sites could also be used for its future mid-band offerings, which will hugely increase following the recent C-band auction.
Crown Castle has been awarded the contract to host these antennas for the small cell network, the towerco’s largest in this sector.
In fact, towercos could be the biggest beneficiaries of the auction, at least in the medium- to long term, some commentators have suggested. In a recent research note, analyst Craig Moffett of MoffettNathanson suggested that spectrum is the lifeblood of the tower leasing model, so the more the better, notably when in the hands of multiple carriers, since that implies multiple deployments.
However, the analyst also cautioned that pressure on carriers’ capital spending budgets following the huge sums they had to pay for the C-band spectrum will slow the pace of roll-out, and many of the winners could initially deploy from existing macro sites rather than densify with new ones.
So there is a huge amount of work to be done over the next few years, reflecting the amazing opportunities for the equipment suppliers, carriers and the towercos.
And there are also numerous frustrating factors in play in most territories, most notably sometimes arbitrary planning restrictions regrading, for instance, the approved heights of towers and masts, and the regulations regarding potential co-location. Currently, there is no common framework for this, either locally, regionally or internationally.
Users of the services are also often conflicted: most can’t wait for the new uses and applications that will come with the much faster technologies, but at the same time few are happy with the prospect of more towers near their homes, and even less with a myriad of small cells and antennas in their own back-yard.
Here, in the UK, NIMBY-ism is alive and kicking, and hardly helped by some who blame mobile technologies for sicknesses or even pandemics.
I have some unfortunate personal experience of this: about 10 months ago, our neighborhood received letters from the local planning department that a convenience store was planning to erect a tall antenna in its car park. The neighborhood watch What’s App group was inundated with posts urging we should all oppose the application, because it was clearly meant for those radiation dangerous and Coronavirus causing 5G networks.
Hard as I tried to explain that was nonsense, and even posted my then recently-posted blog regarding towers being burnt and vandalized in parts of the country, it was no to avail. A few weeks later the planning application had been rejected.
The industry is responding in some novel and intriguing ways to such dilemmas.
In the US, for instance, Verizon has started deploying stand-alone “aesthetically pleasing” street poles in several states and cities that incorporate small cells that are built into the poles. The concept is the brainchild of Boulder, Colorado-based Comptek City Poles.
The poles can incorporate equipment from just one telco or others and come in several customizable sections and modules comprising foundation, base cabinet, “shroud,” upper pole and the top antenna section, offering a variety of locally suitable configurations.
Other companies, large and small, have also started offering 5G small cell concealment solutions.
And energy utilities have cottoned on to the fact that some of their street poles can, with only minor modification, offer solutions combining street lighting and small cell antennas for cellular networks.
Here in the UK, some churches have come up with an almighty solution, having sealed deals with operators to lease spires and high-rise towers in both rural and urban areas to host discrete antennas.
A more technology-inspired approach comes from Here, the Dutch-based company focusing on location data technology that traces its roots back to Navteq, formerly owned by Nokia. Its Geodata Models application assembles “highly precise and scalable” 3D representation of all physical objects that would surround any 5G antenna, including buildings, trees and roadside objects such as utility poles and billboards that make up the immediate physical environment.
Such three-dimensional representations will then provide a network planner or RF engineer with the data needed for remote field surveys, and thus suggest exact locations for 5G antennas for optimal signal coverage.
The company says performing such network planning remotely and in parallel for multiple cell site locations will help operators overcome an important issue that was highlighted above and greatly reduce the time and cost of rolling out services on small and macro cell locations.
Here is partnering with several companies to integrate the 3D data into their network planning and design procedures.