Why are telcos selling off their mobile towers?
Vodafone and Spark have sold their networks of mobile towers delivering billions in cash to the companies and mirroring a trend in telecoms infrastructure happening around the world.
Vodafone said yesterday it had stuck a $1.7 billion deal to sell its towers to InfraRed Capital Partners and Northleaf Capital Partners, who will each take a 40% stake. The remaining 20% will be owned by Infratil, Vodafone’s current owner.
It follows Spark’s sale earlier this month of a 70% stake in its mobile phone towers to the Ontario Teachers Pension Plan Board. Spark will retain a 30% stake in the Towerco subsidiary, which owns nearly 1,300 towers around the country. Both Spark and Vodafone will retain owership of the base station transmission equipment and backhaul assets, giving them control over the technical evolution of the networks they rely on to offer voice and data services.
Spark and Vodafone have joined the cell tower sell-off.
It used to be that mobile towers were a key competitive factor for a telecoms company, with the quality of mobile coverage a crucial selling point. But the core networks have already been built out, now it is just a matter of expanding them to fill in coverage blackspots and accommodate the roll-out of 5G services.
The CEOs of Vodafone and Spark say carving off the infrastructure will help them save money and focus on providing high-quality services that run over the networks. It also returns a welcome windfall that can be returned to shareholders and used to invest in product development.
Both have signed long-running years (20 years for Vodafone, 15 years for Spark) with the infrastructure companies for the rights to use the tower networks, which will be built out further by their new owners.
From owner to tenant
But they won’t have exclusive access, meaning the new owners can use their infrastructure to serve other operators and co-locate equipment to improve the economics of running their networks. For its part, 2Degrees, which recently merged with broadband provider Vocus Group, has indicated that it has no plans to sell its own network.
The tower sell-off here follows moves by Telstra and Optus to strike similar deals with infrastructure companies across the Tasman. Telstra last year sold a 49% stake in its subsidiary Infraco Towers for A$2.8 billion.
Optus soon followed with the A$1.9 billion sale of a 70% stake in its own network to superannuation fund AustralianSuper. For the investors stumping up billions for these assets, its a long term play to own critical infrastructure that is unlikely to be rendered redundant any time soon.
They can charge attractive fees to the telcos and bundle in servicing and management of the sites with other infrastructure assets they own. The sale of mobile towers to infrastructure specialists has been accelerating worldwide over the last decade.
“As mobile markets mature, the number of operators a tower company has is no longer a measure of success and may even be risky,” the management consulting firm ATKearney points out.
“Slowing subscriber growth, technology-integrating equipment, operator consolidation, and active network sharing are making it more difficult to add revenue-bearing tenancies and are forcing companies to take another look at the conventional tower business model.”
The new measure of success is “site-level profitability”, according to ATKearney.
“This means that operational excellence, somewhat overlooked in the past, is now an essential skill. As with managed services, the value of outsourcing is not just in sharing costs but in a specialist provider's ability to manage costs and quality.”
A low risk move
Powering cell towers, providing back-up generation when there are power cuts, airconditioning and fencing, applying for resource consents and designing smaller towers to provide in-fill as 5G network coverage expands, now become tasks for the tower companies rather than the telcos themselves.
The risk is relatively low for the likes of Spark and Vodafone. Their status as primary customers of the tower companies isn’t going to change. By retaining a stake in the assets, they get to sit around the table when important decisions relating to the assets are made.
If anything, the outsourcing of infrastructure ownership and management is only likely to accelerate further as telcos seek to focus on the digital services that make them competitive and infrastructure operators look for the economies of scale that come with managing assets on a national level.
As ATKearney notes, the game has changed in the telco space with the need for operators to stay laser-focused on the factors that will allow them to grow revenue and win market share. With those priorities in mind, off-loading the tower networks they worked so hard to build up, often in the face of stiff opposition from ‘NIMBY’ opponents, seems like a no-brainer.
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