The dispute over the Italian ‘teleco’ towers may very well be replicated in Europe | Opinion | EUROtoday

A dispute in Italy might mark the tip of the shut relationship between telecommunications operators and telecom tower firms. Towers had been an vital supply of revenue for operators throughout the period of low charges: Telefónica, Vodafone and different firms offered these property to teams specialised in infrastructure at excessive costs after which leased them. Now, Fastweb and Telecom Italia have taken a radical step to terminate the long-term contracts they signed. Success might name into query the supposed stability of the telecommunications tower sector.

Swisscom-owned Fastweb and Telecom Italia are launching an offensive in opposition to Infrastrutture Wireless Italiane (Inwit), a tower group that emerged in 2015 from Italy’s former state phone monopoly. Initially, they introduced plans to collectively construct 6,000 new towers within the nation. Both sides now argue that the present contract for leasing their present towers to Inwit could be terminated in early 2028. Inwit, which is now 30% owned by French investor Ardian, maintains that the so-called framework companies settlement (MSA) must be prolonged till 2038.

The tenants’ resolution appears daring. Inwit CEO Diego Galli estimates that changing the community would contain the development of a minimum of 15,000 new towers. At a mean development fee of 500 per yr, it might take 30 years to utterly change Inwit’s antennas. The 6,000 new towers from Telecom Italia and Fastweb wouldn’t be sufficient both.

However, the stakes are additionally excessive for Inwit. Fastweb and Telecom Italia are its most important tenants, representing 80% of its revenue. Since neither facet can afford a whole breakup, they’re prone to ultimately attain an settlement that reduces the burden on the MSA, which Swisscom argues is above market degree. This might imply, for instance, that Inwit agrees to not utterly cross on inflation value will increase to tenants, as is presently the case. The group’s comparatively underperformance in comparison with rival Cellnex Telecom suggests buyers count on some headwinds.

Cellnex, amongst them

Inwit’s destiny may be related for different telecom tower firms in Europe, equivalent to Cellnex and personal firm Vantage. Once one telecom operator terminates a tower contract, others are prone to observe go well with. Zegona Communications, which acquired Vodafone’s Spanish subsidiary, had reportedly thought-about terminating the group’s contracts with Vantage for price causes.

Consolidation might weaken the place of tower firms. European telecommunications teams have been lobbying in Brussels for years to calm down merger guidelines so as to cut back prices and share investments. If a wave of mergers and acquisitions happens, tower firms might need to compete with fewer, stronger tenants with higher bargaining energy and extra mast capability. And if M&A guidelines do not change, operators may very well be compelled to discover different cost-saving alternate options. Zegona, for instance, is speaking (opens a brand new tab) with its Spanish counterparts MasOrange and Telefónica about combining community infrastructures equivalent to antennas and base stations.

That would go away telecom tower firms with decrease development and fewer predictable money flows. The sector has loved a premium valuation, with Inwit buying and selling at a mean 12-month ahead EV/ebitda a number of of 15 occasions over the previous 5 years, whereas Cellnex was buying and selling at near 16 occasions.

If Telecom Italia and Fastweb handle to impose a discount in rents, it would present that the towers might not be the secure property that buyers believed.