The news watchers amongst you may have noticed another win for Cellnex recently in Poland ¹. So what, I hear you say, Cellnex have been in the news a lot recently. This is true, they have been dashing through the aisles of the MNO supermarkets and filling their proverbial trolly with towers; in February alone announcements on $6.3bn to acquire Altice’s French Towers and €600m for Three Ireland (as part of a wider €10bn deal). It’s not just Cellnex either, American Tower started the year buying Telxius Towers from Telefonica for $9.4 billion. The acquisition included 31,000 existing communication sites, with a commitment to build 3,300 new sites in Germany and Brazil by 2025.

The MNOs have been busy spinning off tower assets too with Vodafone planning to float Vantage Towers, its European mobile phone masts business, on the Frankfurt stock exchange in March in a share offering worth about 3 billion euros. Orange also announced the launch of TOTEM its European masts company.

Cellnex’s expansion is reported to get them to over 100,000 tower sites. By comparison American Tower has nearly 200,000 towers globally, Vantage has 82,000 towers whilst TOTEM has 25,500. That’s a lot of towers moving out of MNO hands but there are reportedly still circa 170,000 towers still in MNO hands in Europe.

All of this is of course very interesting (if you are a tower deal watcher) but why did I start with the Poland deal? Well, this one is a bit different to your average tower deal as it also includes active assets – yes, the very radio network assets that MNOs have kept strict control of ever since their beginnings. Okay, admittedly MNOs have shared active assets between themselves in various installations and network sharing deals around the world but actually giving another party (that is not an MNO) the responsibility for providing all the base stations in your network is a different league of letting go of control.

In the beginnings of MNO life there was full control of design, plan, acquire, build, operate and maintain – these aspects were all under one roof – the MNOs. Admittedly there were contractors delivering some services in these areas but essentially the MNOs still owned the whole life process of creating and managing networks end to end. Over time contracting became bigger as the MNOs grew, minor works contracts became major programmes contracted out to tier 1 construction vendors and then as more cost pressures continued to be placed upon the MNOs finances and their ever-growing tower/site cost base (and associated resources), larger outsourcing contracts became the next logical step.

The scope of outsourcing grew beyond build to include operate and maintain as well as some aspects of radio planning. But the provision of the active equipment still sat within the MNO remit, after all, most MNOs are part of a larger group or have been at some stage in their life and so have managed to secure group discounts on active equipment pricing and commitments on vendor roadmaps etc. MNOs still wanted to control the specification and purchase of the active equipment and the associated interaction with the vendors on the design and availability of features and functionality of this equipment. It was seen as fundamental to the control of what was being placed in the network and whether it met the standards required by the MNOs.

In 2019 TDC in Denmark went a step further than outsourcing and created two companies TDC NET and Nuuday. TDC NET provides the fixed-line connections and the mobile network. Nuuday provides services through a variety of providers such as YouSee, Telmore, Hiper, and TDC Business. This is a classic network company/services company split.

The Poland set up is similar with a dedicated network infrastructure company Polkomtel Infrastruktura (spun out of the Polkomtel MNO) providing Radio Network infrastructure to the Polkomtel.

With the above types of operating models, the MNOs can still specify features and functionalities and even a vendor shortlist to retain an element of control but is the emphasis going to shift to specifying what services the MNO wants the network provider to supply them with and the MNO stepping back from tighter control of the active equipment in the radio network?

With all the activity in the Tower market at the moment and continued pressures on MNOs financially will we see more network companies (Net Co.) emerging in future deals? Are we entering the era of the Net Co. that plans, acquires, builds, operates and maintains all the MNO sites and network assets?

One could argue that some outsourcing deals with the major equipment vendors that have been placed by the MNOs are pretty close to this scope already but with the exclusion of network assets. And just how much control do you have in an outsourcing deal anyway, indeed how much control should you have for the provider to be successful to innovate and gain synergies from other deals they operate?

If tower assets have become the norm to handover to third parties and active radio network assets are following, then the NetCo could become the next logical step for the Tower Co. and the MNOs. Okay it’s early days with only a few examples globally and the CEO of Cellnex (Tobias Martinez) commenting on the Poland deal did state “Our expansion into active infrastructure is undoubtedly a qualitative leap and heralds a new reality for the company that broadens the development and growth options for Cellnex in Europe within telecommunications infrastructures “ make of this what you will…..

If the Net Co. is the next logical step, then where does this leave the MNOs – will they become the service company (Serv Co.) purely providing services leaving the Net Co. to provide the infrastructure? Will the MNOs all become the equivalent of a “Thick MVNO” i.e. have a Core Network but no Radio Network?

We can see an end state where each country has a national grid of mobile sites provided for all MNOs by a single Net Co; in the long-term having several Net Co’s in each country would not be cost effective. The costs of 5G deployment and the costs of dedicated spectrum may be the catalysts that drive this forward. Much as the MNOs do not want to fully admit it, mobile services have become a utility and a national grid of utility networks is pretty normal in today’s world so what not a national mobile network grid which sells airtime to the MNOs? The Net Co / Serv Co model fits this perfectly…..

If you need any help in any of the areas covered above please get in touch, at Azenby we have many years’ experience in the helping MNOs, vendors and investors make sense of emerging operating models and trends.

1 –  (https://www.cellnextelecom.com/content/uploads/2021/02/20210226-Cellnex-to-acquire-Polkomtel-Infrastruktura_EN-2.pdf)