The risks of this market.
The risks associated with collecting rent for a mobile tower leases are actually greater than many owners are aware of. Telium is cognizant of these risks and can accept them as they are diluted into a diversified portfolio of assets.
Termination of a contract
The merger of 2 of the 4 major operators (Telefonica, Vodafone, Orange y Yoigo) is the largest theoretical risk for owners. Such a merger could lead to a streamlining of the mobile tower networks, which would trigger a cancellation of around 25% of all leases, according to our estimates. Mergers in the mobile sector are common. Orange merged with Hutchinson in Austria in 2012, bringing the market from 4 to 3 operators. In Ireland, Telefonica and Hutchinson merged in 2014, also leading to a reduction in the number of operators from 4 to 3. In the United States, AT&T and Cingular, and Sprint, Nextel, Verizon and Alltel merged, triggering the termination of a number of leases, which had become duplicative.
The 4 operators on the Spanish market are engaged in an intense competition, which is driving down customer contract prices. This had a negative impact on the profits of telecom operators which are now seeking to lower their operating expenses. More specifically, operators have their eye on mobile tower leases whose rents are too high or on mobile towers located near new and less-expensive equipments. For example, Cellnex, Europe’s largest tower company, said its renegotiations lead to, on average, a 20% reduction in rental payments.
Mobile signal technology is changing rapidly. The market has gone from 2G, to 3G and now to 4G. 5G is the next step. These technological changes are prompting operators to regularly review their mobile towers leading to the creation of new locations but also to the removal of some existing towers.
In Spain, there are almost 50,000 mobile towers. With a population coverage rate of around 95% for 4G, operators could now decide that it is time to streamline mobile towers and therefore cancel some of their leases.
Co-locating is when two operators use the same mobile tower for their antennas. A common occurrence in urban areas given the restrictions on the installation of new mobile sites, the phenomenon of co-locating should develop more and more in rural areas. This will inevitably trigger lease cancellations for some single-tenant towers and will lead to the grouping of operators on a smaller number of towers. The Spanish market is ready for this kind of move.
Sale and leaseback
Increasingly, telecom operators are selling their mobile towers to tower companies whose job is to optimise the management of this equipment. Ground site leases account for up to 80% of these companies’ operating costs, which can lead to tougher negotiations with ground site owners. The risks associated with these sale and leaseback transactions will soon be felt in Spain thanks mainly to specialized players such as Cellnex (the European leader with 35,000 towers, 8,000 in Spain) or Telxius (11,000 antennas in Spain).