The risks of not selling.

The risks associated with collecting rent for a mobile tower leases are actually greater than many owners are aware of. Telium is aware of these risks and accepts them with the aim of diltuing them within a diversified portfolio of assets.

Termination of a contract

The merger of 2 of the 4 major French operators (Orange, SFR, Bouygues, Free) is the largest theoretical risk for owners. Such a merger could lead to streamlining mobile towers, which would trigger a cancellation of around 25% of leases, according to our estimates, rendering them redundant. 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 have become duplicated.

Renegotiating contracts

The entrance of Free on the French market in 2012 has driven down customer contract prices. The average monthly contract went from 25€ in 2011 to 16€ in 2017, a decrease of around 36% over 6 years. This has a negative impact on the profits of telecom operators seeking to lower their operating expenses. More specifically, operators have their eye on mobile tower leases with rents that are too high or mobile towers located near new and less-expensive ones. For example, Cellnex, Europe’s largest manager of mobile towers, said its renegotiations lead to, on average, a 20% reduction in rents.

Technology subsitutions

Transmission technology is changing rapidly. The market has gone from 2G, to 3G and now to 4G, with widespread globalisation taking place in France. 5G is the next step. These technological changes lead operators to regularly review their mobile towers leading to the creation of new locations but also to the removal of some towers.

Competition

In France, there are almost 50,000 mobile towers. With a population coverage rate of around 99% for 4G, operators could now decide that it is time to streamline mobile towers and therefore cancel some of their leases.

Co-renting

Co-renting is when two operators use the same mobile tower. A common occurence in urban areas given the restrictions imposed on the installation of new mobile towers, the phenomenon of co-renting should develop more and more in rural areas. This will inevitably trigger lease cancellations for some towers with leases with just one tenant and may see the grouping of operators on a smaller number of towers. With a national average of just 1,76 tenants per tower, the French market is ready for this kind of move.

Delegation of infrastructures

Increasingly, Telecom operators are selling their mobile towers to infrastructure management companies whose job is to optimise the management of this equipment. Mobile tower leases account for up to 80% of these companies’ costs, which can lead to tougher negotiations with the owners. The risks related to this consolidation movement will soon be felt in France with the likely arrival of specialist players such as Cellnex (the European leader with 29,000 towers) or American Tower (the world leader with more than 170,000 towers).