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 French operators (Orange, SFR, Bouygues, Free) 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.
Free’s entry into 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 had a negative impact on the profits of telecom operators which are now seeking to lower their operating costs. 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.
Transmission technology is changing rapidly. The market has gone from 2G, to 3G and now to 4G, with widespread deployment taking place in France. 5G is the upcoming technology generation. These technological upgrades lead mobile operators to regularly review their mobile tower networks, to create new tower locations but also to remove of some existing towers.
In France, there are almost 54,000 mobile towers. With a population coverage rate of around 99% for 4G, mobile operators could now decide that it is time to streamline they tower networks 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. With a national co-location ratio of just 1.76 (tenants per tower), the French market is ready for this kind of move.
Delegation of infrastructures
IIncreasingly, telecom operators are selling their mobile towers to tower companies whose job is to optimize 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 arrival in force of players such as Cellnex (the European leader with 29,000 towers) or American Tower (the world leader with more than 170,000 towers).