The rise of telecoms infrastructure companies

Telecoms infrastructure companies have enjoyed strong growth across the UK and Europe in recent years. Meanwhile, traditional telecoms companies have moved away from owning and controlling passive telecoms network infrastructure. What are the main factors driving this growth?

First and foremost, it is the value of telecoms infrastructure companies. These companies are particularly valuable to investors, as they consist of simple and straightforward business models, often with long-term customers paying predictable fees.

Due to their attractiveness to investors, traditional telecoms companies have been able to realise significant sums over recent years by selling off their passive infrastructure to third-party companies or by hiving off their passive infrastructure into separate vehicles.

There were a number of examples of this in 2021, including Orange hiving off its infrastructure assets into a wholly owned but independent company, TOTEM, and Telefonica selling its telecom towers in Europe and Latin America to the US company American Towers.

'Gigabit society'

Governments across Europe are pushing for a "gigabit society". This, together with the public's demand for speedier connections and access to 5G services, requires a swift and comprehensive 5G roll-out. These factors are driving the increasing need for passive infrastructure availability and roll-out. This, coupled with the inherent value in telecoms infrastructure companies, has resulted in rapid expansion with both organic and non-organic growth.

For example, Cellnex enjoyed rapid growth and investment in 2021, completing acquisitions in Poland of Play and Polkomtel Infrastruktura. Cellnex has also merged its tower company business in the Netherlands with Deutsche Telekom and is looking to acquire Hivory in France. Furthermore, it has announced planned investment of around €9 bn. This organic and non-organic growth by Cellnex resulted in it reporting a 53% growth in revenue between January and September 2021 and has led to Cellnex becoming the dominant player in a number of countries – and falling foul of the competition authorities in Italy and the UK.

In addition to the financial attractiveness of selling off passive infrastructure, there has been significant pressure on traditional telecoms companies over recent years to maintain their market shares in what are highly competitive markets with flexible new entrants flooding the markets and the concomitant pressure to provide diverse and high-quality services to their customers. By hiving off passive infrastructure, traditional telecom companies have been able not only to realise value for these assets but also to concentrate their resources on providing cutting-edge services to their customers (rather than focusing resources on the deployment and maintenance of passive infrastructure).

Consolidation and diversification

Given the current trends we are seeing, over the next five years we are likely to see telecoms infrastructure companies expanding their reach and growing their asset base. Subject to regulatory controls, this is likely to be achieved in part by the further consolidation of several companies to achieve rapid non-organic growth and an increase in market share.

In addition, expansion beyond Europe into Africa and South East Asia is highly likely, as is the need to drive an innovative approach. This drive may result in telecoms infrastructure companies acquiring or merging with a wider range of companies and diversifying into other areas of the telecoms market to enable them to provide a wider range of services and solutions for their customers. We are already seeing expansion into the provision of distributed antenna systems, small cells solutions and data centres. Moving forward, telecoms infrastructure companies could diversify further, by deploying and managing active apparatus, enabling them to provide additional sharing solutions for multiple telecoms operators. We could also see telecoms infrastructure companies branch out further and become involved more widely in the provision of infrastructure across cities to support electric vehicle charging and other smart city advancements.