TMT : Dynamics behind European tower companie

With the recent sale of part of its towers in France and three quarters of its towers in Portugal, Altice Europe has pulled off one of the major deals in the E uropean tele com sector . These “towers” or “masts” are fixed infrastructures that are installed (or purchased), maintained and leased to telecom operators, TV stations, radio stations and, sometimes, specialist service providers (police, emergency services, etc.). Very present in the United States, tower companies (towercos) have developed in the rest of the world . The main players include China Tower, American Tower, Indus Towers, Towercom and Crown Castle. Two players , American Tower and SBA Communications, have operations in over ten countries. Somewhat later than on other continents, notably Latin America, European telecom operators opted, mainly to strengthen their balance sheets , to divest part of their towers to specialist companies , sometimes even to infrastructure investment funds. This acceleration in M&A activity even points to some overheating being in the offing . In the case of Altice Europe, it sold part of its towers in Portugal (75% of its 2,961 sites) and in France (49.9% of its 10,198 sites) for €2.5bn, payable in cash. In connection with these transactions, 20-year master agreements were signed to lease back these towers. This was followed in July with the announcement of the sale of all the towers operated in the Dominican Republic. On average, in Europe, the price per tower has averaged €170 thousand (last ten transactions). Altice Europe obtained €320 thousand per tower, which is particularly high . In the telecom sector, the tower business is in a category of its own, characterised by: (1)  recurrent revenue streams from multi-year leasing agreements signed with service providers; (2)  high EBITDA margins (typically more than 50%); (3)  possibility for tower operators to divest all or part of the underlying assets; and (4)  demand from telecom operators needing to improve mobile coverage, often to honour commitments given in connection with the award of 4G licences (soon 5G licences). As for the credit rating agencies, they have tended to respond rather positively to the total or partial divestment of tower installed bases by telecom operators . As regards the towercos, the agencies see the excellent visibility for cash flows along with the relatively limited maintenance capital expenditure (4%-6% of revenues) as major strengths. Thus, despite the net debt-to-EBITDA ratio averaging 4.8x for these companies , the average rating of towercos is a relatively generous BBB- . By comparison, the average rating for the telecom sector is BBB, but for a net debt-to-EBITDA ratio of 2.5x on average.