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Why sell your greatest Asset?

March 29, 2022 - David McGlew

What are the Telco’s greatest assets? Their Network you might reasonably reply. Certainly, in some circles it’s the Network that is seen as a key component to allow the CSP’s operate effectively in the Value chain with the Hyper Scalers. So, with this in mind why are some telcos selling off their fixed and Radio networks?

A news item in my local press caught my eye this week, eir the biggest fixed and mobile operator in the Irish market is set to sell off 49.9% its fiber network for €1 Billion to a French company called InfraVia. They previously sold their mobile towers in 2020 for €300mil to Phoenix Tower International.  At the time their reasoning for this was reported as. ‘The sale will enable them to accelerate 4G and 5G network rollouts, boost the company’s capacity to invest in its mobile network, and deliver more efficiency to further increase geographic coverage.  The recent sale has resulted in rating agency Fitch make a statement that this action will ‘reduced (eirs’) economic ownership in this critical local access network infrastructure (and the stable cashflow these assets generate) will weaken the company’s operating profile’.  

Eir is not the only telco to adopt this strategy. Over the last few years, we have seen a few of the bigger telcos cashing in on the revenue-generating power of masts, as tower companies court them to pay hundreds of Millions for their antennas.  Upgrading networks, including towers, for 5G – will soak up close to $900 billion between 2020 and 2025, the GSMA industry body states.  

In 2021, Telefonica netted more than $9 billion with the sale to American Tower of sites it had already hived off into a separate unit in 2016.  

Bouygues Telecom turned to US-based Phoenix Tower International to assist in meeting coverage obligations in its home market, France, with plans to form a joint venture to handle the construction and operation of thousands of new towers in the country.  Both Vodafone and Orange had hived off their mobile radio networks into separate tower units.  

In late 2021 it was reported by Telecoms.com that Singtel’s Optus has now signed an agreement to sell 70% of Australia Tower Network (ATN) to superannuation fund AustralianSuper.  The deal values ATN at around A$2.3 billion, giving Singtel net proceeds of A$1.9 billion (US$1.4 billion) that it can plough into 5G, amongst other things. 

So, is it a case that the telcos need to sell a key asset in the short term to build new capability in the future, that new capability being 5G networks or enhanced Fiber networks? Is another driver for this to pay down large debt piles built up over the 4G era?  At the root of this is the fact that as an industry revenue growth has been flat at best, so to show returns to shareholders a strategy of cost-cutting or once-off asset sales has been employed to show a better bottom line.  But how sustainable is this, if the sale of assets like the network towers effect the future capacity to generate new revenue streams?  

What other options are open to Telcos to drive revenues and returns for their shareholders? Rather than sell their networks I believe opening them up to 3rd parties will be an important strategy to generate these new revenue streams.  Particularly with a 5G SA (Standalone) core the opportunity to build new services based on micro-service elements means a Minimal Viable Product (MVP) can be launched and scaled up at a fraction of the cost and effort compared to how we roll out new services on 4G.  This interoperability and scalability of cloud-native 5G services will enable CSPs to unlock new revenue streams. By removing the traditional barriers to innovation, namely, cost to scale and deploy CSP’s can adopt new business models. Let’s hope that Telcos can do this quickly, before the pressure to pay down debt, fund greater shareholder returns force them to sell the very thing which will be one of their key assets to enable the generation of future revenue streams.  

 

 

 

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