Interest in the European tower business remains high with the formation of yet another large towerco in the offing. Deutsche Telekom AG (DTE.DE), headquartered in Bonn, is considering the sale of its tower business, reported German publication Handelsblatt, citing unnamed sources familiar with the matter.
DT currently manages its tower business through a wholly owned subsidiary, GD Towers. The sale could take place as early as the end of the Q1 2022. DT could opt to divest part or all of GD Towers, although DT CEO Timotheus Höttges, said at an investment conference in November that he would prefer a partnership with another tower operator.
Sizable Tower Business
GD Towers, part of DT’s Group Development organization, is already operating at scale. At the end of 3Q21, GD Towers operated 40,100 towers, rooftops, and other communications sites. In Germany, GD Towers’ Deutsche Funktrum operation manages roughly 33,000 sites – towers, masts, roof sites and distributed antenna systems (DAS).
Outside of Germany, DT agreed to merge the 3,150 towers and rooftops in its T-Mobile Infra operation in the Netherlands with Cellnex Netherlands’ 984 towers into an independently managed Digital Infrastructure Vehicle (DIV) investment fund. DIV will own roughly 4,310 sites including 180 planned new site builds. In addition, DT owns 7,000 sites in Austria through Magenta Telekom Infra and another 6,000 sites in Slovakia and the Czech Republic.
With an amalgamation of DT’s tower assets across Europe, a standalone tower company would own and operate over 50,000 sites. That puts it in a league with the leading European towercos – Cellnex Telecom, Vantage Towers and American Tower.
Cellnex, the largest European towerco, is projecting a portfolio of 130,000 towers by 2030 (See, Cellnex Leads European TowerCos). Vantage Towers, now a public company after separation from Vodafone, counts over 82,000 towers in its overall European portfolio, including 45,600 towers it owns and access to another 36,300 sites through network infrastructure joint ventures with Cornerstone in the U.K. and INWIT in Italy. (See, Vantage Towers Shows Progress Post-IPO). The DT tally would also put it ahead of American Tower which indicated at the end of 3Q21 that it owns over 29,000 towers in Europe after acquiring Telxius Towers from Telefonica.
For 3Q21, DT reported GD Towers’ recurring rental revenues of $276 million, an increase of nearly 11 percent over $244 million in 3Q20 and with organic growth of almost 6 percent YoY. Though a fraction of DT’s total revenues, GD Towers plays a significant role in DT’s wireless operations and will be a key enabler for DT’s 5G deployments in Germany and other markets.
DT would be the last major European mobile network operator to spin off its wholly owned tower business to operate GD Towers as a standalone or jointly owned venture. Last year, GD Towers had sales of around $1 billion. The company thinks that its tower business valuations would be similar to those garnered in American Tower’s deal with Telefonica at around 30 times Adjusted EBITDA. This means the DT tower business could reach a valuation of $22-23 billion including debt. DT’s role as the prime tenant to an independent towerco will certainly factor in the assessment of the valuation.
Potential Suitors
Already there is speculation as to which organization might make an offer. The size and scope of such a deal likely will determine who plays. Cellnex, Vantage Towers, and American Tower might be interested in a majority stake to bolster their already sizable European portfolios. Smaller infrastructure players may be interested in towers in specific markets. Handelsblatt reported that infrastructure private equity firms CDPQ, Omers, OTPP, Brookfield and Macquarie may be interested in a minority share.
Höttges indicated in November that he was amenable to working with an industrial partner for DT’s towers, days after Vodafone said it would consider opportunities for such a move for Vantage Towers. He said DT would consider offers for minority or majority stakes. DT would relinquish control of the infrastructure business although he expects DT to retain a decision making role following any deal, particularly in influencing any further mergers and acquisitions. An IPO of the DT tower division is a consideration but not favored, Handelsblatt reported.
Use of the sales proceeds are expected to help reduce debt. DT currently is carrying approximately $147 billion in long-term debt on its books. At the same time, DT may use a portion of the funds to make a major share purchase to secure majority ownership of T-Mobile US, its U.S. subsidiary.
By John Celentano, Inside Towers Business Editor
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