Vodafone to create '€15bn' European tower company, eyes IPO

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Vodafone is to hive off its mobile mast estate in Europe into a new firm that it could list on the stock market.

Vodafone’s CEO, Nick Read, said this would unlock value for shareholders. In May he went back on a promise and cut shareholders’ dividends for the first time since 1990. This was in part due to the high prices of 5G spectrum.

The operator said the tower infrastructure business would own 61,700 sites in 10 markets, “could have annual proportionate revenue of €1.6 billion and core earnings of €900 million a year".

Tapping into a trend

This would put it ahead of Cellnex, which is Europe’s biggest towers business at the moment. Reuters pointed out that Cellnex is valued at just over 17 times earnings.

Working on the same multiple, Reuters reckons this would value Vodafone’s tower assets at more than €15 billion.

Cellnex reported a 10% rise in first-half core earnings on Friday, and said it was seeking more deals.

Read said the tower company would be in operation by May next year, involving 75% of its sites in its major markets – Germany, Italy, Spain and the UK.

Vodafone is following a growing trend among cash-strapped mobile operators that have been selling or sharing network infrastructure to slash debt.

Tower infrastructure units and companies are appealing to investors as the guarantee a steady cash flow.

Proceeds to pay off debt

Read said in a statement that the proceeds from listing a minority stake in the tower company, or from attracting other investors, would be used to cut Vodafone’s debt.

Vodafone shares network infrastructure with O2 in the UK, with Orange in Spain and is just about to finalise an agreement in Italy with Telecom Italia’s tower unit Inwit.

Read said creating a standalone towers business would unlock “the significant value of our infrastructure assets at a time when tower multiples are very attractive”.

Working with other operators means they can roll out 5G services faster and more cheaply. Raid said to journalists on an earnings call, “This is a window of opportunity where 5G is launching into the market.”

Vodafone would look at attracting investors, including partner operators, in local markets before rolling the assets into a European holding company, with a view to listing a minority stake, he added.

Much needed revenue

Vodafone Gropu announced the creation of the tower company as it reported that Q1 service revenue declined by 0.2%, which is less than was expected. The company claims a gradual recovery in profits will continue.

Read said, “We are now at a turning point in our service revenue following the low point in Q4 of last fiscal year…We are confident that this improvement in service revenue will continue as the year progresses.”

Vodafone noted market conditions in Italy had continued to improve and retail growth in Germany remained robust, which in part had been offsetting intense competition Vodafone faces in Spain.

The company had launched more new pricing plans and products in the quarter than in any Read said he could remember, including next-generation 5G services in its major markets.

He said Vodafone was confident about its full-year guidance for adjusted core earnings of €13.8 billion to €14.2 billion and free cash flow before spectrum costs of at least €5.4 billion.