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Vodafone ponders spin off of European tower business

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After reporting declines in group revenues, Vodafone needed to bring some good news to the earnings call, and it seems the creation of a standalone tower business has done the job.

CEO Nick Read announced during the Q3 earnings call work had begun to legally separate the European tower infrastructure business, with plans to have the new organization up-and-running by May 2020. The team intends to monetize the tower business through an IPO or disposal of a minority stake in the next 18 months, dependent on market conditions.

“We will capture industrial efficiencies through network sharing agreements signed in multiple markets, and today we are announcing the decision to create Europe’s largest tower company,” said Read. “We believe there is a substantial opportunity to unlock the embedded value of our towers, and we have started preparations for a range of monetisation options over the next 18 months, including a potential IPO.”

Looking at the revenues, total group revenues declined by 2.3% year-on-year for the quarter to €10.6 billion, with Europe accounting for a 2.1% decline. Italy and Spain accounted for the biggest drops across the continent, though the operational challenges faced here are well-known to all. Germany and the UK both offered marginal growth, but there is hope on the horizon for these two markets.

In both the UK and Germany, Vodafone is readying itself for a more aggressive push into the convergence game with broadband offerings. In the UK, it has partnered with the rapidly expanding CityFibre and launched a 5G FWA offering, while in Germany, the recently approved Liberty Global acquisition will give it more of a presence in the cable market.

“Modest results in a challenging competitive European environment,” said Paolo Pescatore of PP Foresight. The move to lead in 5G with punchy pricing gives it a perfect opportunity to gain momentum. But margins will continue to be under immense pressure with unlimited price plans.”

On the network side, Vodafone is readying itself for an expansive rollout into the 5G world. Being one of the world’s largest operators does sound nice, however the catch is that there are massive financial commitments when it comes to infrastructure overhauls, such as the one the 5G era presents. With a new network sharing partnership in the UK with O2, a tie-up with Orange in Spain and potentially one with Telecom Italia in Italy, the burden could certainly be lessened.

While this is all good news for the operations, the tower infrastructure business will steal the headlines. This is becoming an increasingly common trend in the telco world as operators look to appease the financial appetites of investors by monetizing tower infrastructure assets. On the surface, it does seem to have worked, share price has risen almost 9% in early morning trading.

“Exploring options to float or monetise infrastructure assets is becoming a fashionable play among some network operators, motivated by driving greater value from them and reducing costs,” said Kester Mann of CCS Insight.

“Better asset utilisation and driving greater efficiency has been a leading part of Vodafone CEO Nick Read’s strategy so far. The company has also established a number of 5G network-sharing deals, increased focus on online sales and customer care and replaced many legacy tariffs with new simplified plans.”

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