International In - house Counsel Journal Vol.14, No. 55 , Spring 2021, 1 EU Towercos or Making the Utmost Value of Current Infrastructures: Eventual Competition Concerns XANTHI BITZIDOU 1 Senior lawyer - E.E.T.T 1. Introduction The main priority of the EU Digital Agenda 2 is to transform Europe into an attractive, secure and dynamic digital economy with clear and fair rules, while investing in next generation, standards, tools and infrastructures 3 . At the first list of the framework stands the deployment of 5G networks 4 , for which the Commission ha d se t the ambitious goal of having at least one major city in each Member State “5G enabled” by the end of 2020 and uninterrupted 5G coverage in all urban areas and major terrestrial transport paths by 2025. Among the primary objectives of promoting competitio n, securing the internal market and promoting the end - user interests, the “connectivity objective” 5 captures the attention, if articulated in terms of outcomes. Europe wants widespread access to and take - up of very high capacity networks for all citizens of the Union and Union businesses 6 , on the basis of reasonable prices and choice, effective and fair competition, open innovation, efficient use of radio spectrum, e.t.c. It’s undeniable that the requirements concerning the capabilities of electronic comm unications networks are constantly increasing. In this frame, infrastructure competition seems to be ideally fostered through an economically efficient level of investment in new and existing infrastructure, complemented by regulation, where necessary. 2. Th e case of “Towercos” (Tower companies) Without doubt, the communications market is one of the most competitive playgrounds and for this reason market players (operators) need to constantly reinvent themselves, in order to catch the technological challenges. The deployment of 5G creates signific ant challenges for telecommunications operators. They need to pay for access to available 1 Xanthi G. Bitzidou is a Greek senior lawyer of E.E.T.T with an extensive experience in regulation, Greek/EU competition law, corporate law and litigation in network sectors such as Electronic Communications, Postal, Media and Energy . – The views are those of the author and do not represent the official position of EETT (Hellenic Telecommunications and Posts Commission - www.eett.gr ). 2 https://digital - strategy.ec.europa.eu/en . 3 See D IRECTIVE (EU) 2018/1972 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 11 December 2018 establishing the European Electronic Communications Code. 4 Communication from the Commission to the European Parliament, the Council, the European Economic and Socia l Committee and the Committee of Regions of 14 September 2016, “5G for Europe: An Action Plan”, COM(2016) 588 final; Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions of 14 September 2016, “Connectivity for a Competitive Digital Single Market – Towards a European Gigabit Society”, COM(2016) 587 final. 5 See the “Connectivity Toolbox” 6 https://digital - strategy.ec.europa.eu/en/policies/supporting - industry . International In - house Counsel Journal ISSN 1754 - 0607 print/ISSN 1754 - 0607 online 2 Xanthi G. Bitzidou spectrum 7 and undertake massive infrastructure investments, as the complexity of 5G and the required denser coverage of base stations entail much higher deployment c osts than previous technologies. A McKinsey study 8 found that a change to 5G technology could double the total cost of ownership (TCO) for telecommunications infrastructure from 2020 - 2025. This supports the sale of cell towers for two reasons. First, sell ing off assets can help a company raise the capital necessary for new investments; and second, shifting expenditures from CAPEX to OPEX improves the balance sheet, makes it easier to raise funds and reduces overall costs, including maintenance and site upg rade expenses. Α s such, mobile network operators (MNOs) have been seeking for new financial weapons , in order to play cost - intensive and require a ramp - up in their investments in future networks. The extreme investment demands, in addition to the regulator y threats that overcharge the traditional telcos, increase the volume of complexity. Among the strategic business approaches, the statistics show on one side the practice of “network sharing (the joint building of networks) and on the other side the creati on of “Towerco” companies, which popped - up and captured the attention of the market. The latter seemed to be the most relevant cash up strategy and “asset monetization” (mainly of tower sites). The practice seemed attractive, as all service providers need a place for their network equipment, not to mention that the new services era demands more and more additional sites. Thus, with the creation of Towercos, operators could easily focus on their core business operations, outsource management of cost - intensiv e assets and raise valuable financial strength, as their future network deployment became already a necessity. It’s additionally the “European Electronic Communications Code” 9 (EECC) that reflects the pro - competitive nature of independent Towercos and is expected to benefit them through increased certainty for the wholesale infrastructure sector. As numbers prove their obvious benefits, a typical location of a wireless network operator (also point of presence) managed by a TowerCo is circa 40% more efficie nt than one managed by one MNO, resulting in economic savings of €31b across Europe (estimated between the period of 2019 and 2029). A closer look reflects that the average number of wireless network operators sharing an independent tower is 2.4, compared to 1.3 for MNO - controlled towers, meaning that independent TowerCos make it easier and cheaper to roll out new networks. Since 2018, the share of independent TowerCos in Europe has increased from 17% to 20%, releasing around €3.5b of capital in the process , via acquisition of tower portfolios from MNOs 10 . As a result, when outsourcing to independent Towercos (under certain models 11 ), the MNOs earn a new capital, which can be then reinvested in new networks and mostly to the rollout of 5G. 7 Spectrum prices imposed by national Governments are high, with some telecom operators being charged up to 14x higher than their global peers. ETNO, “The state of digital communications 2020”, available at: https://etno.eu//downloads/reports/etno%20state%2 0of%20digital%20communications%20report%2020 20.pdf. 8 https://www.mckinsey.com/industries/ technology - media - and - telecommunications/our - insights/the - road - to - 5g - the - inevitable - growth - of - infrastructure - cost# . 9 DIRECTIVE (EU) 2018/1972 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 11 December 2018 establishing the European Electronic Communicati ons Code – OJ L 321/36/17 - 12 - 2018. 10 See https://www.itu.int/en/itunews/Documents/2017/2017 - 06/2017_ITUNews06 - en.pdf . 11 While there is great diversity in towerco bu siness models, they can be categorized into two groups. The first are pureplay independent towercos , exemplified by American Tower, Crown Castle, SBA Communications, Protelindo and Cellnex, which can all trace their origins back to the phenomenon where pri vately - owned tower builders started retaining and acquiring assets in the U.S. in the mid 1990s. The second category are operator - led towercos, towercos in which 51% or more of the equity is retained by parent MNOs , exemplified by China Tower Corporation, Indus Towers, Bharti Infratel, edotco and INWIT. A third variant on the business model, which overlaps with both the pureplay independent and operator - led categories, are the power - as - a - Competition - T elecommunications 3 During the last years, serious investors in Europe focus on the Towerco model, and as a consequence a new M & A market seems to arise all over Eu rope 12 , where Towecros are mainly and currently controlled by MNOs, as in the cases of Vantage Towers, CK Hutchison Networks, Orange TowerCo, e.t.c. In the close future though, the corporate independence of Towercos is obviously expected, as their value is continuously increasing . Therefore, it seems that “Towermania” is the new trend in Europe, as service providers found a profitable way to face their debts and exploit their masts. Infrastructure firms are being renting out space to other operators and of course investors rub their hands for the new lucrative game of the sector. 3. Should Regulation be an issue for the new “ infrastructure players” (Towercos)? As Towercos sweep the traditional telecoms markets, eventual questions and scepticism on the existin g regulatory framework were inevitable, compared to the current telecoms regulation. As this “new kid on the block” does not exactly fit the current rules of telecom players and the massive densification of networks with deployment of small cells is around the corner, a discussion on the amendment of regulation has started lately, given the fact that the core of the traditional existing regulation covers wholesale obligations, pricing obligations, roll - out obligations, non - discrimination obligations, e.t.c. Without doubt, the telecoms market and its services depend on the critical element, alias the infrastructure (network) and as such the majority of infrastructure players were created through the sale of the existing infrastructure from vertically integrat ed operators – including heavily regulated entities. Another critical issue for regulation connected with the further consolidation of the infrastructure layer expected could be the possibility of the current players to squeeze their margins or inflate pri ces for end - users. Price regulation in the telecom industry was among the most commonly used measures to ensure that entities with SMP did not overcharge other industry players or end - users. Therefore, it’s valid to question whether price control mechanism s should also be commonly used to regulate prices for a pure infrastructure play, which is now the picture. In particular, a certain influence over price setting may be required to prevent abuse of power by landlords and municipalities.