Financing Network Sharing in Telecommunications: Strategies and Innovations

In today's rapidly evolving telecommunications landscape, network sharing has emerged as a strategic solution to optimize costs, expand coverage and enhance service quality. Network sharing involves multiple telecom operators collaborating to share infrastructure such as cell towers or fibre or to share spectrum. It also allows for the  creation of independent netcos, which enables multiple operators to share the use of neutral open-access networks. In diverse forms, the network sharing  approach can significantly reduce capital and operational expenditures while improving the speed and reach of network deployments. However, even though such initiatives entail an element of costsaving, financing them requires creative approaches and diverse funding sources. In this respect, reflecting its can-do spirit, the sector has proven innovative in the search for structures and sources of funding.

The communication network across the world is experiencing a massive upgrade and the need for funding is vast. The upgrade’s impetus stems from technological requirements (making the most of 5G, user needs, digital revolution for businesses and in the home), political needs such as bridging geographic and social digital divides and ensuring the network is safe from cyber-attacks and economic needs such as reaping the benefit of the digital revolution¹. This upgrade across the planet represents one of the largest infrastructure projects. To more easily access funding and to rationalise, companies in the sector have to be creative and network sharing (while under the vigilant eye of competition authorities) has been one way to achieve those goals.

Mainly, governments and regulators expect private funding sources to foot the bill for the upgrade. Major operators can use monies raised on capital markets to fund participation in joint ventures used to network-share but recent developments have seen operators contributing in other ways. Joint ventures between an operator and one or more sponsor aimed at creating a widely accessible neutral network whereby the operator provides physical infrastructure development while funding is procured sponsor-side by way of equity and/or bank debt have mushroomed². 

Separately, fully independent companies created to build and/or own network have opened to all, operating on a wholesale or on a retail basis. These companies are in the main privately owned and backed by sponsors, again procuring equity and debt. This is particularly visible with fibre companies, such as CityFibre and Deutsche Glasfaser.  The towerco model has spread from America to Europe with pushes from American Tower, Phoenix Tower and Cellnex.  Together the companies are contributing to a huge extent to the upgrade of the network to make it more fit for purpose³.

These joint ventures and companies have creatively put in place structure primarily by offering evidence of contracted revenue or expected contracted revenue that is attractive to traditional corporate and to infrastructure financiers. Combining both sources of funding required hybrid documentation tapping into characteristics of both financing types and ingenuity to make such structure and documentation appealing to a variety of funders.

The amounts raised in these ways have been huge⁴, with companies relying mainly on senior debt. In this respect, some of the latest figures in fact raise the question as to whether senior debt really is the most appropriate instrument here.  Access to capital markets therefore becomes critical.  A few netcos, mainly towercos, have been able to raise bonds. And we have seen recently, a number of netcos have been going for initial public offerings (IPOs) to raise capital⁵. The capital markets route enables these companies to access substantial funds while providing investors with opportunities to invest in a growing sector. However, access to this route remains challenging for a large number of companies. Issues linked to the companies’ early stage of operations, lack of a track record of positive EBITDA and difficulties in obtaining required ratings means that the door to capital markets remains closed for many…for now.

Meanwhile, interest-rate rises have rendered funding (both equity and debt) expensive so that it comes to weigh more heavily on financial models. In parallel, performance issues, sometimes combined with overpromising, have rendered financiers wearier.  In a sense this demonstrates a healthy maturing of the market but it means that raising funds has become harder.  The challenges have been particularly felt in the fibre sector and they have pushed market players to seek other sources of funding or to try different structures.

One funding source that has come to the rescue, though only partly, under conditions and sometimes at a cost, is public funding⁶. This means relying on regional, governmental or supranational lending institutions or applying for public subsidies. In fact, structures have emerged combining both methods so subsidies are obtained and fronted by debt from lenders (including governmental or supranational lenders). The structures are useful but they come with strings attached. First, companies need to ensure they meet conditions to have access to such funding. Mainly these funding options aim to ensure the upgrade of the network in more rural areas and so may not be available to fund urban networks. Second, documentation may contain provisions and impose stringent requirements, often to enable the relevant financiers to meet their public objectives. Finally, companies may need to navigate conditions linked with state-aid restrictions.

Separately, companies in the sector are exploring recourse to asset-based lending⁷.North America is leading the pack in this respect but strategic moves are being made on the European market.  In particular, in June this year, the first published asset-based deal in the digital infrastructure sector involved Vantage securing £600m via securitized term notes⁸. This related to data centres but it was a strategic, innovative move and statement for the digital infrastructure market in Europe, of which netcos and network-sharing entities are a major part. It may be interesting to see if the model is now further replicated.

Network sharing (in its various forms) presents a strategic opportunity for companies in the telecom sector to reduce costs, expand coverage, and accelerate deployment of new technologies. The industry's creativity in financing these initiatives - from leveraging capital markets to tapping into innovative asset-based securitization and diverse funding sources - demonstrates its adaptability and forward-thinking approach. As the telecommunications landscape continues to evolve, network sharing and related innovative financing models will likely become even more critical for the sector to remain competitive and meet growing demand for high-quality, accessible services.