Interview with Juan Velázquez Saiz, Secretario General, TOTEM Towers Spain

Juan Velázquez Saiz: The OECD distinguishes four different generations of tower arrangements. The first generation, in which MNOs owned their towers outright, the second in which the paradigm was the sharing of towers and RAN among MNOs that the operators continue to own and operate. Those moments passed and the third generation involves separation of tower ownership and operation through the creation of Newcos, with many MNOs becoming anchor tenants. Afterwards, some MNOs have retained those affiliates as separate units, or have in full or in parti sold stakes in those companies allowing the entrance of partners and investors.

Now that these models are mature, a new generation is appearing where Towercos search to expand their services to connected services (fiber to the tower, DAS, small cells) on a path that in some cases has led to the RAN management. Although the sector is often characterized as "passive infrastructure managers," there is nothing passive about the management of infrastructure operators.

And what added value do those companies provide? First, we allow traditional communication operators to offload investments needs in this segment of the value chain. Second, the act of creating a company with a specific purpose contributes to focusing management on one business criterion. The entire business structure is analyzed and reviewed with its own rationale, in which issues that a more general-vision operator might not treat with the same level of detail. All expenses are reviewed, all income is analyzed, relationships with MNOs other than the one from which the Towerco was spun off are reviewed based on purely commercial criteria: the Towercos are neutral.

For external investors, the expectation of long-term cash-flow stability and resilience and predictable ‘utility-like’ returns adds value and increases interest in the sector.

Juan Velázquez Saiz: Conventional wisdom has it that Towerco profitability  arises from the sharing of passive infrastructure and the resultant savings. A justified operation and maintenance and cost-control are essential, as is a strategic view on anticipating client needs. At the same time, MNOs do seek to rationalize their networks and to densify coverage. As experts in the field, Towercos are ready to help in both areas, either through DAS in certain venues (shopping malls, stadiums, subways) or through the deployment of small cells in densely populated urban areas.

For instance, TOTEM is deploying the latest-generation mobile networks to provide 5G coverage for the upcoming Line 15 South metro line of the Grand Paris Express, which will be the first fully 5G-connected railway segment in Europe. TOTEM has provided neutral infrastructure for coverage of the Marseille Orange Vélodrome stadium and for the America’s Cup challenge in Barcelona, thanks to small-cell technology. We also have been working with Vantage Towers, HTW Saar, Orange and Telefónica to build a cross-border 5G mobility highway corridor between France and Germany. In Spain, operators and local authorities are redesigning streets by including small cells to improve mobile coverage in urban centers: as we expand our network with 5G, small cells allow us to meet higher demand with minimal visual impact.

Those are recent developments TOTEM is working on, going beyond mere “passive” infrastructure management. The cliché of the passive TowerCo is a thing of the past. Today's and tomorrow's Towercos must be proactive and innovative. The top Towerco of tomorrow will be the one that can act as a  single point of contact for all of a citiess connectivity needs, from pure co-location services to a complete site-as-a-service offering and that will experiment with new alliances with data centres, electric companies, drone nests and other parties.

Juan Velázquez Saiz: Some tower companies were originally set up as such, and others were born from MNO spin-offs. Some of the latter have been fully sold to external funds and investors, and others have shareholding relationships with their parent groups.

But the truth is that the business logic of all tower operators is the same - to maximize occupation of space and to host as many clients as possible. We do share our infrastructure and the sharing model is the basis of the Towerco profit-making model.

Beyond that logic, decreasing costs and offering new services, finding new clients and maximizing returns are equally important to all Towercos, no matter who the shareholders are. Anchor tenants are just as demanding as  other clients. And the problems we all face (the maturity of site contracts, the difficulty of maintaining or finding new sites, MNO concentration,  competition from land aggregators, pressure on costs, limitations that public administrations and authorizations or licenses can put on deployment) are the same for all.

In fact, I would highlight that TOTEM is part of Orange’s wholesale organization with governance that is fully independent from Orange’s telco business.   We do think that it is vital that we maintain a neutral approach towards customers and maintain independent  governance from our clients, even the anchor ones.

Juan Velázquez Saiz: Infrastructure operators are a reality that, as an entity separate from MNOs, has only recently come into existence. The problem is that it is not well known. Traditional regulation did not recognize these operators and instead has focused on the MNO as the subject of regulation, which has raised many operational problems in the relationship between deployments and contracts with administrative entities.

However, approval of the Gigabit Infrastructure Act (GIA) - Regulation 2024/1309 (EU) of the European Parliament and of the Council of 29 April 2024 - on measures to reduce the cost of deploying gigabit electronic communications networks, amending Regulation 2015/2120 (EU) and repealing Directive 2014/61 (EU) represents an important step in the recognition of Towercos and other providers of communications infrastructure as a separate subject within the telecommunications market.

It is clear that the concept of infrastructure-as-a-service is far beyond the scope of pure real estate business. Operation, maintenance, energy supply, associated services are functions that go beyond simple ownership and leasing of sites. Regulation is increasingly taking a step forward in limiting the entry of "land aggregators," which are prohibited from imposing speculative prices.

On the other hand, regulation grants telecommunications infrastructure operators the same rights to facilitate deployment that MNOs enjoyed. Furthermore, the GIA guarantees extension of access obligations to public sector bodies, under which the bodies must provide operators with access to key physical infrastructure, thus increasing the market of sites that offers new possibilities for MNOs and Towercos to reduce deployment costs and accelerate the rollout of 5G networks. The GIA regulation aims to address bureaucratic obstacles and simplify administrative procedures that impede network deployment.

The price to pay is a new regulatory burden that requires Towercos to grant access to their infrastructure on “fair and reasonable” terms, including pricing, and to submit any commercial disputes to arbitration by National Regulatory Authorities. The rationale for imposing these new regulatory measures is unclear as it is not based on substantial evidence of market failures. Since the Towerco business model is based on sharing infrastructure, Towercos have a strong commercial incentive to maximize infrastructure use without regulatory intervention and thus host as many operators as possible on their towers.

Juan Velázquez Saiz: Although infrastructure management has its own problems, the risks that appear on the horizon are common throughout the electronic telecommunications market. Pressure on costs, the fragmentation of the European market compared to the American, Chinese or Indian market, the overabundance of networks and foreseeable consolidation will also have repercussions on infrastructure operators.

We hope that the entry into force of the GIA will help increase the size of the site market, and that administrations will understand the need to integrate communications infrastructure in urban areas to support  deployments.

Opportunities may appear in current development areas (DAS, small cells, site-as-a service) and in the upgrade from pure infrastructure services to network opportunities with greater added value.

The risks are linked to insufficient understanding by stakeholders, including MNOs and governments, of the need to address uncertainties, remove obstacles to deployment, and ensure the survival of infrastructure. Without infrastructure, there is no electronic communication.