(Bloomberg) -- European phone companies are selling their mobile masts and growth-hungry U.S. tower companies have money to spend -- it looks like a marriage made in heaven.
Instead, firms like American Tower Corp. and Crown Castle International Corp. are largely staying away, making it easier for Spain’s Cellnex Telecom SA and infrastructure funds managed by Macquarie Group Ltd., KKR & Co. and others to sweep up the region’s tower assets.
Their hesitation is driven partly by price: the global hunt for yield has driven up the premium for these assets, which offer reliable, steady income streams. Independent tower companies also won’t pay top dollar unless they see a path to significant revenue growth -- and that’s where they have a problem with Europe.
“The American tower companies say, ‘OK, Europe is fine at the right price, but prices are not where we need them to be, so we think the opportunities elsewhere are more attractive,”’ said Nick Del Deo, senior analyst at U.S. research firm MoffettNathanson.
Tens of thousands of European masts are expected to see ownership changes in the next two years as companies such as Iliad SA, Vodafone Group Plc and Telecom Italia SpA bring in new investors to reduce debt and share the heavy cost of rolling out 5G technology.
But only a quarter are likely to end up with independent operators, according to TowerXchange. Vodafone and CK Hutchison Holdings Ltd. are creating separate units for almost 90,000 towers and the consultancy expects them to maintain control over those businesses. That’s a turn-off for independent companies, which try to maximize revenue by leasing mast space to as many network operators as possible.
Many European carriers want to keep some hold on their towers because they see mobile infrastructure as a strategic asset that can help them manage costs and perhaps gain a competitive edge. They’re also mindful of what happened in the U.S., where operators rushed to sell their towers more than a decade ago only to find themselves stuck with a big bill for leases and capacity rights.
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Selling full ownership of towers to independent players can spur innovation and reduce expenses by encouraging carriers to share infrastructure, avoiding costly duplication. European carriers’ insistence on maintaining control means the continent’s progress in rolling out 5G will likely continue to be slower compared to the U.S., where towers are largely in independent hands.
“There is a risk that the European carriers go too far the other way,” Del Deo said. “The captive tower model, if you look globally, has never proven to be that effective.”
For now, American Tower is mostly relying on building towers in Africa, Latin America and India for its international growth.
Crown Castle didn’t respond to a request for comment on its future European asset bidding plans. American Tower declined to comment. Its chief executive officer, James Taiclet, told analysts last month that recent large European tower sales didn’t meet its bar for growth prospects and asset costs.
Here are some other reasons why U.S. tower firms aren’t piling into Europe:
Redundancy: Europe has more cases of towers operated by rival carriers sitting in close proximity. An independent owner may want to remove one to cut costs, but the tower often comes with a ground lease that they must keep paying for years.
Less Potential: Europe has lots of rooftop antenna sites, which can’t accommodate as many customers as can a ground-based tower. Many European portfolios include broadcast towers in rural areas that may not be as valuable as mobile towers.
Radio Emission Rules: In some countries, rules on maximum electromagnetic radio emissions limit the number of antennas a tower firm can install at a single site.
--With assistance from Scott Moritz.
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