Vodafone and Telecom Italia Group have announced the creation of an active network sharing partnership for 4G and 5G and the expansion of their existing passive sharing agreement.
The Network Sharing Partnership is expected to enable faster deployment of 5G over a wider geographic area at a lower cost and deliver net cumulative cashflow benefits to Vodafone of at least €800 million over the next 10 years.
Vodafone has also agreed to merge its passive tower infrastructure in Italy (“Vodafone Italy Towers”) into INWIT SpA (“INWIT”) (the “Combination”). As part of the Combination, Vodafone will receive a cash consideration of €2,140 million and a 37.5% shareholding in the combined entity, which will remain listed on the Milan Stock Exchange. Based on the 30-day VWAP of the INWIT share price prior to this announcement, Vodafone’s shareholding would be valued at €3,130 million, which implies an enterprise value for Vodafone Italy Towers of €5,270 million, equivalent to 24.0x 2018PF Adjusted EBITDA.
Pro forma for the Combination, INWIT is expected to have an asset base comprising c.22,100 towers, making it the second largest listed tower operator in Europe. INWIT estimates that the Combination and Network Sharing Partnership will deliver additional EBITDA from synergies and committed services of approximately €110 million by 2026.
It is the intention of Vodafone and TIM to undertake a recapitalisation of INWIT following the Combination up to a maximum of 6.0x Net Debt / EBITDA, subject to achieving a BB+ (or equivalent) credit rating. Vodafone intends to use the cash proceeds from the Combination and any recapitalisation to retire existing debt.
Vodafone and TIM intend to retain joint control of INWIT, but over time will consider jointly reducing their respective ownership levels from 37.5% to a minimum of 25.0%. The Combination is subject to regulatory approval as well as INWIT minority shareholders’ approval, with completion anticipated during the first half of 2020.
Aldo Bisio, CEO of Vodafone Italia, informed, “This agreement will enable us to step up the rollout of 5G for the benefit of our customers and the community as a whole. 5G has a key role to play in modernising the country. It will provide the technology platform from which to launch innovative new services capable of making business models more efficient and improving productivity throughout the value chain, helping to build a more competitive digital economy. Network sharing reaps the benefits of 5G and at the same time reduces the impact on the environment and lowers rollout costs, allowing more investment in services for customers.”
Network Sharing Partnership with TIM
Further to the announcement between the Parties on 21 February 2019, Vodafone Italia and TIM have today finalised a Network Sharing Partnership to jointly roll-out 5G infrastructure in Italy and to extend their existing passive sharing arrangements.
The Network Sharing Partnership will enable active network sharing in cities with populations of up to 100,000 people, supporting a faster deployment of 5G over a wider geographic area, at a lower cost, and with a lower environmental impact. Vodafone Italia and TIM will also implement active network sharing for their existing 2G and 4G networks, in order to support 5G active network sharing.
Furthermore, Vodafone Italia and TIM intend to upgrade their respective mobile transmission networks, adding higher capacity optical fibre cables (“Fiber-to-the-Site” or “Backhauling”). This will enable customers to benefit from 5G’s new features, such as faster speeds and low latency, and will allow both companies to operate more efficiently.
Vodafone Italia and TIM have also extended their existing passive sharing agreement, from approximately 10,000 sites today (approximately 45% of the Parties’ combined passive towers), to a nationwide agreement. The objective is to accelerate and enhance the deployment of 5G technology and use network infrastructure more efficiently, both in urban and rural areas.
Vodafone Italia and TIM will continue to roll out and operate active network infrastructure independently in Italy’s biggest cities. Both companies will retain separate management of their spectrum rights, management of their network performance, control and functionality of their respective core networks, as well as development of new products and services. This will enable each company to maintain full flexibility to innovate and compete to meet the needs of their respective customers.
Combination of Vodafone Italy Towers with INWIT
Vodafone and INWIT have agreed to combine their respective tower portfolios, consolidating their c.22,100 passive towers located in Italy. The Combination is expected to enable TIM and Vodafone to achieve a faster and more effective roll-out of 5G infrastructure throughout Italy at a lower cost. INWIT will be well placed to perform strongly in the coming years, benefitting from the commitment of its two anchor tenants on existing and new towers, as well as being better placed to offer tenancies to third party operators, as the active sharing will free up further space on the infrastructure that can be used by other operators.
The Combination will be effected by way of a merger and as such, once approved by INWIT’s minority shareholders, will be exempted from public tender offer obligations. Vodafone will receive cash consideration of €2,140 million3 and, following the completion of the merger, hold a total 37.5% shareholding in the combined entity.