Singapore Telecommunications (Singtel), the parent company of Optus, is in the process of auctioning up to a 70% stake in a newly formed tower company, which comprises 2.3k of Optus’ towers and rooftop sites across Australia. Specifically, the transaction would take the form of a long-term sale-and-leaseback agreement with Optus, valuing the towers at A$2.0bn+ ($1.5bn+ USD).

In May 2020, Singtel first announced that it was “undertaking a review” of its tower assets in Australia and that it had “engaged advisors to assist with this review”. Having now begun the process to sell Optus’ towers, expectations are that a transaction will be announced before year-end 2021.

Optus Towers – Overview

Optus is the second largest wireless carrier and fixed broadband provider in Australia. Notably, the company is a subsidiary of Singtel, the largest telecom operator in Singapore.

Overall, Optus owns 2.5k+ towers across 1.0k+ towns in Australia, implying that it is not selling its entire tower portfolio. Indeed, the company is likely retaining ~200 towers that are critical or offer competitive advantages to its network.

TowerCo Valuation

Based on an A$2.0bn valuation for Optus’ towers, the transaction implies an Enterprise Value per tower of A$865k per tower, on the 2.3k tower sites.

Transaction Rationale – Singtel

Singtel notes that a monetization of its stake in Optus’ towers would generate proceeds to fund for three distinct purposes. Firstly, capital could go towards improving Optus’ regional coverage for 4G. Secondly, Optus’ 5G network roll-out, which currently has 1,200 live 5G sites, requires further investment. Thirdly, Singtel could use proceeds to pay down debt, reducing the leverage burden on its balance sheet.

Challenges of Tower Monetization

Assuming that Singtel were to sell a majority interest in Optus’ towers to an independent tower company or institutional investor, one of the major areas of value creation for that new majority owner would come from further lease-up of the towers. Indeed, this lease-up would take the form of additional tenants on Optus’ towers.

These tenants would likely include Vodafone Australia, the country’s third-largest wireless carrier. Therefore, as a result of this tower monetization, Optus would be opening-up its passive infrastructure to a close wireless carrier competitor in Australia.

Monetization of Towers – Singtel

Singtel owns meaningful stakes in a number of telecom operators in the Asia-Pacific region. Specifically, these ownership positions include 23% of Advanced Info Service (AIS) in Thailand, 32% of Bharti Airtel in India, 47% of Globe Telecom in the Philippines, and 35% of Telkomsel in Indonesia.

Notably, Singtel has experience, through certain of these wireless carriers, in monetizing tower assets, namely through Bharti Airtel and Telkomsel. Most recently, in October 2020, Telkomsel announced a sale-and-leaseback transaction, of over 6.0k towers, with Mitratel in Indonesia. Specifically, Telkomsel sold this portfolio for $701m, equating to a valuation of $116k per tower.

Overall, Singtel’s experience monetizing towers elsewhere in Asia-Pacific demonstrates a willingness to undertake a majority sale of Optus’ tower company. Indeed, this approach differs from rival wireless carrier Telstra’s decision to pursue only a minority sale of its towers business.

Adam Simmons is the Founder & CEO of Dgtl Infra. He started his career with an S&P 500-listed big box retailer, in an operations management role. Adam's entrepreneurial "itch" led him to start a 5G-driven company, focused on innovative retail solutions using augmented reality and shoppable videos, which was eventually sold to an advertising and consulting group. After, realizing the potential of 5G, Adam shifted his efforts towards investing in the "building blocks" of 5G - known as digital infrastructure, completing a number of strategic investments, buying cellular towers, data centers and fiber networks.

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