By comparing the total mobile site numbers between Norway, Sweden and Finland we have not been able to prove that Norway’s mobile networks are larger than Swedish or Finnish networks.
Referring to our point b) from the previous section, Tefficient would anyhow like to test the notion that network size should have a significant impact on an operator’s total costs. For a representative sample of established Nordic operators, see Figure 22, the average mobile operator used 15% of its revenue on Networks OPEX and 7% of its revenue on Networks CAPEX. In total, 22% of revenues were used on network costs.
Figure 22. Breakdown of mobile revenue into different OPEX, CAPEX and profit items – average for a number of established operators in Norway, Denmark, Sweden and Finland [source: Tefficient insight, compiled by Tefficient]
Although 22% of revenues isn’t a small cost item, established operators have other cost items – most importantly Marketing & sales OPEX (14% of revenue) and Cost of goods sold etc (23% of revenue) – that are large too. Since established operators averagely use 64% of revenues on OPEX, they averagely had an EBITDA margin of 36% after OPEX. And while they use 10% of revenues on CAPEX19, they averagely had an EBITDA-CAPEX (an approximation of cash flow) margin of 25%.
19 Frequency auction fees (if any) not included
100%
14%
23%
6%
15%
4%
3%
36%
7%
3%
25%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Revenue Marketing &
sales OPEX Cost of goods sold, content and I/C &
roaming
Customer service &
telesales OPEX
Networks OPEX incl. spectrum usage fees
IT and delivery OPEX Support
functions and other OPEX
EBITDA Networks CAPEX IT CAPEX EBITDA-CAPEX (~cash)
% of total mobile revenue
Networks OPEX
15% of revenue
Networks CAPEX
7% of revenue Networks OPEX+CAPEX: 22% of revenue
Whether or not a mobile operator has a few hundred mobile sites more or less doesn’t make any visible difference to their cost distribution. Most of the revenues aren’t going to the networks; they go to other costs (and to profit).
But what if Norwegian mobile sites are much more expensive to build? Sometimes Norwegian operators have to pull cables for tens of kilometres to serve one rural base station with power and transmission. They might have to build a dedicated road to it – or lift in the equipment with a helicopter and use snowmobiles when servicing it. These anecdotes are impressive and operators deserve to be praised for walking the extra mile, but it’s important to know that every operator in every rural Nordic country have similar rural sites where costs to build and serve are truly over the top. But in the full picture, these sites are exceptions. An absolute majority of sites in all mobile networks are totally uncomplicated standard type of masts and roof tops. Although a Nordic operator might have a few tens truly unique and difficult rural sites, they drown in the uncomplicated mass deployment of thousands of sites.
In Tefficient’s experience, the average mobile site is not more complicated to build and maintain in Norway than in Sweden and Finland. Denmark, lacking the sizeable rural areas of Norway, Sweden and Finland, has a slight benefit, but as a vast majority of mobile sites are totally uncomplicated in all countries, the
differences shouldn’t be exaggerated.
To add to it, a site is not only a cost item for a mobile operator – it is also a source of revenue.
Tefficient’s insight from established Nordic operators is that the site rental income per owned site averagely is about 120,000 NOK per year. This revenue comes from the rent competitors or other networks pay for being granted a right to install and operate base station equipment and antennas on the site and in the mast.
Operators that are first to establish a site in a previously uncovered area can often expect to have one or several tenants.
The Spanish infrastructure company Cellnex Telecom recently (12 November 2020) acquired all the mobile sites of CK Hutchison in Europe20. The operator of the ‘3’ brand, CK Hutchison, sold a total of 24,600 sites in Italy, the UK, Ireland, Austria, Sweden and Denmark. 4,050 of these sites are today in Sweden and Denmark – two of our four Nordic peer group markets.
The total acquisition price for the 24,600 sites was 10 billion EUR, meaning that the average European site – among them Swedish and Danish sites – was acquired for 407,000 EUR or 4.2 million NOK. This
transaction is an example of how highly valued mobile sites actually are by investors. Cellnex’s business model is to rent the acquired assets, the mobile sites, back to CK Hutchison – but also to find other tenants.
The expectation is of course that the company will be profitable in doing so. The business model is well tested in e.g. the US, Latin American and APAC markets where companies such as American Tower Corporation operate more than 170,000 sites with good profit21.
20 https://www.cellnextelecom.com/en/cellnex-to-add-c-30000-telecommunication-european-sites-from-ck-hutchison-to-its-portfolio/
21 https://www.americantower.com/investor-relations/earnings-materials/
The notion that network size should have a significant impact on an established operator’s total costs is exaggerating reality. A representative sample of established Nordic operators averagely used 22%
of revenues on Networks OPEX and CAPEX. 78% of revenues were used on other cost items and on
profit. Adding a few hundred sites to a mobile network doesn’t change these cost fundamentals.
Another indication of the asset values associated with mobile sites is that some operators in Europe are in the process of spinning off their site assets in separate companies – like Vodafone did with Vantage Towers in June 202022. Telenor has recently gathered its infrastructure in a separate company, Telenor Infra. Some have speculated in that this is a preparation for a later spin-off23.
22 https://www.vodafone.com/news-and-media/vodafone-group-releases/news/vantage-towers
23 https://e24.no/teknologi/i/XgB84m/telenor-norge-splittes-opp-flytter-mobilmastene-over-i-nytt-selskap