In November 2020, Cellnex announced a series of acquisitions from CK Hutchison of nearly 25,000 tower estates across Italy, the UK, Ireland, Austria, Sweden and Denmark. While five of the six transactions have now completed, the acquisition of CK Hutchison’s UK towers has been the subject of an investigation by the Competition and Markets Authority (“CMA”). The CMA published their preliminary findings (identifying a significant lessening of competition and being minded to prohibit the transaction) in December 2021. The parties and others responded during February 2022. The CMA has now published its final decision and has decided that Cellnex must sell over 1,000 tower sites to address competition concerns.

Cellnex’s European Expansion

In recent years, Cellnex has expanded significantly and now has assets across Spain, Italy, France, the Netherlands, the UK (having purchased Arqiva in 2020, which was also the subject of a CMA investigation), Switzerland, Ireland, Poland, Denmark, Austria and Sweden. To demonstrate the pace of Cellnex’s expansion, during 2021 alone it entered Poland and further expanded its presence in four other countries. These transactions further strengthened its position as Europe’s largest independent operator of wireless telecommunications infrastructure with a total portfolio of nearly 130,000 sites. Their next biggest competitor, Vantage Towers (spun out of Vodafone in a 2021 IPO), has nearly 46,000 sites.

The CMA’s Provisional Findings

In their findings the CMA discussed the current state of the market, including referencing the UK’s four mobile network operators (“MNO’s”) and their pre-existing joint ventures: Mobile Broadband Network Limited (“MBNL”) (between 3UK and BT/EE) and Cornerstone Telecommunications Infrastructure Limited (“Cornerstone”) (between O2 and Vodafone). The CMA noted that as part of the deal, Cellnex would be acquiring ‘the economic benefit of the of the interests to which 3UK is entitled in respect of [7,000-8,000] macro sites in the MBNL joint venture’[1].

The CMA went on to state that MNOs now obtain their passive infrastructure from three main sources:

  • Sites owned and operated or leased by the MNO’s themselves;

  • Sites owned and operated or leased by the MNO’s in a JV (such as Cornerstone); or

  • Sites supplied by third parties such as Cellnex.[2]

The CMA confirmed that it had ‘found that, in the counterfactual, the owner of the CK Hutchison Assets would be a close competitor to Cellnex’ which, along with other similar findings on topics such as the geographic overlap of sites, led them to conclude that the transaction may result in a substantial lessening of competition (“SLC”).

Responses to the CMA’s Findings

Cellnex and CK Hutchison’s Response

Cellnex and CK Hutchison responded to the CMA’s provisional findings[3] and claimed that the CMA’s findings disclosed ‘no proper basis for the provisional conclusion’[4].

Initially, they claimed that the CMA’s approach to identifying an SLC (on the basis of an overlap of the passive infrastructure) was misguided and overlooked the positive impact of the transaction on competition (mainly in respect of new investment in the UK’s 5G rollout (mainly from 3UK)).

They then disputed various aspects of the CMA’s argument including:

  • The CMA’s counterfactual;

  • Whether there is any evidence of harm (to either MNOs or non-MNOs);

  • The constraints related to customer self-supply;

  • The CMA’s contention that scale provide a significant advantage; and

  • That the provisional findings didn’t adequately account for countervailing factors that may prevent an SLC from arising.[5]

Possible Remedies

Five other parties responded to the CMA’s provisional findings and notice of possible remedies during January 2022.

As part of its notice of possible remedies, the CMA indicated that divestitures could be needed in to remedy the possible SLC concerns it found. Four of the five parties that responded broadly agreed with the CMA’s provisional findings (with the fifth making no comment on them specifically) and also with the principle of divestiture as a possible remedy. Given the current state of the market and its expected growth due to the UK’s 5G rollout and other factors, it remains uncertain whether this divestiture is of sufficient scale to create a new major market player and so to ensure that the duopoly the CMA fears as a result of the deal doesn’t arise.

The CMA’s Final Decision

The CMA has decided in keeping with its provisional findings that the proposed transaction would lead to significant competition concerns by preventing the emergence of an alternative market player, potentially leading to higher prices and more onerous contracts for mobile networks (with a resulting knock-on effect for users of those networks over time).

In response, Cellnex proposed to sell all its existing sites that geographically overlap with the CK Hutchison assets it proposes to purchase. This proposal would see the CMA approving the sale of over 1,000 sites.

It was decided that this would effectively address the competition concerns identified, meaning that the proposed transaction could proceed.

What this Decision Indicates

This decision is the first to address in detail the structure and operation of the mobile towers market in the presence of shared network structures. It identifies two separate markets, one for “non-aligned” towers (our phrase) and one for the towers owned by or committed to specific mobile operators singly or together.

The consequence is that the market on which independent tower companies operate is only a portion of the total number of mobile masts. While the sharing arrangements or structures in each country may vary, it is clear that this is decisional practice is likely (if followed) to operate as a ceiling on the market share aspirations of standalone mast/tower network operators. It may also have consequent effects on their profitability since it should ensure a greater intensity of competition.

Advice on Towers Deals

CMS’ multi-disciplinary digital communications infrastructure team has advised on towers deals in Latin America, Western and Eastern Europe, and Africa. 

Article co-authored by Jake Sargent, Trainee Solicitor at CMS.