Cellnex, Europe's largest tower company, has watched its share price fall from a peak of nearly €61 ($69) in August 2021 to about €23 today — a level last seen when Europe launched its first 5G network in 2019. Yet the managing director of its UK arm, Steve Cray, believes the VodafoneThree merger will trigger a wave of network investment that ultimately fills his towers.

The financial backdrop explains why Cellnex's tower-buying spree is over. Annual sales growth has slowed from 58% in 2021 to just 1% last year, leaving revenues at about €4.4 billion ($5 billion). The company's net financial loss widened from €588 million to €925 million over that period, while net debt climbed from €6.5 billion in 2020 to €20.8 billion last year. Since 2021, its footprint has grown only modestly, from more than 100,000 towers to 111,752.

Why did the towers land rush end?

"Everybody wanted to own every part of their train set," Cray reflected, describing the era when Europe's telcos clung to their towers before 5G's launch. "Was that actually a business necessity for them?"

Many concluded it was not, and Cellnex snapped up the assets, growing from about 21,000 sites in 2016 to more than 100,000 five years later. Regulators have since curbed its expansion: in 2022, the UK's Competition and Markets Authority (CMA) ordered Cellnex's UK arm to divest some 1,100 towers to resolve antitrust concerns.

Cellnex UK still operates 14,000 towers — boosted by its acquisition of sites previously owned by Hong Kong's Hutchison — making it what Cray calls the UK's "largest independent shared infrastructure provider." BT, the incumbent, runs about 19,000 mobile sites, with Virgin Media O2 (VMO2) thought to operate a similar number.

How can fewer operators help a towerco?

The Vodafone-Three merger cut the UK from four mobile operators to three, shrinking Cellnex's customer pool. VodafoneThree, which operated about 33,000 sites nationwide a year ago, plans to end up with between 26,000 and 28,000 after combining the formerly separate footprints — decommissioning that will inevitably affect Cellnex, which owns towers formerly used by Three.

Cray sees an upside once the dust settles. VodafoneThree's remaining footprint will far exceed those of BT and VMO2, and that imbalance should spur competitive investment.

"Yes, there will be fewer combined sites between Vodafone and Three than there were, but one of the clear ambitions when the CMA approved that merger to go ahead is that they also hope to see a response from the other mobile network operators as well," he said. "There will be a need, I'm sure, for those networks to also acquire more sites."

Early signs support the thesis. In March, VMO2 signed five-year deals with Ericsson and Nokia worth at least a few hundred million euros to upgrade its 5G network, following VodafoneThree's own contracts with the Nordic vendors a year earlier as it phases out older Huawei and Samsung products.

Can the UK's 5G problem drive densification?

Recent analyst reports have ranked the UK at or near the bottom of European countries on 5G. "We have good overall coverage in terms of geography, but not the depth of coverage," said Cray, noting that prices also remain lower than in comparable markets. "There has to be a relationship between the revenues that are coming into the telecom operators and their ability to invest in the networks."

The UK's transition from non-standalone to standalone 5G might accelerate spending. Standalone introduces a completely new 5G core, and Cray said operators are already creating network slices offering better-quality services to businesses or individuals willing to pay a premium. Both BT and VodafoneThree have launched network-slicing offers in recent weeks.

Active equipment sharing, long practised by Vodafone and VMO2 through their Cornerstone joint venture — now extended to former Three sites — could also work in Cellnex's favor if it frees money for densification. "As the networks need to grow to provide the additional densification that's going to be needed, it just makes super economic sense to build one site that supports multiple users," Cray said.

Cellnex itself has moved beyond passive towers into small cells, inbuilding products and distributed antenna systems (DAS). "We're not looking to compete with our own UK customers as another MNO, but we do actually buy active equipment from people like Ericsson and Andrew that we deploy as part of those small-cell solutions," Cray explained. Current work includes a project with VMO2 to improve coverage on the Brighton Main Line railway in southern England, combining macro sites alongside the tracks with DAS in tunnels.

Whether rival operators actually respond to VodafoneThree's footprint advantage with new site builds — rather than the upgrade deals signed so far — will determine if Cray's bet pays off.