Spark kicks off partial cell tower network sale: How much could it raise?

One of Spark's cellphone towers on Te Mata Road, Havelock North. Photo / Warren Buckland

Spark has kicked off a process that could see the partial sale of its cell site network via a third party investing in its new Spark TowerCo subsidiary (formed on February 10 and at this point fully owned by Spark).

Spark says TowerCo is on track for operating profit of about $35 million in 2023 "with a strong growth profile over the next 10 years".

The confirmation comes on the heels of Vodafone NZ putting its mobile sites on the block.

Analysts say Vodafone NZ (half-owned by Infratil) should realise at least $1 billion from the sale of its 1500 towers, based on similar deals across the Tasman (Vodafone NZ projects $51m in operating earnings for its "TowerCo" next year).

The Aussie deals indicate Spark's passive mobile network assets have a market value of about $840m. But on its first-half results conference call, Spark CEO Stefan Knight said "the current book value is around $100m".

A spokeswoman said this morning, "Book value indicates the value of an asset, not the market valuation."

Spark has about 1500 towers, but only 1263 are on the table for a potential deal. The balance is part of shared infrastructure; primarily towers built under the public-private Rural Broadband Initiative.

Like Vodafone NZ, Spark is assessing a deal involving its passive cell tower assets - the towers themselves, plus freehold land or rights to the ground, lamp posts or rooftops that mobile sites sit on - while it retains control of the electronics, and intangibles like spectrum.

On a February 23 conference call, Forsyth Barr analyst Aaron Ibbotson tried a back-door way of assessing the market value, asking Spark CFO Stefan Knight what it would cost to replace Spark's mobile site network. But Knight would not be drawn on that point, or more direct directions about how much Spark could realise from a potential deal.

Knight was also asked if a TowerCo IPO was on the table.

"That's not our focus at the moment. The focus is [on] running a process more akin to what we've seen in Australian markets and other markets."

Those Australian deals proved lucrative, which in part explains the sudden "TowerCo" enthusiasm on this side of the Tasman.

In October 2021, Optus sold a 70 per cent stake of its fully owned cell tower subsidiary to AustralianSuper (the new co-owner of Vocus) in a A$1.9b deal that valued the 2312-site network at A$2.3b.

Source / Spark NZX filing

And in June last year, Telstra sold 49 per cent of its telecommunications towers business, InfraCo Towers - which has about 5570 sites - to a consortium for A$2.8b. The consortium was led by Morrison & Co, which manages Vodafone NZ half-owner Infratil. But for the Telstra tower deal, Morrison was representing a group of Australian super funds.

This morning, Knight said the changing shape of mobile networks was also a factor in Spark's thinking.

"The infrastructure build programmes needed to support New Zealand's increasing data needs and new technologies like 5G, and potentially 6G in the future, will be very different from the build programmes of today – requiring many more, smaller sites, closer to the end customer, and greater overall densification," he said.

"Spark TowerCo will have a sole focus on passive mobile assets so will be able to achieve greater focus, service innovation and efficiency, reducing costs and increasing speed to market for these build programmes."

Source / Infratil Investor Day presentation

Chief executive Jolie Hodson said on the conference call, "There's no certainty that a transaction will proceed. Should we introduce that third-party capital, we intend to retain a shareholding and will be a key anchor tenant with appropriate agreements in place on arm's length terms for operations and services. There will be no change for our customers. And we'll continue to invest in modernising our mobile network and improving coverage."

Forsyth Barr and Jarden are advising Spark on its possible TowerCo deal.

Vodafone NZ has appointed Barrenjoey and UBS. Industry scuttlebutt holds that the NZ Super Fund is a potential buyer. The fund declined to comment.

2degrees: Watching brief

2degrees CTO Martin Sharrock told the Herald his company - which has a merger on the table with Orcon Group - has no immediate TowerCo plans.

"Right now, our focus is on our network and the experience we offer for customers, but we are watching this space with interest," Sharrock said.

Spark shares closed on Friday at $4.82. The stock is up 9.63 per cent for the year.