An antitrust review in the U.K. may give deal-hungry tower operator Cellnex Telecom SA pause in other established markets as it seeks to spend freshly raised capital, analysts and lawyers said.

Since 2012, the Spanish company has been buying infrastructure from telecom operators keen to monetize their assets amid rising debt and expensive rollouts. These include Spain’s Telefónica SA, France’s Bouygues Telecom SA, Switzerland’s Salt and Poland’s Play. Cellnex has also bought towers in Italy, the Netherlands, the U.K., Ireland, Portugal, Austria, Denmark and Sweden.

Until this year, the purchases had never attracted in-depth scrutiny from regulators. It was Cellnex’s €10 billion proposed purchase of towers across Europe from CK Hutchison Holdings Ltd., announced in 2020, that sparked phase two investigations in Italy in March and in the U.K. in April. The Italian competition authority has since conditionally approved the transaction.

The probes are a sign that Cellnex may need to adjust its acquisition strategy of consolidating its position in existing markets.

“Typically, they like to do two deals in each market, so they have two anchor tenants [telcos who will rent the infrastructure long-term],” said Simon Coles, a Barclays analyst. “If there’s an opportunity in existing markets, then [they] want to do that because that’s where you have synergies and the chance to really create some extra value.”

The U.K.’s Competition and Markets Authority, or CMA, is unlikely to block the deal, but it could impose structural conditions, such as divesting part of the business, said Chris Watson, a partner at law firm CMS. This could set a precedent, Watson said.

The CMA said the deal raises concerns because Cellnex is already the largest supplier of mobile towers in the country, following its acquisition of the telecom division of Arqiva in 2020. Reducing competition further “could result in higher prices or lower quality services for network operators, with a knock-on adverse impact for users of mobile networks across the U.K.,” the CMA said.

“If there’s a prohibition on market share growth … or some kind of remedy on market share grounds in the U.K., that will be a comfort and a support to regulators in other countries who are seeing Cellnex buying something extra there [and] might also be achieving these kinds of market shares, and they’ll be encouraged to say, actually, no, this is clearly not okay,” Watson said.

This type of outcome “would effectively operate to cap Cellnex’s expectations of market share that it can gain in any country,” Watson said.

A Cellnex spokesperson said the company had always anticipated the U.K. deal would close in the first half of 2022, well after its other purchases from Hutchison.

“It is clear that antitrust scrutiny is an integral part of any acquisition strategy, so it does not come as a surprise, but it’s part of the assessment of any new potential deal,” the spokesperson said. “[The] path to grow remains, and there is enough space of maneuver to do so.”

Ready money

Uncertainty around the U.K. deal has not stood in the way of Cellnex’s acquisition fundraising. The company completed a €7 billion rights issue in April, after issuing €2.5 billion of bonds in February.

It said March 2021 that it has about €18 billion to spend on projects over 18 months, with €9 billion already committed to the acquisitions of Polkomtel Infrastruktura in Poland, Hivory in France and the integration of Deutsche Telekom’s towers and sites in the Netherlands. The rest could be spent on further deals in Austria, Sweden and Denmark — which Cellnex has just entered, also by purchasing towers from Hutchison — said Barclays’ Coles.

Even if the U.K. deal gets blocked and Cellnex decides to shy away from tower acquisitions in existing markets as a result, it has other avenues of capital allocation.

“Not being allowed to buy any more towers doesn’t stop you from buying the active equipment that’s on the tower and operating that for the [mobile network operators],” said Giles Thorne, an analyst at Jefferies. “It doesn’t stop you from laying fiber to towers you already own. It doesn’t stop you building more towers. It just stops you from buying an existing tower.”

“Hitting a regulatory roadblock in the U.K. does not kill the Cellnex story,” Thorne said.