(Bloomberg) -- Zegona Communications Plc is threatening to break a long-term contract with Vantage Towers AG if it doesn’t get cheaper rates for use of the Germany-based tower company’s network in Spain, people familiar with the matter said.
The London-based private equity firm Zegona has spent months in tense negotiations over how much Vodafone Spain, which it bought last year, is paying to use Vantage’s network infrastructure, said the people, who requested anonymity to discuss private matters. Zegona is weighing shifting the telecom operator over to one or more tower providers if Vantage doesn’t reduce its annual fees by about €50 million ($54.5 million), two of the people said.
Vodafone has already approached other tower companies in Spain — which include Cellnex Telecom SA, American Tower Corp. and Orange SA’s Totem — to determine the cost and viability of a switch, two of the people said.
Zegona, run by former Virgin Media executive Eamonn O’Hare, has played a key role in reshaping the Spanish telecom market. The company bought and sold Spanish operator Euskaltel SA to Masmovil Ibercom SA, which last year merged its Spanish units with France’s Orange.
Vodafone Group sold its Spanish business to Zegona last year in a deal valued at as much as €5 billion including debt. Under Zegona’s ownership, Vodafone Spain has cut costs including about 900 jobs to drive profitability.
Breaking a tower deal would be highly unusual. Telecommunications operators typically have decades-long relationships with tower companies and moving the network, which relies on thousands of towers across the country, would be operationally challenging and potentially incur millions of euros in penalties.
However, because Vodafone Spain pays a premium to be the anchor tenant on the majority of the more than 6,000 towers it leases from Vantage, it could still save money by switching to become the second tenant on another provider’s towers, two of the people said.
It’s unclear exactly how much Vodafone Spain’s contract with Vantage Towers is worth. But the company spent more than €450 million on leases in the year ended March 2023, much of which would be for towers, according to the prospectus prepared for Zegona’s acquisition of the unit.
A spokesperson for Vodafone Spain and Zegona declined to comment. Vantage declined to comment.
Spain’s main carriers have for years been losing to rival upstarts targeting the lower end of their market. Zegona has been boosting Vodafone Spain’s low-cost brand Lowi by giving it TV content and tariffs that include fiber and mobile for under €20.
The Vodafone Spain brand, which has traditionally been stuck between premium carriers like Movistar and low-cost ones like Digi, has also slashed prices, improving customer retention.
Vantage Towers was spun out of Vodafone Group Plc and went public in early 2021. In November 2022, Vodafone announced it was shifting its 81.7% holding into a joint venture with KKR & Co. and Global Infrastructure Partners in a deal valuing the business at €16.2 billion. It has since sold down some of its holding.
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