5G Telco Opportunities Starting to Become Clearer

Tuesday, a week after MWC in Barcelona, we are hosting a 5G conference jointly with BCG in London (agenda: HERE). 5G has arguably been
subject to more hype than any other generation of wireless technology, and the issuance of 5G spectrum in Italy last year was a painful reminder
of some of the potential pitfalls around 5G, but finally the industrial reality is starting to become clearer.

The first speaker at our event on Tuesday will be the CEO of Inwit, and they are right in the centre of one of the more transformational 5G deals
announced so far in Europe. Last week, Vodafone and Telecom Italia announced that they will be active sharing on 5G equipment, and
examining the possibility to move to 4G active sharing too. For our detailed write-up on the deal and implications see HERE. European telecoms
operators are looking at ways to reduce costs, and we welcome the industry’s increasing realisation that network differentiation in Europe
through site locations alone is difficult, especially as population density in Europe is high and Europe already has a high level of tower sites.
Differentiation will more likely come from variance in 5G spectrum holdings, and the retail service offered alongside this. Hence, saving costs of
5G antennas looks like a simple way to create value and support cashflow estimates.

Then layer financial engineering on top of this and the result could be potentially be even more compelling. If Vodafone were to spin out its
towers into the Italian JV, and the equity market maintained its EBITDA multiple on the rump business, this could add 10p of value and help
deleveraging. But the bigger prize could be in Germany where there is currently very little network sharing in a European context. DT is
currently keeping its cards close to its chest and still believes its network sites are a differentiator, but the realisation of potential cost savings -
especially if it is required to invest more in FTTH, could help to bring it to the table. Vodafone spinning off its German towers into a JV using the
same approach as in Italy could add an estimated 12p of value.
We expect these 5G-related cost saving deals to trigger more tower JVs across Europe and more opportunities for the sector to monetise its
infrastructure bedrock.

We also attended MWC this week and there is was also clear 5G is here, with ‘real’ 5G smartphones, available in ‘real’ production volumes, to
run on the real 5G network equipment that has been around for a while. Operators will be switching on 5G services that connect these phones to
networks during the next few months and initial concerns we had on battery life and performance have been resolved – to a degree at least.

One of the big unanswered questions remains what capacity 5G will be able to offer in the field and whether it can become a fixed line
substitute, especially towards the edge of current cells. From what we saw and heard, we are getting increased confidence that the evolution of
massive MIMO panels for different situations in the field should allow operators to at least achieve our initial estimates of 6bps/ Hz over at least
70% coverage in urban European cells (see HERE for more detailed workings). This won’t yet be enough to be a meaningful threat as fixed
wireless broadband, but it does make for a small viable business model for some wireless only carriers, in particular Hutchison UK. We continue
to monitor this space, especially if frequencies in the 3.8-5GHz range ever come to market in Europe.

All 5G eyes will now be on Germany for their 5G spectrum auction - not only do we think it is a market where the chance of tower deals is
increasing, we believe the upcoming auction can lead to positive outcomes for United Internet and long term headaches for O2D (see HERE for
more details).

For the full weekly review and updated comp sheets, see HERE.