Alvarez & Marsal (A&M) was recently engaged by a leading French motorway operator for a profitability assessment of its telecommunications (telco) infrastructure. The client has annual revenues of €1.7 billion euros and operates nearly 2,000 kilometres of motorways in France under several concession contracts. In addition to operating motorways, the company offers commercial development and telecommunication services, such as the rental of its fibre optic network and towers to third-parties.

Client’s challenge

The company’s core business was severely impacted by the pandemic, with revenues dropping as much as 18 percent in 2020 due to a sharp decline in road traffic levels. In order to explore new revenue streams and position itself in the post-pandemic marketplace, the client went through an assessment of its telecom assets to better understand their profitability profile and assess value-creation potential. 

A&M’s solution

Our approach consisted in a thorough review of the client’s assets to identify initiatives to bring cash into the business through organic and inorganic changes. The company’s telco infrastructure was identified as offering the greatest opportunity for revenue diversification and cash flow generation. According to A&M’s analysis, cash flow generation from telecom infrastructure exploitation – for example, through rental of fibre optical network and towers to large telecom operators -- could double by 2030 if these assets were optimised and utilised to their full potential.

While the client had been commercialising these assets for the past several years, the activity was often neglected from a commercial standpoint given it accounted for less than one percent of the group’s total sales. The sub-optimal utilisation of the infrastructure translated into missed revenue opportunity. It also presented operational risks for the concessionaire as it was managed under a best-effort regime, with no dedicated maintenance team.

A&M’s approach

Based on this assessment, A&M designed an approach to address and optimise the telco activity of the motorway operator. The approach consisted of three phases:

Phase A – Diagnostic: Operational, technical and financial review of the client’s telecom infrastructure through data collection, quality audit and benchmark activity to assess growth potential of the assets.

Phase B - Business Plan: Business plan design including top line target-setting based on assets’ capabilities and market environment, assessment of potential cash flow generation by end of concession, asset valuation and arbitrage between ‘keep’ and ‘sale’, commercial and capex roadmap. 

Phase C – Implementation: Delivery of business plan by executing agreed initiatives such as commercial action plan, governance review and asset disposals. A commercial design program to track commercial improvements was created, while prospection tools such as a Telco Tower were introduced to assess the commercial potential of a given area for a telecom tower.

Key recommendations

A&M developed a thorough assessment of the client’s telecom infrastructure and operations which were then analysed vis-à-vis the market standard. Several opportunities to optimise utilisation of these assets were identified, and practical tools for the management to achieve that were put in place. For example, A&M’s technical and commercial analysis showed that the tenancy ratio of some of the client’s telecom towers was almost half the market’s average, offering considerable scope to boost profitability. 

As well as designing a new commercial roadmap for the telco business, the review also identified assets that were neither commercially strategic nor critical for the concessionaire from an infrastructure perspective. A&M’s team helped the company carry out a valuation of these non-critical assets, providing the management with the data and confidence needed to proceed with a sale, further improving cash generation.

Impacts

A&M’s work provided the client with the vision and tools needed to leverage its telecom assets to increase cash flow generation and boost profitability. If executed correctly, the proposed measures will allow the company to deliver €50 million in additional cash by the end of concession in 2031. 

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